Deck 13: Retail Pricing

Question 1

Price elasticity is the percentage change in quantity sold divided by the percentage change in price.

Answer 1

True
A commonly used measure of price sensitivity is price elasticity, or the percentage change in quantity sold divided by the percentage change in price.

Question 2

Buyers generally do not plan for markdowns.

Answer 2

False
Markdowns are part of the cost of doing business, and thus buyers plan for them.

Question 3

The break-even point quantity is the quantity at which total revenue equals total cost, beyond which profit occurs.

Answer 3

True
The break-even point quantity is the quantity at which total revenue equals total cost, and then profit occurs for additional sales.

Question 4

Retailers using a(n) ________ strategy frequently-often weekly-discount the initial prices for merchandise through sales promotions.

A) disintermediated pricing
B) penetration pricing
C) high/low pricing
D) price skimming
E) everyday low-pricing

Question 5

A price experiment

A) is a method of determining the most profitable price for a product.
B) cannot be performed if the retailer uses POS terminals.
C) is a less accurate method of determining buyer response to price changes than a consumer panel.
D) is useful for obtaining data for a cost-oriented pricing strategy.
E) is a quick and efficient method to decide on a price for a product.

Question 6

The high/low pricing strategy helps sell slow-moving merchandise.

Question 7

Initial markup is the actual sales realized for the merchandise minus its costs.

Question 8

Generally, as the price of a product increases, sales for the product will increase.

Question 9

Which of the following is not a benefit typically ascribed to an everyday low-pricing (EDLP) strategy?

A) Increased profit margin
B) Improved customer loyalty
C) Improved inventory management
D) Increased sale advertising
E) Stockout reduction

Question 10

How does an improved inventory management through the use of an everyday low-pricing (EDLP) strategy benefit retailers?

A) It increases the total sales.
B) It increases the number of rain checks.
C) It leads to more frequent sales and markdowns.
D) It results in a need for more backup stock.
E) It increases the sales of slow-moving merchandise.

Question 11

Predatory pricing arises when a dominant retailer sets prices below its costs to drive competitive retailers out of business.

Question 12

Which of the following statements holds True for an everyday low-pricing (EDLP) strategy?

A) Slow-selling merchandise can be sold by discounting the price.
B) It allows retailers to charge higher prices to customers who are not price sensitive.
C) Customers need to wait for items to go on sale.
D) The use of EDLP increases the need for advertising.
E) EDLP retailers do not have to incur the labor costs of changing price tags.

Question 13

A(n) ________ strategy emphasizes the continuity of retail prices at a level somewhere between the regular nonsale price and the deep-discount sale price of high/low retailers.

A) leader pricing
B) keystoning
C) high/low pricing
D) price skimming
E) everyday low-pricing

Question 14

Markdown money is funds a vendor gives the retailer to cover lost gross margin dollars that result from markdowns and other merchandising issues.

Question 15

What is value?

A) It refers to inexpensive merchandise.
B) It is the relationship between what consumers have and what they want.
C) It is the relationship between desires and needs.
D) It is the relationship between what consumers receive and what they have to pay for it.
E) It refers to the lowest price and the lowest quality merchandise or service.

Question 16

Vertical price fixing involves agreements between competing retailers to illegally set the same prices.

Question 17

Which of the following is not a factor that retailers consider in setting prices?

A) Price sensitivity of consumers
B) The cost of the merchandise and services
C) Competition
D) Legal restrictions
E) Language barriers

Question 18

A price experiment

A) can be used to measure the price sensitivity of customers.
B) cannot be performed if the retailer uses POS terminals.
C) is a less accurate method of determining buyer response to price changes than a consumer panel.
D) is useful for obtaining data for a cost-oriented pricing strategy.
E) is a risky procedure when competition is a factor.

Question 19

Retailers frequently offer a limited number of predetermined price points within a merchandise category, a practice known as zone pricing.

Question 20

How can a retailer that wants to use an EDLP strategy persuade customers away from high/low strategy competitors?

A) By using price lining
B) By using a demand-oriented method for setting retail prices
C) By assuring customers of low prices
D) By refusing to accept manufacturers' coupons
E) By increasing advertising

Question 21

Frankie is a buyer for a department store and is buying some handbags at a cost of $30 from a vendor. He desires to have a 60 percent markup to meet the financial goals of this category. What will be the retail price of these handbags?

