Deck 12: Retail Pricing

Question 1

What benefit does a retailer experience when using a high/low strategy rather than an EDLP strategy?

A) High/low pricing strategies create excitement
B) EDLP is much more difficult to maintain than high/low pricing strategy
C) The same merchandise appeals to consumers who want quality and those who wait for bargains
D) A high price sends the consumer a message of quality that the EDLP strategy does not communicate
E) All of these are benefits

Answer 1

E

Question 2

How can a retailer that wants to use an EDLP strategy persuade customers away from high/low strategy competitors?

A) By using a demand-oriented method for setting retail prices
B) By slowly reducing the number of sales events
C) By refusing to accept manufacturers' coupons
D) By using price lining
E) By doing all of these

Answer 2

B

Question 3

Advantages of an EDLP approach include:

A) Reduced rain checks due to increased number of sales events
B) Reduced price wars and reduced advertising
C) Improved inventory management due to a "no rain check" policy
D) Increased profits due to price discrimination
E) All of these

Answer 3

B

Question 4

Prices are based on what the customer would expect to be paying or be willing to pay in the method.

A) profit-oriented
B) demand-oriented
C) supply-oriented
D) volume-oriented
E) cost-oriented

Question 5

Brandon's pet shop had a successful history until the national chains moved into town. Traditionally, he analyzed all products in his store when pricing, for maximum profits. Given his new situation, what would you suggest Brandon do when he prices merchandise, so that he can continue with a successful business?

A) He should use the demand-oriented method of pricing
B) He should use the keystone method of pricing
C) He should use the cost-oriented method of pricing
D) He should consider using the competition- oriented method of pricing
E) He should continue with his present method of pricing

Question 6

As a means of creating a differential advantage, some retailers have responded to their customers' needs by creating formats that emphasize low prices. Which of the following would fall into these formats?

A) Radio Shack, Moores, and Tip Top Tailors
B) Hudson's Bay, Sears, and Winners
C) Target, Walmart, and Costco
D) Sportchek, La Senza, and Canadian Tire
E) Old Navy, Gap, and Banana Republic

Question 7

How can the use of an EDLP strategy increase a retailer's profit margin?

A) The stable prices caused by EDLP requires the use of more weekly advertising
B) Employees provide less customer service because of the sale-stimulated numbers of people
C) EDLP increases the large variations in demand caused by frequent sales
D) Employees do not have to continually make price reductions
E) A more predictable demand increases the likelihood of stockouts

Question 8

Which of the following best describes competition-oriented method of pricing?

A) Prices are based upon adding a fixed percentage to the price of the product
B) Prices are based upon what the merchandise is worth
C) Prices are based upon manufacturer's suggestions
D) Prices are double the cost of the merchandise
E) Prices are based on competitor's prices

Question 9

Which of the following statements is/are true?

A) With the demand-oriented method, prices are based on what customers expect or are willing to pay.
B) The keystone method of setting price involves doubling the cost of the merchandise to obtain the initial retail selling price.
C) Under the cost-oriented method, the retail price is determined by adding a fixed percentage to the cost of the merchandise.
D) All of these statements are true.
E) None of these statements are true.

Question 10

Which of the following is not a benefit typically ascribed to an everyday low pricing (EDLP) strategy?

A) Improved customer loyalty
B) Increased number of price wars
C) Reduced stockouts
D) IReduced advertising
E) Improved inventory management

Question 11

After years of struggling, Gigi's beach shop was a raging success. Tourism has been flourishing and Gigi's has been busy. Many days, it's all she can do to keep her head above the crowds. What type of pricing method should she utilize during this busy time?

A) A combination of competition-, demand-, and cost-oriented methods
B) Demand-oriented method
C) Competition-oriented method
D) Cost-oriented method
E) Profit-oriented method

Question 12

What is the benefit of having the Internet facilitate the use of an auction pricing mechanism like eBay?

A) Sellers are able to communicate with the bidders.
B) Sellers have more information.
C) Potential buyers are able to see the products up close.
D) Bidders are better able to follow previous bids.
E) Participants no longer have to be in the same place for the auction.

Question 13

How would improved inventory management through the use of an everyday low pricing (EDLP) strategy benefit retailers?

A) It would increase the number of rain checks
B) It would increase the need for more safety stock
C) It would increase total sales
D) It would require more frequent sales events
E) It would do all of these

Question 14

What is value?

A) Value describes merchandise that is cheap
B) Value is the relationship between what you have and what you want
C) Value is the relationship between what you get and what you have to pay for it
D) Value is buying at the lowest price and receiving the lowest quality
E) Value is the relationship between desire and need

Question 15

Which of the following is an advantage of the demand-oriented method of pricing?

