Retail Pricing Strategies
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Questions and Answers

What happens to the sales of a product as its price increases?

  • The sales will decrease (correct)
  • The sales will increase
  • The sales will remain the same
  • There will be no effect on sales

    • What is price elasticity?

  • The percentage change in quantity sold
  • The percentage change in quantity sold divided by the percentage change in price (correct)
  • The percentage change in price
  • The sum of percentage change in price and quantity sold

    • Why do retailers collect price data about their competitors?

  • To reduce price competition
  • To set higher prices
  • To see if they need to adjust their prices to remain competitive (correct)
  • To determine the cost of merchandise

    • How do retailers typically set prices?

    <p>By marking up the item's cost to yield a profitable gross margin</p> Signup and view all the answers

    What is the purpose of branding strategies in retailing?

    <p>To offer unique merchandise and reduce price competition</p> Signup and view all the answers

    What is the result of increasing the price of a product on customer behavior?

    <p>Fewer customers will feel the product is a good value</p> Signup and view all the answers

    Why do retailers consider the prices being charged by competitors?

    <p>To adjust their prices to remain competitive</p> Signup and view all the answers

    What is the initial purpose of adjusting cost-based prices?

    <p>To consider customer price sensitivity and competitive pricing</p> Signup and view all the answers

    What is the goal of retailers when setting prices?

    <p>To maximize profits</p> Signup and view all the answers

    What is the formula for retail price when markup is given as a percentage?

    <p>Cost of merchandise + Retail price x Markup %</p> Signup and view all the answers

    What is the main reason why pricing decision is important in retailing?

    <p>Because customers are in a position to seek good value</p> Signup and view all the answers

    What is the main purpose of break-even analysis?

    <p>To determine how much merchandise needs to be sold to achieve a breakeven profit</p> Signup and view all the answers

    What type of costs vary directly with the quantity of product produced and sold?

    <p>Variable costs</p> Signup and view all the answers

    What is the formula for value in retailing?

    <p>Value = Perceived benefits / Price</p> Signup and view all the answers

    What is the primary objective of high-low pricing strategy?

    <p>To increase profits through price discrimination</p> Signup and view all the answers

    What is the purpose of markdowns, according to the text?

    <p>To adjust prices over time and for different customer segments</p> Signup and view all the answers

    What is the main advantage of everyday low pricing (EDLP) strategy?

    <p>It assures customers of low prices</p> Signup and view all the answers

    What is the term for the actual sales realized for the merchandise minus its costs?

    <p>Maintained markup</p> Signup and view all the answers

    What is price elasticity, according to the text?

    <p>A measure of price sensitivity</p> Signup and view all the answers

    What is the primary consideration in setting retail prices, according to the text?

    <p>Price sensitivity</p> Signup and view all the answers

    What is the purpose of a low price guarantee policy?

    <p>To assure customers of low prices</p> Signup and view all the answers

    What is the relationship between retailers' prices and their competitors', according to the text?

    <p>Retailers can price above, below, or at parity with their competitors</p> Signup and view all the answers

    What is the main objective of leader pricing strategy?

    <p>To attract customers and increase sales of complementary products</p> Signup and view all the answers

    What is price bundling in retailing management?

    <p>Offering different products or services for sale at one price</p> Signup and view all the answers

    What is the term for pricing items with odd numbers, typically ending in nine?

    <p>Odd pricing</p> Signup and view all the answers

    What is the benefit of price lining according to the text?

    <p>Eliminates confusion of many prices</p> Signup and view all the answers

    What is the main difference between price bundling and multiple-unit pricing?

    <p>Price bundling offers different products, while multiple-unit pricing offers similar products</p> Signup and view all the answers

    Why do consumers perceive prices ending in nine as low prices?

    <p>Because consumers perceive it as rounding down to the previous dollar</p> Signup and view all the answers

    Which of the following is a reason for taking clearance markdowns?

    <p>To get rid of slow-moving, obsolete merchandise</p> Signup and view all the answers

    What is one possible way to liquidate markdown merchandise?

    <p>Sell the merchandise to another retailer</p> Signup and view all the answers

    What is the main goal of promotional markdowns?

