Question 1

Profitability is determined on an item basis in direct product profitability (DPP).

Accepted Answer

Direct product profitability (DPP) calculates the profit and loss on a per-item basis, allowing companies to analyze the profitability of individual products or product lines.

Question 2

A retailer can buy a leather portfolio case for $50.00 and wants to obtain a 50 percent markup at retail.The retailer should charge a retail price of $125.00.

Accepted Answer

The retailer should charge $75.00. A 50 percent markup on the $50.00 cost is $25.00 ($50.00 * 0.50), making the total retail price $75.00 ($50.00 + $25.00).

Question 3

The range of acceptable prices to both retailers and final consumers is between the demand ceiling and the price floor.

Accepted Answer

The range of acceptable prices to both retailers and final consumers is between the demand ceiling and the supply floor. The demand ceiling represents the maximum price consumers are willing to pay, while the supply floor represents the minimum price at which producers are willing to sell.

Question 4

Direct product profitability allows retailers to take into account differences in the costs of installation,delivery,customer service,and merchandise handling in setting markups for categories of merchandise.

Accepted Answer

Direct product profitability (DPP) is a method used by retailers to calculate the profitability of individual products or categories by taking into account all of the costs associated with selling them, including installation, delivery, customer service, and merchandise handling. By considering these costs, retailers can set more accurate markups for different categories of merchandise and make better decisions about pricing and product mix. Therefore, the statement is true.

Question 5

An early markdown policy enables a retailer to have every opportunity in the selling season to sell the good at the originally designated price.

Accepted Answer

An early markdown policy actually means reducing the prices of goods earlier in the selling season, which gives the retailer more opportunities to sell the items at the reduced price, not the originally designated price.

Question 6

In flexible pricing,a retailer allows buyers to negotiate.

Accepted Answer

In flexible pricing, the retailer allows buyers to negotiate and adjust the price based on factors such as quantity, timing, or specific needs of the buyer.

Question 7

According to prestige pricing,the demand curve can be positively sloped at price levels that are considered too low by consumers.

Accepted Answer

Prestige pricing is based on the idea that high prices can increase the perceived value of a product or service. This can create a positive demand curve where consumers are willing to pay more for products that are seen as prestigious or high-quality. Therefore, at lower price levels, consumers may not view the product as prestigious enough and demand may not be as high.

Question 8

According to traditional economic pricing theory,price elasticity tends to be a negative number.

Accepted Answer

Price elasticity is defined as the percentage change in quantity demanded divided by the percentage change in price. Since a decrease in price usually results in an increase in quantity demanded (and vice versa), price elasticity tends to be negative. However, in rare cases, such as with Giffen goods, price elasticity can be positive.

Question 9

Maintained markup is based on the original retail value assigned to the merchandise.

Accepted Answer

Maintained markup is based on the actual selling price of the merchandise, not the original retail value assigned to it.

Question 10

A retailer's planned operating expenses are 29 percent of its planned net sales.Its planned profit is 5 percent of sales and its planned retail reductions are 8 percent of sales.Its planned markup percent at retail is 42 percent of sales.

Accepted Answer

The planned markup percent at retail does not directly correlate with the operating expenses, profit, and retail reductions percentages without knowing the cost of goods sold or the initial markup. The percentages provided (operating expenses, profit, and retail reductions) total 42%, but this does not validate the planned markup percent at retail without additional information.

Question 11

The price elasticity of demand for a product can be elastic,inelastic,and unitary over different price levels.

Accepted Answer

The price elasticity of demand is not constant and can vary at different price levels. When the percentage change in quantity demanded is greater than the percentage change in price, demand is said to be elastic. When the percentage change in quantity demanded is less than the percentage change in price, demand is said to be inelastic. When the percentage change in quantity demanded is equal to the percentage change in price, demand is said to be unitary. So, the statement is true.

Question 12

A 100 percent markup at retail is equivalent to a 45 percent markup at cost.

Accepted Answer

A 100 percent markup at retail means the selling price is double the cost price, which is equivalent to a 100 percent markup on cost, not 45 percent.

Question 13

To stimulate additional sales,a men's clothing retailer is anticipating reducing its retail prices by 10 percent from its current markup of 50 percent as a means of blunting competition from a new category killer men's clothing chain that has opened in its trading area.It needs a 20 percent sales increase to maintain its former gross profit.

Accepted Answer

The answer of To stimulate additional sales,a men's clothing retailer...

Question 14

The difference between loss leaders and bait-and-switch advertising is that with loss leaders,the retailer stocks the good in sufficient quantities to meet anticipated demand.

Accepted Answer

Loss leaders are products that are sold below cost to attract customers to a store, while bait-and-switch advertising involves advertising a product at a low price to attract customers, but then either not having enough in stock or switching them to a higher-priced item. With loss leaders, the retailer stocks the item in sufficient quantities to meet anticipated demand, whereas with bait-and-switch advertising, they may not have enough stock or may not intend to sell the advertised item at the advertised price.

Question 15

The most widely used retail-pricing technique is markup pricing.

Accepted Answer

Markup pricing is a common method used by retailers to set the price of their products. It involves adding a predetermined percentage to the cost of the product to arrive at the selling price. This technique is widely used because it allows retailers to cover their costs and make a profit while remaining competitive.

Question 16

A retailer reduced the price of a memory card from $7 to $5; it expected annual demand to increase from 500 units to 900 units.The retailer assumed that the price elasticity of demand would be 2.71.

Accepted Answer

The answer of A retailer reduced the price of a...

Question 17

Pricing above the market as a retail strategy is most appropriate in administered pricing.

Accepted Answer

Administered pricing refers to a situation where prices are set by a single or few organizations in the market, without much influence from market forces like supply and demand. In such situations, pricing above the market could be appropriate as there is less competition to drive prices down. However, in a free market where prices are influenced by supply and demand, pricing above the market could be risky as customers may be attracted to cheaper alternatives offered by competitors.

Question 18

An argument used by manufacturers and wholesalers for the legalization of vertical price fixing is negative consumer perceptions of their products due to prestige pricing.

Accepted Answer

Manufacturers and wholesalers argue that legalizing vertical price fixing will help address negative consumer perceptions of their products due to prestige pricing. This is because they can control the prices at which their products are sold and ensure that they are not undervalued, which could lead to negative perceptions of the brand. However, many experts argue that this argument is not a valid reason to legalize vertical price fixing as it could harm competition and lead to higher prices for consumers.

Question 19

Leader pricing accomplishes a similar objective as loss leaders,yet is legal.

Accepted Answer

Leader pricing is a legal pricing strategy where retailers offer certain products at a lower price than their competitors to gain market share and increase foot traffic in their stores. It is different from loss leaders, where retailers deliberately sell products below their cost to attract customers. While loss leaders can be illegal if they violate antitrust laws or predatory pricing regulations, leader pricing is a legitimate marketing practice.

Question 20

Leader pricing seeks to increase store traffic through heavily promoted specials.

Accepted Answer

Leader pricing is a strategy used by retailers to generate store traffic by heavily promoting low prices on certain products or services.

Quiz 17: Pricing in Retailing