A) $75
B) $40
C) $50
D) $60
E) $95

Question 22

Which of the following factors influences reductions?

A) The cost of alterations
B) The amount subtracted from the gross margin
C) Theft and accounting errors
D) Tax write-off for corporate volunteer hours
E) Format of saving for low profit quarters

Question 23

Left Lanta is a small retailer in Underground Atlanta, a historical retail district in that city. Here, the Lanta family sells items for left-handed people. Since the store is located in a kiosk near one of the entrances to the underground, it is often the target of shoplifters. Therefore, the store is forced to reduce the actual selling price of its products. The factors such as theft that cause the reduction in the selling price are called

A) loss margins.
B) amortized losses.
C) reductions.
D) markdowns.
E) net losses.

Question 24

Retailers collect price data about their competitors to

A) see if they need to adjust their prices.
B) match supply and demand.
C) maximize their sales and profits by means of yield management.
D) assess the quality of services provided.
E) determine service quality.

Question 25

A commonly used measure of price sensitivity is

A) price variation.
B) price elasticity.
C) price velocity.
D) price adaptability.
E) price adjustment.

Question 26

When pricing products, retailers must

A) consider the company's overall strategy when choosing a pricing policy.
B) observe the competition to offer the same price by price fixing.
C) reduce stockouts by keeping prices higher than the competition.
D) risk supply chain mishaps by keeping process low.
E) price consistently throughout the chain.

Question 27

The approach of using a 50 percent markup is known as ________ and would result in the retail price being double the cost.

A) activity costing
B) keystoning
C) budget costing
D) cost plus costing
E) regular costing

Question 28

________ are customers who go from one store to another, buying only items that are on special.

A) Innovators
B) Laggards
C) Cherry pickers
D) Whistleblowers
E) Early adapters

Question 29

A drugstore purchases hand cream at $2 per jar and sells the jars for $15. What is the markup percentage?

A) 60%
B) 87%
C) 40%
D) 5%
E) 22%

Question 30

Which of the following items has the most price elasticity?

A) Fast food
B) Branded luxury goods
C) Prescription medication
D) Movie tickets
E) Gasoline

Question 31

________ is the concept of offering customers localized promotions of retailers in close proximity of their mobile phones.

A) Geofencing
B) Geotagging
C) Geocaching
D) Price lining
E) Leader pricing

Question 32

The Bow Shop caters to archery enthusiasts. It sells bows starting at $300. The maintained markup used by the store is 60 percent. Reductions are estimated to be 12 percent. Calculate the store's planned initial markup percentage.

A) 55.55 percent
B) 48 percent
C) 60 percent
D) 64.29 percent
E) 72 percent

Question 33

________ is the actual sales realized for the merchandise minus its costs of the merchandise sold.

A) Total profit
B) Net profit margin
C) Fixed price
D) Maintained markup
E) Initial markup

Question 34

A retailer originally priced an e-reader at $99 and sold 1,200 units per week. After raising the price to $120, sales dropped to 1,000 units per week. What would the item's price elasticity be?

A) -2.4005
B) 2.4005
C) -3
D) 3.33
E) -.7855

Question 35

Joe keystones every product's price in his skateboard store. Therefore, the initial mark-up percent that Joe uses is

A) 25 percent.
B) 50 percent.
C) 100 percent.
D) 10 percent.
E) 200 percent.

Question 36

The ________ is the difference between the retail price and the cost of an item.

A) markup
B) markdown
C) break-even point
D) variable cost
E) fixed cost

Question 37

A bookstore is considering stocking a limited edition of Alice in Wonderland dolls at a cost of $125 each. The manager calculated the retail price with an initial markup percentage of 48 percent and plans to ticket the product with a ".00" ending. What would be the initial retail price on the doll?

A) $180
B) $190
C) $240
D) $280
E) $63

Question 38

Mattie owns a clock shop featuring vintage clocks from the 1950s. Mattie plans to achieve a 40% maintained markup, and her reductions are planned at 4%. What is her planned initial markup percentage?

