Deck 14: Retail Pricing

Question 1

Shoppers who go from one store to another buying only items that are on special are referred to as cherry pickers.

Answer 1

True
Explanation: Cherry pickers are clearly unprofitable for retailers.

Question 2

A pricing experiment ___________.

A)is the 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 risky procedure when competition is a factor

Answer 2

A
Explanation: A pricing experiment is an approach that can be used to measure the price sensitivity of customers on products.It helps to determine the most profitable price of the product.

Question 3

Best Buy originally priced a private-label portable DVD player at $90,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

Answer 3

C

Question 4

Cliff struggled with the price of produce at his well-established produce markets.The reputation of the markets has attracted repeat customers from a 50-mile radius.Recently,local farmers have been 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.What should Cliff predict in regards to how his customers will respond?

A)Sales may decrease.
B)The customers will think the produce quality is worth the price.
C)Increasing prices will increase sales because the produce will be perceived as better quality.
D)Nothing will keep sales down and business will continue as usual.

Question 5

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

Question 6

Second degree price discrimination occurs when retailers charge customers as much as they are willing to pay.

Question 7

Best Buy originally priced a private-label portable DVD player at $99,then 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 8

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)scanned price is the same as the posted price
D)product is priced consistent with the company's pricing policy

Question 9

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

Question 10

Which of the following is NOT a factor 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 11

A variable cost refers to the retailer's expenses that vary directly with the quantity of product produced and sold.

Question 12

Predatory pricing is when a retailer sets prices below its costs to drive competitive retailers out of business and then raises the prices once there is no longer competition.

Question 13

Which of the following items has the most price elasticity?

A)McDonald's sandwich meals
B)Tiffany jewelry
C)prescription medication
D)Ethan Allen sofa
E)gasoline

Question 14

Initial mark-up is the amount of profit a retailer plans to maintain on a particular category of merchandise.

Question 15

What can a retailer do to ensure consistency between their market strategy and their price position?

A)They can collect and analyze price data to determine if the store is maintaining their desired market position compared to their competition.
B)They can consistently offer lower prices and allow the consumer to determine market share.
C)They can purchase more of the merchandise to relay the lower prices onto the consumer.
D)They can price for margins and create a better shopping experience.

Question 16

A commonly used measure of price sensitivity is _______.

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

Question 17

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

Question 18

When pricing products,retailers must ____________.

A)be consistent with the company's overall strategy and market position
B)consult with 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 19

What is value?

A)Inexpensive merchandise.
B)The relationship between what a consumer has and what they want.
C)The relationship between desire and need.
D)The relationship between what consumers receive and what they paid for it.
E)The lowest price and the lowest quality merchandise or service.

Question 20

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

Question 21

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 the initial retail price be on the doll?

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

Question 22

The Bow Shop caters to the 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 23

Retailers need to set their prices high enough so that __________.

A)after markdowns,the retailer can still achieve their profit goals
B)merchandise looks attractive to shoppers
C)a variety of vendors cater to the retailer
D)a value is given to the merchandise because of the price
E)they just cover their costs

Question 24

What is one factor included in reductions?

A)the cost of alterations
B)the amount subtracted from the gross margin
C)shoplifting costs
D)tax write-off for corporate volunteer hours
E)format of saving for low profit quarters

Question 25

Mattie owns a clock shop featuring vintage clocks from the 1950's.Mattie plans to achieve a 40% maintained mark-up 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 26

_______ arises when a dominant retailer sets prices below its costs in order to drive competitive retailers out of business.

A)Predatory pricing
B)Horizontal price fixing
C)Bait and switch
D)Price elasticity
E)Key-stoning

Question 27

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% markup to meet the financial goals of this category.What will the retail price be of these handbags?

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

Question 28

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 keep product pricing simplified

Question 29

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

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

Question 30

_______ is an unlawful,deceptive practice which 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 of higher-priced model.

A)Predatory pricing
B)Horizontal price fixing
C)Bait and switch
D)Scanned prices
E)Fish and lure

Question 31

____________ 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 mark-up

Question 32

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 33

A pricing experiment _________.

A)is 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 efficient method to decide on a price for a product

Question 34

A retailer selling products at a price lower than their competitor for the purpose of causing their competitor to go out of business is called ___________.

