Chapter 14: Retail Pricing

Question 1

Value =

Answer 1

Perceived Benefits/ Price

Question 2

2 Types of Pricing Strategies

Answer 2

1-EDLP (Every Day Low Prices)

2-High/Low

Question 3

EDLP Pros/Cons

Answer 3

EDLP: Emphasizes prices that are below normal and could even be dirt cheap.
*Retailers like Walmart have adopted this low price guarantee to reinforce EDLP strategy

Pros:
assures low prices
reduces advertising/operating expenses
reduces stockout and improves inventory mgmt

Cons:
does NOT mean lowest price

Question 4

High/Low Pricing Pros/Cons

Answer 4

High Low Pricing: discount initial prices through frequent sales promotions
(think Kohl’s with their continued sales)

Pros:
increases profits (price discrimination)
sales create excitement
sells merchandise quick

Cons:
trains people to buy on deal and to wait if no deals
adverse effects on profits

Question 5

Elasticity =

Answer 5

% change in quantity sold / % change in price

Question 6

How do retailers set prices?

Answer 6

Set prices because of pre-determined markup/merchandise cost.
Make adjustments to markup price based on customer price sensitivity and competition.

Question 7

Mark Up =

Answer 7

(Retail Price - Cost) / Retail Price

Question 8

Retail Price =

Answer 8

Cost + Markup

Question 9

Initial Markup =

Answer 9

Initial Selling Price - Cost of Merchandise.

Question 10

Maintained Markup =

Answer 10

Actual Sales for Merchandise - Costs

Question 11

Break Even Analysis

Answer 11

Determines how much merchandise needs to be sold in order to achieve a break-even (zero) profit

Question 12

What is Individualized Variable Pricing? What type of price discrimination?

Answer 12

Individualize Variable Pricing: Charges different customers different prices based on their willingness to pay (personalized internet prices)

1st Degree Price Discrimination

Question 13

What is Self-Selected Variable Pricing? What type of price discrimination?

Answer 13

Self-Selected Variable Pricing: offers same price schedule to all customers, quantity discounts, early bird special. Gives the opportunity to different customers but they must act upon it themselves
(YOU choose to engage in the sales but there is a level of discrimination)

2nd Degree Price Discrimination

Question 14

What is Zone Pricing? What type of price discrimination?

Answer 14

Zone Pricing: Charges different prices in different stores, markets, regions

3rd Degree Price Discrimination
(everyone around you is getting the same prices but not necessarily others buying exact same product as you)

Question 15

Loss Leader Pricing

Answer 15

When you mark a complementary product lower in order for people to buy them as a duo.
(ex: eggs, milk, bread, disposable eggs)

Question 16

Price Lining

Answer 16

Putting prices in a line on an advertisement or so people can see them side by side.

-Give flexibility and lets them chose their level of service or quantity of product

Ex: $59.99 (Good), $89.99 (Better), $129.99 (Best)

Question 17

Odd Pricing

Answer 17

A price number that ends in an odd number
(most common is 9)

Customers assume they are getting a deal/cheaper, not as big of a number as the next number up.
(Ex: Gas is $2.99 our minds think “oh, $2” when in reality it is practically $3)