A) it allows retailers to determine which price will provide the greatest profit
B) it is the perfect method when there are many SKUs to price
C) it opens the doors to the profit maximization process
D) it is hard to implement
E) it keeps the retailer in line with competitors' prices

Question 16

Conrad prices his sportswear using the method. When the merchandise arrives, he doubles the cost of the merchandise to obtain the original retail selling price.

A) keystone
B) benchmark
C) customer-oriented
D) doubling
E) leavening

Question 17

Examples of second-degree price discrimination include:

A) the retailer charging more if a wealthy customer wants to buy something
B) the retailer charging less if a price-sensitive customer comes in
C) early-bird specials at a restaurant offering lower-priced meals before 6 pm
D) automobile and antiques dealers haggling with customers
E) None of these are examples of second-degree price discrimination

Question 18

The strength of the cost-oriented method of setting retail prices is:

A) it considers the needs of the consumer
B) it is designed to achieve target levels of profit
C) it is consistent with the marketing concept
D) it determines profit-maximization prices
E) it is described by all of these

Question 19

The demand-oriented method for setting retail prices is not designed:

A) to consider the wants and needs of the target market
B) to achieve target levels of profits
C) to be consistent with the marketing concept
D) to be used to determine profit-maximization prices
E) to be easy to implement

Question 20

When using the method, the retail price is determined by adding a fixed percentage to the cost of the merchandise.

A) demand-oriented
B) supply-oriented
C) volume-oriented
D) cost-oriented
E) profit-oriented

Question 21

A retailer can reduce price competition by:

A) collecting competitive price data on a more regular basis
B) pricing merchandise consistent with their initial strategy
C) creating private-label merchandise
D) considering a high/low strategy in setting prices
E) consistently pricing lower than the market leader

Question 22

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

A) considers consumers' wants and needs
B) does not consider individual pricing strategies for each SKU
C) is designed to achieve a target level of profits
D) provides an outside check on the marketplace
E) is quick and simple to use

Question 23

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?

A) It will anger customers who travel long distances to go to more than one store.
B) The vendor won't like having the robots sell for different prices.
C) It takes up employees' time while they are collecting the surveys.
D) The additional advertising expense is exorbitant.
E) The store will lose profits in stores where the robots are priced either too high or too low.

Question 24

Retailers set prices high enough so that:

A) merchandise looks attractive to shoppers
B) a value is given to the merchandise because of the price
C) a variety of vendors cater to the retailers
D) after markdowns, the planned maintained markup will be achieved
E) all of these

Question 25

What are included in "reductions"?

A) The cost of goods sold
B) Taxes
C) Shoplifting costs
D) The cost of alterations
E) All of these

Question 26

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

A) focus groups
B) point-of-sale terminals
C) point-of-purchase displays
D) direct marketing
E) telemarketing

Question 27

The problem with discounters using demand-oriented pricing is:

A) the number of sales expected by the customers
B) the number of buyers who are involved in the pricing process
C) the lack of time available for the pricing process
D) the number of SKUs that require pricing
E) none of these

Question 28

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:

A) 75 percent
B) 65 percent
C) 150 percent
D) 11.85 percent
E) Cannot be determined from the information given

Question 29

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

A) They can purchase more of the merchandise to relay the lower prices onto the consumer
B) They can price for margins and create a better shopping experience
C) They can consistently offer lower prices and allow the consumer to determine market share
D) They can collect and analyze price data from their competitors to determine if the store is maintaining their desired market position compared to their competition
E) None of these

Question 30

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

A) initial markup is always higher than the maintained margin
B) sell-through analysis is necessary to determine the appropriateness of a location site
C) initial markup is always lower than maintained markup
D) value of average inventory at cost is less than its value at retail
E) maintained markup is always less than the gross margin

Question 31

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

A) 45.67 percent
B) 21.89 percent
C) 183 percent
D) 41.71 percent
E) Cannot be determined from the information given

Question 32

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

A) Examine a competing firm to determine the price
B) Enter low into the market and increase price through the product's life cycle
C) Conduct focus groups
D) Price merchandise based upon manufacturer's suggestions
E) Conduct a pricing experiment

Question 33

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?

A) 148.15 percent
B) 92.86 percent
C) 48.15 percent
D) 192.86 percent
E) 60.19 percent

Question 34

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.

A) $28.50
B) $36.75
C) $42.85
D) $33.75
E) $25.71

Question 35

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:

A) net losses
B) amortized losses
C) loss margins
D) markdowns
E) reductions

Question 36

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?