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

Question 35

Left Lanta is a small retailer in Underground Atlanta,a historical retail district in that city.There,the Lanta family sells items for left-handed people.Since the store is located in a kiosk near one of the entrances to Underground,it is often the target of shoplifters.It also experiences some merchandise damage in excess of what a store located in a more traditional setting would experience.These types of losses are called:

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

Question 36

Joe was short on time,so rather than doing any price experiments on competitive shops,he just keystoned every product's price in his skateboard shop.The initial mark-up percent that Joe is using is:

A)25%
B)50%
C)100%
D)10%
E)200%

Question 37

Sam was worried about not making his maintained markup when he was pricing the new line of swimwear for his beach store.What should Sam do to assure a profitable season?

A)He should open earlier in the season and close later to attract the extra business.
B)He should set his initial prices higher to accommodate for markdowns later in the season.
C)He should buy and price merchandise using information about competitors' vendors and manufacturers.
D)He should only set prices on swimwear based upon reference prices.
E)He should price the swimwear lower than his competitors so as to get the most transactions.

Question 38

Often times,apparel retailers will use a 50% markup,which may be referred to as _____.It sets the retail price by simply doubling the cost.

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

Question 39

Which of the following involves agreements between retailers that are in direct competition with each other to set the same prices?

A)predatory pricing
B)horizontal price fixing
C)bait and switch
D)vertical price fixing
E)MSRP pricing

Question 40

Competing retailers agreeing to sell products at set prices so as not to compete is called __________.

A)Horizontal Price Fixing
B)Vertical Price Fixing
C)MSRP Pricing
D)Predatory Pricing
E)Price Elasticity

Question 41

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

A)the initial markup is usually higher than the maintained margin
B)the maintained markup is always less than the gross margin
C)there will be a shortage
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 42

What is NOT a benefit of markdowns for a retailer?

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

Question 43

Eunice has bought 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 $.74.When Eunice's sales reach _____ cartons of worms,she will have reached her break-even point.

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

Question 44

When making a good markdown decision,a retailer should ______.

A)partner with their vendors and share the financial burden of the markdowns
B)heed the opinions of the consumer groups who monitor pricing practices
C)rely exclusively on the computer software designed for optimal pricing
D)consider only the rules-based approach because it has proven its reliability
E)limit them as they hinder customer loyalty

Question 45

Which of the following is NOT a viable method that a retailer can use to liquidate merchandise?

A)It can consolidate the merchandise to a single location to be sold.
B)It can sell it to an off-price retailer like Marshall's or T.J.Maxx. It can sell merchandise using the standardization approach.
D)The retailer can give it to charity.
E)It can mark it down.

Question 46

Which of the following is NOT true about 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)Buyers set the initial markup price high enough that,even after markdowns and other reductions have been taken,the planned maintained markup is still achieved.
D)Buyers employ markdowns to promote merchandise and increase sales.
E)Markdowns can increase customer traffic flow.

Question 47

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 48

Which of the following statements describes situations 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 49

What 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 prices and thus produces less-than-optimal profits.
E)The approach assumes that items in a category do not exhibit the same behavior.

Question 50

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

A)The retailer is able to replace the merchandise with other markdowns.
B)It provides immediate space for newer merchandise.
C)It is a profitable way for retailers to get rid of undesirable merchandise.
D)The retailer will then know to purchase less of the product for replenishment.
E)It lowers the reputation of the company who purchases the liquidated merchandise.

Question 51

Catherine had checked the price of an airline ticket in November month to fly to Daytona Beach for Spring Break and was surprised when she checked again in February that the price had increased significantly.What contributed to the airline raising their prices?

A)Price bundling
B)Yield management
C)Odd pricing
D)High-low pricing
E)Predatory pricing

Question 52

What is yield management?

A)managing the most profit from the least sales in the shortest amount of time
B)understanding and implementing pricing
C)the practice of reducing stockouts
D)managing promotions that yields higher sales
E)adjusting prices in response to demand in order to control sales generated

Question 53

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 the licenses required by the local government

Question 54

What is the potential byproduct of promotional markdowns?

A)It is another way to achieve a break-even analysis.
B)The category can get an overview by optimized markdowns.
C)Management can benefit from the traffic flow of promotions.
D)The increased in-store traffic leads to the purchases of other non-sale items.
E)Buyers can better understand the buys they've made by how the markdowns progress.