A) 42.3%
B) 44%
C) 36%
D) 34.6%
E) 30.6%

Question 39

Cliff is struggling with the price of produce at his well-established produce markets. The reputation of the markets attracts repeat customers from a 50-mile radius. Recently, local farmers started increasing produce prices for him due to the upsurge in gas prices. Now, Cliff feels it is time to pass the costs onto his customers. Which of the following should Cliff estimate to determine the effect of price changes?

A) Price elasticity
B) Break-even point quantity
C) Fixed costs
D) Reference price
E) Markup percentage

Question 40

Smith's Electronics originally priced a private-label portable DVD player at $90, and then sold 1,500 units per week. After raising the price to $100, sales dropped to 1,000 units per week. First, determine the price elasticity, and then determine the profit-maximizing price if the private-label portable DVD player costs $50.

A) $90
B) $85.70
C) $75
D) $70.25
E) $70

Question 41

Which of the following statements is not True of markdowns?

A) Markdowns are part of the cost of doing business, and thus buyers plan for them.
B) A buyer's objective is to minimize markdowns.
C) Retailers have a set of arbitrary rules for taking markdowns.
D) Buyers employ markdowns to promote merchandise and increase sales.
E) Markdowns can increase customer traffic flow.

Question 42

Which of the following statements does not describe a benefit of markdowns for a retailer?

A) Markdowns generate cash flow to pay for new merchandise.
B) It is a way to make room for new merchandise.
C) It rids the store of obsolete merchandise.
D) It increases customer traffic.
E) It is a way to gain a higher gross margin.

Question 43

________ is an analytical tool that enables retailers to know the number of units they need to sell to begin making a profit.

A) Yield management
B) Break-even analysis
C) Keystoning
D) Price lining
E) Cost-plus pricing

Question 44

Jenny runs a produce stand in an inner-city neighborhood. With the recent layoffs, she has become popular because she gives her day-old produce to the local charity. Which of the following benefits does Jenny gain by donating produce to the local charity?

A) It requires extra record keeping and transportation costs.
B) It offers her strong public relations benefits.
C) She needs to allocate separate space for her clearance merchandise.
D) She can recover a small percentage of the merchandise's cost.
E) The keystone price can be deducted from her income.

Question 45

The merchandise cost from the vendor for an MP3 player is $82.50, and the retailer who is selling the device wants to use an initial markup percentage of 67 percent. Calculate the initial retail price.

A) $149.50
B) $272
C) $55
D) $123
E) $250

Question 46

How does optimization software help retailers in taking markdowns?

A) It gives retailers the point at which it is optimal to job-out and consolidate.
B) It updates pricing based upon actual sales and factors in differences in price sensitivities.
C) It continually updates buyers on sales by price beginning at the point of sale.
D) It dictates markdown merchandise into one percentage markdown per week in the store.
E) It indicates markdowns based on how long the merchandise has been in the store.

Question 47

Because of markdowns, discounts to employees and customers, and merchandise reductions,

A) the actual selling price is lower than the initial sales price.
B) the maintained markup is always less than the gross margin.
C) the total revenue becomes equal to the total cost.
D) the value of average inventory at cost is less than its receipt value.
E) the initial markup is always lower than the maintained markup.

Question 48

Some retailers liquidate end-of-season merchandise to retailers like TJ Maxx, who in return sell it at a deep discount. What is the benefit to the retailer who liquidates merchandise using this strategy?

A) The retailer is able to replace the merchandise with other markdowns.
B) It helps retailers recoup a percentage of the merchandise cost.
C) It is a profitable way for retailers to get rid of undesirable merchandise.
D) The retailer can consolidate the merchandise.
E) It lowers the reputation of the company who purchases the liquidated merchandise.

Question 49

Which of the following statements is a limitation of the rule-based approach to taking markdowns?

A) The rule-based approach is based upon gross margin.
B) The approach prohibits input from the vendor.
C) The approach does not follow a fixed schedule.
D) It does not consider the demand for merchandise at different price points.
E) The approach assumes that items in a category do not exhibit the same behavior.

Question 50

When making a good markdown decision, a retailer should

A) work closely with its vendors and share the financial burden of the markdowns.
B) only trust its own tastes and intuitions when stocking merchandise.
C) rely exclusively on computer software designed for optimal pricing.
D) consider only the rules-based approach because it has proven its reliability.
E) look to limit markdowns as they hinder customer loyalty.

