Question 1

A retailer can reduce price competition by:

Accepted Answer

By creating private-label merchandise, the retailer is offering a product that is unique to their store and cannot be shopped around for a lower price. This reduces the emphasis on price as the main factor that consumers use to choose where to shop.

Question 2

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

Accepted Answer

First-degree price discrimination involves charging each customer the maximum they are willing to pay. An antiques shop is most likely to use this strategy because each item is unique, and customers may have different valuations for them.

Question 3

Why might a store that specializes in items for the kitchen markdown a line of dishtowels that depict scenes from current Disney movies?

Accepted Answer

Items are marked down because they aren't selling, they are obsolete, or they are showing wear. Markdowns are also used to increase the number of people entering the store.

Question 4

Jessica runs a neighbourhood produce stand in a downtown neighbourhood.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?

Accepted Answer

Altruism has a strong public relations benefit, as it can help to create positive relationships with the community and attract new customers who appreciate the effort to help those in need. While options A, B, and D may also be benefits of altruistic behavior, they are not as significant or relevant to the scenario described.

Question 5

When making a good markdown decision,a retailer needs to:

Accepted Answer

Partnering with vendors to coordinate deliveries and share the financial burden of markdowns can help retailers make informed markdown decisions while also minimizing their impact on profitability. This approach ensures that both the retailer and the vendor have a stake in the outcome, and can work together to offer the best possible pricing to customers.

Question 6

What is a benefit of markdowns for a department store?

Accepted Answer

Markdowns provide multiple benefits for department stores including getting rid of outdated merchandise, creating space for new products, generating cash flow, and attracting customers with lower prices. Therefore, all of the given options are correct.

Question 7

__________________ is gross margin less any expense that can be directly assigned to the merchandise.

Accepted Answer

Contribution margin is a measure of profitability that is calculated by subtracting all variable costs from sales revenue. It represents the amount of revenue or sales that is available to cover fixed costs and contribute to profit after all variable costs have been accounted for. Therefore, it is calculated as gross margin less any expenses that can be directly assigned to the merchandise, such as production costs or distribution expenses.

Question 8

Elizabeth bought a worm farm.She plans to sell small cartons of worms for $4 each.Her fixed costs are $2,500,and her variable costs for each carton sold are $1.50.How many small cartons of worms does Elizabeth need to sell to break-even?

Accepted Answer

BEP (quantity) = $2500/($4 - $1.50) = 1000 cartons

Question 9

Some retailers liquidate end-of-season merchandise to retailers like Winners,who in turn sell it at deep discounts.What is the benefit to the retailer who liquidates using this strategy?

Accepted Answer

The benefit to the retailer who liquidates using this strategy is that it provides space for new merchandise. By selling off the end-of-season merchandise at deep discounts, the retailer can clear out space in their store and make room for new inventory. This can help them stay competitive and keep their product offerings fresh for customers.

Question 10

Which of the following is a viable method that a retailer can use to liquidate merchandise?

Accepted Answer

A retailer can use a combination of different methods to liquidate merchandise. Carrying it over to the next season may be an option, but it ties up valuable store space and may not be feasible for all items. Selling it to an off-price retailer or marking it down can help reduce inventory levels and generate some revenue. Giving it to charity may also be a viable option, especially for items that are not selling and can still be useful to others. Therefore, the best choice is to do all of these.

Question 11

What is a limitation of the rules-based approach for taking markdowns?

Accepted Answer

The rules-based approach primarily focuses on clearing inventory, often without considering other factors like customer demand or vendor input, which can limit its effectiveness in maximizing profitability.

Question 12

Reductions in the initial retail price are called:

Accepted Answer

Markdowns refer to reductions in the initial retail price. Sales are a more general term and can refer to any type of promotion, including discounts, BOGO offers, etc. Price decreases are also a general term and can refer to any type of reduction in price, whether it's a permanent change or a temporary promotion. Merchandise effect refers to how the placement and presentation of products in a store can impact sales. Liquidation refers to the process of selling off all remaining inventory, often at heavily discounted prices, before closing a business or discontinuing a product line.

Question 13

Elizabeth has bought a worm farm.She plans to sell cartons of worms for $4 each.Her fixed costs are $2,500,and her variable costs for each carton sold are $1.50.When Elizabeth's dollar sales reach ___________,she will have broken even.

Accepted Answer

BEP (quantity) = $2500/($4 - 1.50) = 1000 cartons × $4 = $4,000.

Question 14

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

Accepted Answer

The mannequin was purchased and requires no further expense no matter how many gowns it models.

Question 15

Which of the following statements describes situations in which markdowns would be appropriate?

Accepted Answer

A) Markdowns would be appropriate to clear out inventory that is showing wear and tear.
B) Markdowns would be appropriate to clear out inventory that is out of season and unlikely to sell at full price.
C) Markdowns would be appropriate to clear out inventory that is not selling as well as predicted.
D) Markdowns would be appropriate to stay competitive with neighbouring stores and prevent customers from going elsewhere to purchase the same items at a lower price.

Question 16

What is one way some customers initialize first-degree price discrimination?

Accepted Answer

Haggling is a common way for customers to initiate first-degree price discrimination. By negotiating the price with the seller, customers are able to tailor the price to their specific willingness to pay, and possibly receive a lower price than other buyers who are not willing or able to haggle. This allows sellers to charge different prices to different customers based on their individual valuation of the product, maximizing profits.

Question 17

Which of the following statements about markdowns is true?

Accepted Answer

All of the statements are true. Markdowns are a common practice in the retail industry as a way to adjust prices and clear inventory. Markdowns can be strategically planned ahead of time or done in response to market conditions. While markdowns do decrease profit margins, they can also lead to increased sales and customer satisfaction. Therefore, markdowns are considered a necessary part of the cost of doing business.

Question 18

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

Accepted Answer

A variable cost refers to the store's expenses that vary directly with the quantity ordered.

Question 19

Which of the following would be an example of a second-degree price discrimination strategy?

Accepted Answer

The answer of Which of the following would be an...

Question 20

The selling price for the handmade sweater sold at the Village Boutique is $80.The cost of the materials and labour used to make the sweater are $28.25.The store's owner pays $500 a month in rent and has other monthly fixed costs that average $175.Calculate its percent contribution margin.

Accepted Answer

%CM = (51.75/80) * 100 = 64.68%

Quiz 12: Retail Pricing