    <p>To increase sales and promote merchandise</p> Signup and view all the answers

    What is the main challenge of individualized variable pricing?

    <p>It is difficult to assess each customer's willingness to pay</p> Signup and view all the answers

    What is self-selected variable pricing?

    <p>Offering the same price schedule to all customers</p> Signup and view all the answers

    What is the purpose of coupons?

    <p>To offer a discount on the price of specific items</p> Signup and view all the answers

    What is the difference between clearance markdowns and promotional markdowns?

    <p>Clearance markdowns are used to get rid of inventory, while promotional markdowns are used to drive sales</p> Signup and view all the answers

    What is the purpose of rebates?

    <p>To provide a refund to customers as a portion of the purchase price</p> Signup and view all the answers

    Study Notes

    Reasons for Taking Markdowns

    • Clearance markdowns: to get rid of slow-moving, obsolete merchandise
    • Promotional markdowns: to increase sales and promote merchandise, increase traffic flow and sale of complementary products, and generate excitement through a sale
    • To generate cash to buy additional merchandise

    Liquidating Markdown Merchandise

    • Sell the merchandise to another retailer
    • Consolidate the unsold merchandise
    • Place merchandise on an Internet auction site
    • Donate merchandise to charity
    • Carry the merchandise over to the next season

    Variable Pricing and Price Discrimination

    • Individualized Variable Pricing (First Degree of Price Discrimination): set unique price for each customer equal to customer’s willingness to pay
    • Self-Selected Variable Pricing (Second Degree of Price Discrimination): offer the same price schedule to all customers
    • Clearance markdowns for Fashion Merchandise: higher prices at the beginning of the season than at the end of the season
    • Coupons: offer a discount on the price of specific items when they’re purchased at a store
    • Rebates: provide a refund as a portion of the purchase price returned to the buyer in the form of cash

    Retail Price and Markup

    • Retail price = Cost of merchandise + Markup
    • Retail price = Cost of merchandise + Retail price x Markup %
    • Retail price = Cost of merchandise / (1 - Markup %)
    • Markups: Initial markup (initial retail selling price minus the cost of the merchandise) and Maintained markup (actual sales realized for the merchandise minus its costs)

    Profit Impact of Setting a Retail Price: Break-Even Analysis

    • Break-even analysis: determines how much merchandise needs to be sold to achieve a breakeven (zero) profit
    • Fixed costs: don’t change with the quantity of product produced and sold
    • Variable costs: vary directly with the quantity of product produced and sold
    • Break-even quantity = Fixed cost / (Actual unit sales price - Unit variable cost)

    Price Adjustments

    • Retailers adjust prices over time (markdowns) and for different customer segments (variable pricing)
    • Reasons for taking markdowns:
      • Clearance markdowns
      • Promotional markdowns
      • To generate cash to buy additional merchandise

    Retail Pricing Strategies

    • High-Low Pricing: frequently discount the initial prices for merchandise through sales promotions
      • Advantages: increases profits through price discrimination, creates excitement, sells merchandise
    • Everyday Low Pricing (EDLP): stresses continuity of retail prices at a level somewhere between the regular nonsale price and the deep discount sale price of the retailer’s competitors
      • Advantages: assures customers of low prices, reduces advertising and operating expenses, and improves inventory management

    Considerations in Setting Retail Prices

    • Price sensitivity: the percentage change in quantity sold divided by the percentage change in price
    • Customer price sensitivity: as the price of a product increases, the sales for the product will decrease because fewer and fewer customers feel the product is a good value
    • Competition: retailers can price above, below, or at parity with the competition
    • Cost: retailers set prices by marking up the item’s cost to yield a profitable gross margin
    • Legal constraint: retailers must consider legal constraints when setting prices

    Pricing Techniques for Increasing Sales

    • Leader Pricing: certain items are priced lower than normal to increase customers traffic flow and/or boost sales of complementary products
    • Price Lining: a limited number of predetermined price points to eliminate confusion, simplify merchandising tasks, and give buyers flexibility
    • Odd Pricing: pricing that ends in an odd number, typically a nine, to signal low prices

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    Description

    This quiz covers the importance of pricing decisions in retailing, including the impact of customer alternatives and perceived value. It also explores two basic retail pricing strategies.

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