Question 55

Reductions in the retail selling price are called ____.

A)sales
B)price decreases
C)markdowns
D)merchandise effect
E)liquidation

Question 56

Which of the following statements about 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 57

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 costs 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 costs associated with a generous return policy

Question 58

Jenny runs a neighborhood 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 for struggling members of her community.Obviously,she takes a loss,but what is the benefit from this act of altruism?

A)She frequently has homeless members of her community asking for personalized assistance.
B)News of her philanthropic ways spreads to neighboring communities bringing in new shoppers who want to patronize her store.
C)Because of the service to the community,the IRS looks the other way as her write-offs surpass what is acceptable for deductions.
D)The produce isn't put in the trash which may attract wild animals.
E)The charity gives her a kickback.

Question 59

Ferdinand ran a pie shop in a busy metropolis.He sold his fresh pies for $7,but it cost 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 60

How does optimization software help retailers to price merchandise?

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 helps the retailer pursue legal markdowns by adhering to the Robinson-Patman Act.

Question 61

Manuel's vacation to Chicago for $395 for three nights in a four star hotel on Michigan Avenue included airfare and hotel as an example of ________.

A)third degree price discrimination
B)zone pricing
C)optimization pricing
D)price bundling
E)variable pricing

Question 62

An appliance store wants to get customers who are buying an upright freezer to trade up to the more expensive self-defrosting model with a special section for ice cream.Which of the following practices can be used by the store to achieve this goal?

A)price lining
B)price bundling
C)odd pricing
D)horizontal price fixing
E)leader pricing

Question 63

Charging different prices in different market segments is called ______.

A)line pricing
B)locale pricing
C)price bundling
D)variable pricing
E)leader pricing

Question 64

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

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

Question 65

The practice of offering the same multiple price schedule to all customers but require that customers do something to get the lower price-something that discourages customers with a high willingness to pay to take advantage of the lower price is referred to as _________.

A)first-degree price discrimination
B)second-degree price discrimination
C)third-degree price discrimination
D)price lining
E)high/low pricing

Question 66

_____________ is charging different prices for different stores,markets regions or zones.

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

Question 67

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

A)increase total sales
B)increase the number of rain checks
C)more frequent sales
D)the need for more safety stock

Question 68

Anne Marie made an effort to stop into the Walgreen's on her way home from work each Friday to pick up a gallon of milk since it was priced cheaper than her local grocery store.In this case,the milk is an example of Walgreens' use of ________.

A)stimulus pricing
B)leader pricing
C)follow-up pricing
D)price lining
E)odd pricing

Question 69

Charging each individual customer a different price based on their willingness to pay is called _________.

A)first-degree price discrimination
B)second-degree price discrimination
C)self-selected variable pricing
D)price bundling
E)rebate

Question 70

The travel brochure showed that a couple could 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.This is an example of ______.

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

Question 71

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 72

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 number of price wars
E)reduced stockouts

Question 73

Retailers using a(n)________ strategy frequently discount the initial prices for merchandise for a limited amount of time through frequent sales promotions.

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

Question 74

What is one way customers initialize first degree price discrimination?

A)haggling
B)walk-outs
C)shrinkage
D)functional discounts
E)bargain basement shopping only

Question 75

Which of the following channels can work well with first degree price discrimination?

A)the Internet
B)catalogs
C)big box retailers
D)drug stores
E)grocery stores

Question 76

What is the historical beginning of odd pricing?

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

Question 77

A retail store that offered its customers everyday stable prices is using a(n)_____ strategy.

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

Question 78

Which of the following is NOT an example of a second degree price discrimination strategy?

A)coupons
B)online auction bidding
C)price bundling
D)multiple-unit pricing
E)promotional markdowns

Question 79

Giant offered two 6-packs of any Pepsi product for $5 last week,and the price for a single carton was $2.69.What pricing strategy was Giant using?

A)price lining
B)multiple-unit pricing
C)psychological pricing
D)price bundling
E)conjoint pricing

Question 80

What type of retailer is MOST likely to use first degree price discrimination?

A)a sub shop
B)a candy store
C)a newspaper stand
D)an antique shop
E)a pet store