Question 51

Ferdinand runs a pie shop in a busy metropolis. He sells his fresh pies for $7, but it costs him $2.50 to make them. The cooking equipment in his shop cost him $46,000. How many pies does Ferdinand need to sell to make $50,000 annually?

A) 33,000 pies
B) 16,000 pies
C) 8,500 pies
D) 21,333 pies
E) 12,645 pies

Question 52

Which of the following is not a viable strategy for liquidating markdown merchandise?

A) Sell to another retailer.
B) Consolidate unsold merchandise.
C) Adopt a keystoning strategy.
D) Sell at Internet auction.
E) Return to vendor.

Question 53

Which of the following statements on markdowns is False?

A) Markdowns are an unnecessary part of business if planned correctly.
B) Markdowns are an opportunity to increase sales.
C) Promotional markdowns increase customer flow.
D) If markdowns are too low, the buyer may be not purchasing enough merchandise.
E) If markdowns are too low, the buyer may be pricing their merchandise too low.

Question 54

Which of the following statements describes a situation in which markdowns would not be appropriate?

A) Markdowns would be appropriate on a pair of pillows that had been part of a display and were showing light wear.
B) Markdowns would be an appropriate pricing strategy for winter parkas that are still in stock in March.
C) Markdowns would be appropriate for licensed merchandise supporting a movie that was not as popular as predicted.
D) Markdowns would be appropriate for national brand merchandise that was priced 15 percent lower in a neighboring competing store.
E) Markdowns would be appropriate for a group of T-shirts that have a higher turnover than other T-shirts in the department.

Question 55

Which of the following is an example of a fixed cost for a bridal gown shop?

A) The services of the seamstress to fit each gown
B) The cost associated with dying the shoes to match the bridesmaids' dresses
C) The cost associated with the layaway of variously priced gowns
D) The cost of the mannequin used to display current gowns
E) The cost associated with a generous return policy

Question 56

The retail price of a sweater is $75, and the initial markup is 51 percent. Calculate the cost of the product.

A) $33.75
B) $25.71
C) $28.50
D) $36.75
E) $42.85

Question 57

Which of the following is an example of a variable cost for a retailer of electronic equipment?

A) The display tables for mounting the computer, monitor, and printer
B) The cost associated with the free pack of paper for every computer printer sold
C) The store rent charged by the mall
D) The cost of obtaining the licenses required by the local government
E) The cost of manufacturing the electronic equipment

Question 58

Which of the following is the least profitable method of liquidating markdown merchandise?

A) Sell the merchandise to another retailer.
B) Consolidate the unsold merchandise.
C) Place the remaining merchandise on an Internet auction site.
D) Give the merchandise to charity.
E) Carry the merchandise over to the next season.

Question 59

Eunice buys a worm farm. She plans to sell a small carton of worms to people who want to fish for $3. Her fixed costs are $1,201, and her variable cost for each carton sold is $.75. How many cartons of worms does Eunice need to sell to reach her break-even quantity?

A) 2712
B) 321
C) 400
D) 534
E) 888

Question 60

Reductions in the initial retail prices are known as

A) rain checks.
B) fixed costs.
C) markdowns.
D) variable costs.
E) keystoning prices.

Question 61

Which of the following is set by vendors by withholding benefits such as cooperative advertising or even refusing to deliver merchandise to noncomplying retailers?

A) Predatory pricing
B) Horizontal pricing
C) Bait and switch
D) Vertical pricing
E) MSRP pricing

Question 62

A ________ is the price against which buyers compare the actual selling price of the product, and thus it facilitates their evaluation process.

A) MSRP price
B) break-even price
C) markup price
D) reference price
E) maintained markup

Question 63

A travel brochure shows that a couple can buy a round trip ticket to Orlando, a three-day pass to Disney World, car rental for four days, and hotel accommodations for 5 nights for $1200 per person. These services are more expensive when availed individually. This offer is an example of

A) price lining.
B) psychological pricing.
C) bait and switch bundling.
D) price bundling.
E) conjoint pricing.

