CH17 Pricing in Retailing Flashcards
price elasticity of demand (p. 409)
the sensitivity of customers to price changes in terms of the quantities they will by (think COMM 220)
horizontal price fixing (p. 411)
an agreement among manufacturers, among wholesalers, or among retailer to set prices
vertical price fixing (p. 411)
when manufacturers or wholesalers seek to control the retail prices of their goods and services
Robinson-Patman Act (p. 412)
prevents manufacturers and wholesalers from unfairly pricing their products or offering different purchase terms to different retailers if those retailers are buying similar quality products
goal? to ensure that such price discrimination does not harm competition in the marketplace
minimum-price laws (p. 412)
they prevent retailers from selling certain items for less than their cost plus a fixed percentage to cover overhead
predatory pricing (p. 412)
when large retailers seek to reduce competition by selling goods and services at very low prices, thus causing small retailers to go out of business (think Walmart, Amazon, etc.)
loss leaders (p. 412)
retailers price selected items below cost to lure more customer traffic to their stores
unit pricing (p. 413)
whereby some retailers must express both the total price of an item and its price per unit of measure
item price removal (p. 413)
hereby prices are marked only on shelves or signs and not on individual items
bait-and-switch advertising (p. 413)
*an illegal tactic where retailers advertise products at very low prices to attract customers, but then claim the item is unavailable or inferior when contacted, attempting to sell a different, often more expensive product instead
gray-market goods (p. 414)
brand-name products bought in foreign markets or goods trans-
shipped from other retailers
market penetration pricing (p. 415)
when a retailer seeks large revenues by setting low prices and selling many units
market skimming pricing (p. 415)
when a company initially sets a high price for a new product or service and then gradually lowers it over time
demand-oriented pricing (p. 418)
when a retailer sets prices based on consumer desires
cost-oriented pricing (p. 418)
when a retailer sets a price
floor–the minimum price acceptable to the firm so it can reach a specified profit goal
an effective price floor is placed above the equilibrium point between supply and demand (think COMM 220)
competition-oriented pricing (p. 418)
when a retailer sets its prices in accordance with those of its competitors
price—quality association (p. 418)
when consumers believe high prices connote high quality and low prices connote low quality
prestige pricing (p. 418)
when businesses set high prices for their products or services to convey an image of exclusivity and superior quality
markup pricing (p. 418)
a retailer sets prices by adding per-unit merchandise
costs, retail operating expenses, and desired profit
markup (p. 418)
the difference between merchandise costs and
selling price
markup percentage (p. 418)
markup percentage (at retail) = (retail selling price - merchandise cost) / retail selling price
markup percentage (at cost) = (retail selling price - merchandise cost) / merchandise cost
initial markup (p. 420)
based on the original retail value assigned to merchandise less the costs of the merchandise
maintained markup (p. 420)
based on the actual prices received for merchandise sold during a time period less merchandise cost
gross margin (p. 420)
the difference between net sales and the total cost of goods sold (which adjusts for cash discounts and additional expenses)
gross margin ($) = net sales - total costs of goods
variable markup policy (p. 421)
when a retailer purposely adjusts markups by merchandise category
direct product profitability (DPP)
(p. 421)
a method that allows retailers to assess the profitability of each merchandise category by calculating adjusted per-unit gross margin and assigning direct costs related to warehousing, transportation, handling, and selling, thereby determining the appropriate markup for each category or item
customary pricing (p. 423)
a retailer sets prices for goods and services and seeks to maintain them for an extended period
everyday low pricing (EDLP) (p. 423)
a retailer strives to sell its goods and services at consistently low prices throughout the selling season
variable pricing (p. 424)
a retailer alters its prices to coincide with fluctuations in costs or consumer demand
yield management pricing (p. 425)
a computerized, demand-based pricing strategy used by retailers (often in service industries) to determine optimal pricing combinations that maximize total revenues for a specific period
one-price policy (p. 425)
a retailer charges the same price to all customers buying an item under similar conditions
flexible pricing (p. 425)
allows consumers to bargain over prices
contingency pricing (p. 425)
a form of flexible pricing whereby a service retailer receives payment only after the service is performed, and payment depends on customer satisfaction with the service
odd pricing (p. 425)
when retail prices are set at levels below even dollar values, such as $0.49, $4.98, and $199.
leader pricing (p. 426)
where retailers sell selected items at lower prices to attract customers, aiming to increase overall traffic and encourage additional purchases of regularly priced goods
multiple-unit pricing (p. 426)
a retailer offers discounts to customers who buy in quantity or who buy a product bundle
buy 10 for $30 (la vie en rose)
bundled pricing (p. 426)
a retailer combines several items in one basic price
eg. a digital camera bundle could include a camera, batteries, a telephoto lens, a case, and a tripod for $259.
unbundled pricing (p. 426)
retailers charge separate prices for each product or service sold
price lining (p. 427)
retailers offer merchandise at a limited range of price points, with each point representing a distinct level of quality.
markdown (p. 427)
a reduction from an item’s original price used to match a competitor’s price, address inventory overstock, clear out outdated merchandise, reduce excess items, and boost customer traffic
additional markup (p. 427)
increases an item’s original price because demand is unexpectedly high or costs are rising
markdown percentage (p. 428)
the total dollar markdown as a percentage of net sales (in $)
markdown percentage = total dollar markdown / net sales (in $)
off-retail markdown percentage
(p. 428)
a measure that calculates the markdown for each item or category as a percentage of the original retail price
off-retail markdown percentage = (OG price = new price) / OG price
additional markup percentage (p. 428)
looks at total dollar additional markups as a percentage of net sales
additional markdown percentage = total dollar additional markups / net sales (in $)
addition to retail percentage (p. 428)
measures a price rise as a percentage of the original price
additional to retail percentage = (new price - OG price) / OG price