A) He should open earlier in the season and close later to attract extra business
B) He should only set prices on swimwear based upon reference prices
C) He should buy and price merchandise using information about competitors' vendors and manufacturers
D) He should set his initial prices higher to accommodate for markdowns later in the season
E) All of these

Question 37

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.

A) $153.75
B) $170.00
C) $247.21
D) $57.79
E) $198.47

Question 38

A pricing experiment:

A) cannot be performed if the retailer uses POS terminals
B) is a less accurate method of determining buyer response to price changes than a consumer panel
C) is a method of determining the most profitable price for a product
D) is useful for obtaining data for a cost-oriented pricing strategy
E) is described by all of these

Question 39

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:

A) 42.0 percent
B) 21.52 percent
C) 53.6 percent
D) 48.11 percent
E) 92.71 percent

Question 40

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.

A) 72 percent
B) 52 percent
C) 32.66 percent
D) 60 percent
E) 64.29 percent

Question 41

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

A) It can sell it to an off-price retailer, such as Winners
B) It can mark it down
C) The retailer can give it to charity
D) It can carry it over to the next season
E) It can do all of these

Question 42

Reductions in the initial retail price are called:

A) liquidation
B) price decreases
C) sales
D) merchandise effect
E) markdowns

Question 43

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?

A) It has strong public relations benefits
B) Because of the service to the community, Revenue Canada looks the other way as her write-offs surpass what is acceptable for deductions
C) The produce doesn't become garbage, attracting vermin
D) She frequently has homeless members of her community asking for personalized assistance
E) All of these

Question 44

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

A) The costs associated with dying the shoes to match the bridesmaids' dresses
B) The services of the seamstress to fit each gown
C) The costs associated with the layaway of variously priced gowns
D) The cost of the mannequin used to display current gowns
E) The costs associated with a generous return policy

Question 45

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

A) Markdowns would be appropriate for national brand merchandise that were priced 15 percent lower in a neighbouring store
B) Markdowns would be appropriate on a pair of pillows that had been part of a display and were showing light wear
C) Markdowns would be appropriate for licensed merchandise supporting a movie that was not as popular as predicted
D) Markdowns would be an appropriate pricing strategy for winter parkas that are still in stock in March
E) All of these statements

Question 46

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

A) Break-even pricing
B) Variable pricing
C) Contribution pricing
D) Leader pricing
E) All of these are examples of a second-degree price discrimination strategy.

Question 47

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

A) Contribution margin
B) Net sales
C) Revenue
D) Break-even point
E) Gross profit

Question 48

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

A) Threatening to shop elsewhere
B) Haggling
C) Bargain basement shopping only
D) Shoplifting
E) Walking out

Question 49

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?

A) 625 cartons
B) 1667 cartons
C) 455 cartons
D) 1000 cartons
E) Cannot be determined from the information given

Question 50

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.

A) 64.68 percent
B) 75 percent
C) 15.88 percent
D) 62.33 percent
E) 42.50 percent

Question 51

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

A) The store rent charged by the mall
B) The display tables for mounting the computer, monitor, and printer
C) The cost of the licenses required by the local government
D) The cost of coaxial cables to connect the computers and their peripheral devices
E) All of these

Question 52

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

A) limit markdowns, as they hinder customer loyalty
B) rely exclusively on the computer software designed for optimal pricing
C) consider only the rules-based approach because it has proven its reliability
D) partner with the vendors to coordinate deliveries and help share the financial burden of the markdowns
E) heed the opinions of the consumer groups who monitor pricing practices

Question 53

What is a benefit of markdowns for a department store?

A) It is a way to make room for new merchandise.
B) It increases customers' traffic.
C) Markdowns generate cash flow to pay for new merchandise.
D) It rids the store of obsolete merchandise.
E) All of these.

Question 54

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?

A) Manufacturers know they should produce less of the product for replenishment
B) The retailer is able to replace the merchandise with other markdowns
C) It lowers the reputation of the company who purchases the liquidated merchandise
D) Vendors like it because they are able to sell the merchandise to another retailer
E) It provides space for new merchandise

Question 55

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

A) The store does not want the merchandise to become obsolete
B) The store is afraid the dish towels will become too shopworn to sell later
C) The store bought dish towels that depict movies that its target markets do not admire
D) The store wants to increase store traffic
E) All of these are reasons

Question 56

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

A) The approach prohibits input from the vendor
B) The approach does not follow a fixed schedule
C) The approach assumes that items in a category do not exhibit the same behaviour
D) The rules-based approach is based upon gross margin
E) Its only goal is to clear inventory

Question 57

Which of the following statements about markdowns is true?

