Suppose a shop owner sets a target ROI of 10 percent, which is twice that achieved the previous year. She considers raising the average price of a framed picture to $54 or $58-up from last year's average of $50. In order to still achieve her target, she might:
A)add value to the framed picture that adds minimal fixed and variable costs, yet consumers are willing to accept
B)use noticeable cheaper quality materials to lower her costs
C)mislabel her price of goods in her income statement to reflect the targeted ROI
D)include bundle pricing to encourage consumers to purchase extra items

Question

Quizplus · Accepted Answer

Option A suggests adding value to the framed picture without incurring significant fixed or variable costs, which may raise the perceived value of the product and justify the increase in price. By doing this, the shop owner can maintain the quality of the product without having to resort to cost-cutting measures such as using cheaper quality materials (Option B) that could potentially hurt customer satisfaction in the long term. Mislabeling the price of goods in her income statement (Option C) is unethical and could lead to legal issues. Bundle pricing (Option D) may or may not work, depending on the demand for the other items in the bundle, and may also require additional costs for packaging and marketing. Overall, Option A seems to be the best choice as it allows the shop owner to maintain quality without taking significant risks or engaging in unethical behavior.

Suppose a Shop Owner Sets a Target ROI of 10