Question 1

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?

Accepted Answer

Retail price = cost/(1 - markup percentage) = 30/(1 - 0.6) = 30/0.4 = 75

Question 2

Which of the following factors influences reductions?

Accepted Answer

Discounts are given to employees, and some merchandise is lost to theft and accounting errors (inventory shrinkage). These factors that reduce the actual selling price from the initial sales price are called reductions.

Question 3

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

Accepted Answer

Discounts are given to employees, and some merchandise is lost to theft and accounting errors (inventory shrinkage). These factors that reduce the actual selling price from the initial sales price are called reductions.

Question 4

Retailers collect price data about their competitors to

Accepted Answer

Most retailers routinely collect price data about their competitors to see if they need to adjust their prices to remain competitive.

Question 5

A commonly used measure of price sensitivity is

Accepted Answer

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 6

When pricing products, retailers must

Accepted Answer

The chosen pricing policy must be consistent with the retailer's overall strategy and its relative market position.

Question 7

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

Accepted Answer

If an apparel retailer used a 50 percent markup, an approach referred to as keystoning, the retail price would be double the cost.

Question 8

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

Accepted Answer

One problem with leader pricing is that it might attract shoppers referred to as cherry pickers, who go from one store to another, buying only items that are on special. These shoppers are clearly unprofitable for retailers.

Question 9

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

Accepted Answer

Markup percentage = (Retail price - Cost of merchandise)/Retail price = (15 - 2)/15 = 13/15 = 0.8666 = 87%

Question 10

Which of the following items has the most price elasticity?

Accepted Answer

The more substitutes a product or service has, the more likely it is to be price-elastic. Fast-food prices are typically price-elastic, but branded luxury goods have almost no substitutes and are price-inelastic.

Question 11

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

Accepted Answer

The latest generation of price promotional offers takes into account the consumers' geographical location that is accessed from their phone location or locational coding via certain sites and offers them localized promotions for retailers who are in close proximity. This concept is called geofencing.

Question 12

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.

Accepted Answer

The relationship between the initial and maintained markup percentages is:
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The initial markup is the retail selling price initially set for the merchandise minus the cost of the merchandise.

Question 13

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

Accepted Answer

The maintained markup is the actual sales realized for the merchandise minus its costs. It is the amount of profit realized from merchandising decisions.

Question 14

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?

Accepted Answer

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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 15

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

Accepted Answer

If an apparel retailer used a 50 percent markup, an approach referred to as keystoning, the retail price would be double the cost.

Question 16

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

Accepted Answer

The markup is the difference between the retail price and the cost of an item. Thus, if a sporting goods retailer buys a tennis racket for $75 and sets the retail price at $125, the markup is $50.

Question 17

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?

Accepted Answer

Retail price = Cost of merchandise/(1 - Markup percentage) = $125/.52 = $240

Question 18

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?

Accepted Answer

The relationship between the initial and maintained markup percentages is:
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The initial markup is the retail selling price initially set for the merchandise minus the cost of the merchandise.

Question 19

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?

Accepted Answer

The price elasticity for a product can be estimated by using statistical techniques to analyze how sales have changed in the past when prices changed. Price elasticity is the percentage change in quantity sold divided by the percentage change in price.

Question 20

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.

Accepted Answer

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For products with price elasticities less than 1, the price that maximizes profits can be determined by the following formula:
Profit-maximizing price = (Price elasticity × Cost)/(Price elasticity + 1).

Quiz 13: Retail Pricing