A) Markdowns are an opportunity to increase sales
B) Retailers should plan for markdowns
C) Markdowns are initiated to induce price-sensitive customers to buy more
D) Markdowns are part of the cost of doing business
E) All of these

Question 58

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

A) Rebates
B) Price bundling
C) Coupons
D) Multiple-unit pricing
E) All of these are examples of a second-degree price discrimination strategy.

Question 59

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

A) A sub shop
B) An antiques shop
C) A candy store
D) A newspaper stand
E) A pet store

Question 60

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.

A) $4000
B) $2500
C) $1562.50
D) $1820
E) $6668

Question 61

A is money returned to the buyer based on a portion of the purchase price.

A) zone price
B) multiple-unit price
C) coupon
D) rebate
E) price bundle

Question 62

Retailers prefer rebates to coupons because:

A) rebates work even when the dollar amount is low
B) rebates have lower handling costs than coupons
C) consumers do not view rebates as affecting the price of a product
D) rebates are most often offered on products that are usually considered to be commodities
E) retailers incur no handling costs with rebates

Question 63

Which of the following is a benefit of price lining?

A) The merchandising task is simplified
B) It can be used to get customers to "trade up" to a more expensive model
C) Confusion from multiple price choices is eliminated
D) Price lining gives buyers greater flexibility
E) All of these are benefits of price lining

Question 64

What are the limits of a rules-based approach of taking markdowns?

Question 65

What factors do retailers need to consider to set prices to maximize long-term profits?

Question 66

Target offered 2 six-packs of any Pepsi product for $5 last week, and the price for a single carton was $2.69. What pricing strategy was Target using?

A) Conjoint pricing
B) Price bundling
C) Psychological pricing
D) Price lining
E) Multiple-unit pricing

Question 67

An appliance store wants to get customers who are buying an upright freezer to trade up to the more expensive self-defrosting model. Which of the following practices can be used by the store to achieve this goal?

A) Price lining
B) Leader pricing
C) Variable pricing
D) Odd pricing
E) Price bundling

Question 68

Why is there a difference between initial markup and maintained markup?

Question 69

Why is the term everyday low pricing (EDLP) somewhat of a misnomer?

Question 70

At the supermarket today, Nelson noticed all the canned vegetables were priced at $.39, $.49, $.59, or $.69 per can. This type of pricing is:

A) odd pricing
B) promotional pricing
C) mixed pricing
D) unit pricing
E) price unbundling

Question 71

Charging different prices in different stores, markets or zones is called:

A) line pricing
B) price bundling
C) locale pricing
D) leader pricing
E) zone pricing

Question 72

What should a small retailer do when it uses the competition-oriented method for setting prices, and sees that it cannot compete with Walmart's prices?

Question 73

is the practice of offering two or more different products or services for sale at one price.

A) Price bundling
B) Price grouping
C) Price lining
D) Psychological pricing
E) Conjoint pricing

Question 74

What was the initial reason for odd pricing?

A) It offered a limited number of predetermined price points making pricing easier
B) It saved on distribution costs
C) It was used to increase traffic flow
D) It reduced losses due to employee theft of cash
E) It eliminated confusion when a customer shopped in different locations

Question 75

Jeff wanted to increase the traffic in his convenience store. Which type of pricing strategy should Jeff consider when posting cigarette prices?

A) Leader pricing
B) Variable pricing
C) Zone pricing
D) Item pricing
E) Price lining

Question 76

How can retailers reduce price competition?

Question 77

Anne Marie made an effort to stop into the Irving convenience store on her way home each Friday to pick up a gallon of milk, because it was priced lower than the local Walmart. In this case, the milk is an example of Irving's use of:

A) price lining
B) stimulus pricing
C) follow-up pricing
D) leader pricing
E) none of these

Question 78

Neal was considering the use of coupons for canned vegetables at his corner grocery. He knows coupons can encourage customers to try his store, or even help them to purchase additional items as they shop, but he is concerned about:

A) price-sensitive customers avoiding his store
B) decreasing visits from loyal customers
C) customers forgetting to mail in the proof-of-purchase to the manufacturers
D) variable pricing
E) the promotion stealing sales of canned vegetables in the future

Question 79

As Jerome was leaving Ed's Electric, he noticed a bulletin board that featured small applications that he can send to the manufacturer with his receipt and receive a portion of what he spent on his digital TV back in the mail. What is this returned money called?

A) A coupon
B) A rebate
C) A zone price
D) A multiple-unit price
E) A price bundle

Question 80

What can small retailers do to compete with Walmart's low prices?