Question 1

A retailer can reduce price competition by:

Accepted Answer

Creating private-label merchandise can reduce price competition because it offers unique products that are not directly comparable to competitors' offerings, thus reducing direct price competition.

Question 2

The competition-oriented method of setting retail prices is useful because it:

Accepted Answer

The competition-oriented method of setting retail prices is useful because it provides an outside check on the marketplace, allowing retailers to align their prices with competitors and ensure they remain competitive.

Question 3

Pablo owns a chain of toy stores in key markets across the country. He wanted to price the newest toy robots so that he could secure the most profit from its sale. He knew from the past that a sophisticated method was to conduct a pricing experiment. What is the
Downside to running an experiment?

Accepted Answer

Running a pricing experiment can lead to lost profits in stores where the robots are priced incorrectly, either too high or too low, as it may not reflect the optimal price point.

Question 4

Retailers set prices high enough so that:

Accepted Answer

Retailers set prices high enough initially to ensure that even after markdowns, they can achieve the planned maintained markup, which is crucial for profitability.

Question 5

What are included in "reductions"?

Accepted Answer

Reductions typically refer to losses in inventory value, such as those from shoplifting, markdowns, or spoilage, rather than costs like taxes or alterations.

Question 6

With the advent of_________ , in-store price experiments are much less costly and time consuming.

Accepted Answer

Point-of-sale terminals allow for easy collection and analysis of sales data, making in-store price experiments more efficient and less costly.

Question 7

The problem with discounters using demand-oriented pricing is:

Accepted Answer

Demand-oriented pricing can be challenging for discounters because they often have a large number of SKUs (Stock Keeping Units) that require individual pricing, making it complex and time-consuming to manage effectively.

Question 8

The owner of a tobacco shop has estimated net sales of $75,100 for next year, with her gross cost of goods sold equalling 35 percent of net sales. Her maintained markup percentage should be:

Accepted Answer

The maintained markup percentage is calculated as (Net Sales - Cost of Goods Sold) / Net Sales. The cost of goods sold is 35% of $75,100, which is $26,285. Therefore, the maintained markup is ($75,100 - $26,285) / $75,100 = 65%.

Question 9

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

Accepted Answer

Collecting and analyzing price data from competitors helps a retailer ensure their pricing aligns with their market strategy and desired market position.

Question 10

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

Accepted Answer

Initial markup is the original price set on merchandise, which is often reduced due to markdowns and discounts, leading to a maintained margin that is lower than the initial markup.

Question 11

What is the maintained markup percentage on ceiling fans if gross cost of goods sold is $80,000 and net sales equal $137,250?

Accepted Answer

The answer of What is the maintained markup percentage on...

Question 12

Which of the following is a way to determine the most profitable price for a product?

Accepted Answer

Conducting a pricing experiment allows a company to test different price points and analyze consumer behavior and sales data to determine the most profitable price for a product.

Question 13

A salesperson presented The Wonderland Book store, a store that carries Lewis Carroll memorabilia, an opportunity to stock limited edition Alice in Wonderland dolls at a cost of $125 each. The manager had to calculate the initial markup as a percentage of cost. Since the initial markup as a percentage of retail is 48.15 percent, what would the initial markup on the doll as a percentage of cost be?

Accepted Answer

The initial markup as a percentage of cost can be calculated using the formula: (Markup / Cost) * 100. Given that the markup as a percentage of retail is 48.15%, the cost percentage is 100% - 48.15% = 51.85%. Therefore, the markup as a percentage of cost is (48.15 / 51.85) * 100 = 92.86%.

Question 14

The retail price of a set of four leather-bound J. K. Rowling novels is $75 and the initial markup is 51 percent. Calculate the merchandise cost.

Accepted Answer

The answer of The retail price of a set of...

Question 15

Left Wing is a small retailer which sells items for left-handed people. Since the store is located in a kiosk near one of the entrances to the subway system, 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:

Accepted Answer

These types of losses are referred to as "reductions," which include losses from theft, damage, and other factors that reduce inventory without sales.

Question 16

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?

Accepted Answer

Setting initial prices higher allows for markdowns later while still maintaining profitability.

Question 17

The merchandise cost for a Zenith kitchen clock is $65, and the retailer wants to use an initial markup of 67.25 percent. Calculate the initial retail price.

Accepted Answer

The answer of The merchandise cost for a Zenith kitchen...

Question 18

A pricing experiment:

Accepted Answer

A pricing experiment is a method used to determine the most profitable price for a product by testing different price points and analyzing consumer response and sales data.

Question 19

Give it to Me Baby is a store that features memorabilia from the 1980s. On estimated net sales of $92,500 next year, the owner of Give it to Me Baby has a gross cost of goods sold of $48,000. Their maintained markup percentage should be:

Accepted Answer

The answer of Give it to Me Baby is a...

Question 20

The Bow Shop caters to the archery enthusiasts. It has estimated net sales of $45,300. The maintained markup used by the store is 60 percent of net sales. Reductions are estimated to be 12 percent of net sales. Calculate the store's initial markup.

Accepted Answer

The initial markup is calculated using the formula: Initial Markup % = (Maintained Markup % + Reductions %) / (1 - Reductions %). Substituting the given values: (60% + 12%) / (1 - 12%) = 64.29%.

Quiz 12: Retail Pricing