Question 64

A ________ is a promise to customers to sell currently out-of-stock merchandise at the advertised price when it arrives.

A) rain check
B) price audit
C) bona fide reference price
D) maintained markup
E) dynamic pricing policy

Question 65

An agreement between retailers that are in direct competition with each other to set the same prices is called

A) horizontal price fixing.
B) vertical price fixing.
C) MSRP pricing.
D) predatory pricing.
E) price elasticity.

Question 66

________ is an unlawful, deceptive practice that lures customers into a store by advertising a product at a lower-than-normal price and then, once they are in the store, induces them to purchase a higher-priced model.

A) Predatory pricing
B) Horizontal price fixing
C) Bait and switch
D) Scanned pricing
E) Dynamic pricing

Question 67

What are five factors retailers consider in setting retail prices?

Question 68

What are the strengths of operating with a high/low pricing strategy?

Question 69

Giant, a retail store, is offering two 6-packs of beer for $14.50. The price for a single 6-pack is $8.69. What pricing strategy is Giant using?

A) Price lining
B) Multiple-unit pricing
C) Psychological pricing
D) Price bundling
E) Conjoint pricing

Question 70

Why was odd pricing used in the early twentieth century?

A) Odd pricing saved on distribution costs.
B) It was used to increase traffic flow into stores.
C) It offered a limited number of predetermined price points making pricing easier.
D) It eliminated confusion when a customer shopped in different locations.
E) It reduced losses due to employee theft.

Question 71

Why do vendors encourage retailers to sell at MSRP?

A) To secure a profit
B) To reduce retail price competition among retailers
C) To avoid markdowns
D) To promote national brands as quality brands
E) To drive competitive retailers out of business

Question 72

What is the potential byproduct of promotional markdowns?

A) It is a way of achieving a break-even point.
B) Promotional markdowns benefit customers because they are charged according to their willingness to pay.
C) Retailers aim to get rid of unwanted merchandise through promotional markdowns.
D) The increased in-store traffic can lead to the purchase of other products at regular prices.
E) Buyers are benefitted because they are charged according to the market segment to which they belong.

Question 73

Manuel's vacation to Chicago for $1,000 for three nights in a four-star hotel on Michigan Avenue included airfare and accommodation. If these services were availed individually, it would have been more expensive. This form of pricing is referred to as

A) odd pricing.
B) zone pricing.
C) leader pricing.
D) price bundling.
E) variable bundling.

Question 74

At the new toy store that opened near his home, Ryan noticed all the products were priced at $.49, $.79, or $.99 endings. What type of pricing is the store following?

A) Odd pricing
B) Unit pricing
C) Horizontal pricing
D) Mixed pricing
E) Promotional pricing

Question 75

________ refers to charging different prices for different stores, markets, or regions.

A) Zone pricing
B) Geofencing
C) Price lining
D) Price optimization
E) Odd pricing

Question 76

________ is the practice of pricing certain items lower than normal to increase customers' traffic flow or boost sales of complementary products.

A) Stimulus pricing
B) Leader pricing
C) Follow-up pricing
D) Price lining
E) Odd pricing

Question 77

Periodic price audits are completed at retail stores to ensure that the

A) prices are high enough to cover costs.
B) prices are lower than the competition.
C) extent and cause of scanning errors are identified.
D) product is priced consistent with the company's pricing policy.
E) retailer is not engaging in horizontal price fixing.

Question 78

________ is the practice of offering two or more different products or services for sale at one price.

A) Price bundling
B) Psychological pricing
C) Price grouping
D) Conjoint bundling
E) Price lining

Question 79

Which of the following pricing practices employs tactics such as inadequate inventory for advertised products?

A) Bait and switch
B) Deceptive reference pricing
C) MSRP pricing
D) Predatory pricing
E) Horizontal price fixing

Question 80

Dream Homes is an appliance store. It recently launched its own brand of freezers in order to build customer loyalty. The store launched three different models to cater to low-, middle-, and high-income groups. The freezers are also priced accordingly. These freezers are exclusive to Dream Homes and cater to all customer segments. This pricing strategy involving price points within a merchandise category is known as

A) price lining.
B) price bundling.
C) odd pricing,
D) zone pricing.
E) leader pricing.