Retail Management Chapter 7

question

Pricing decision

answer

_________ is important because customers have alternatives to choose from and are better informed

question

Perceived benefits / price

answer

Value =

question

benefits, price

answer

retailers can increase value and stimulate sales by increasing ______ or reducing ______

question

Good-value pricing

answer

Offers the right combination of quality and good service to fair price. Existing brands are being redesigned to offer more quality for a given price or the same quality for less price.

question

Everyday low price (EDLP)

answer

involves charging a constant everyday low price with few or no temporary price discounts

question

High - Low Pricing

answer

involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items

question

EDLP

answer

The following are characteristics of:
- Assures customers low prices
- Reduces advertising and operating expenses
- Better supply chain management (Fewer stockouts, Higher inventory turnover)

question

Hi-Lo

answer

The following are characteristics of:
- Higher profits through price discrimination
- Build short-term sales and generates traffic
- More excitement

question

Value-added pricing

answer

Attaches value-added features and services to differentiate offers, support higher prices, and build pricing power

question

Pricing Power

answer

is the ability to escape price competition and to justify higher prices and margins without losing market share.

question

- price sensitivity
- cost
- competition
- legal constraint

answer

Considerations in setting price are...

question

Decrease

answer

When price increases, sales ______

question

Fewer customers feel the product is a good value

answer

When price increases, sales decrease. Why is that?

question

Decrease

answer

If customers are very price sensitive, sales _____ significantly with price increase

question

Price Elasticity

answer

A commonly used measure of price sensitivity. is = to the percent change in quantity sold / percent change in price.

question

remain competitive

answer

Most retailers routinely collect price data about their competitors to adjust their prices to ________.

question

- Develop lines of private label merchandise
- Negotiate with national brands manufacturers for
exclusive distribution rights
- Have vendors make unique products for the retailer

answer

How can retailers reduce price competition?
- Develop lines of _________
- Negotiate with national brands manufacturers for
________
- Have vendors make ________ for the retailer

question

Theoretically, retailers maximize their profits by setting prices based on the price sensitivity of customers and the cost of merchandise and considering the prices being charged by competitors.

answer

Theoretically, retailers maximize their profits by setting prices based on the _____________ and the __________ and considering the prices being charged by __________

question

50,000

answer

In reality, retailers need to set price for over ______ SKUs many times during year

question

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

answer

How Do Retailers Set Retail Prices?

question

cost of merchandise + markup

answer

Retail Price =

question

retail price - cost / retail price

answer

MarkUp Percentage =

question

50 percent

answer

Traditionally, apparel retailers used a ______ markup, referred to as keystoning that set the retail price by simply doubling the cost.

question

Initial markup

answer

Retail selling price initially set for the merchandise minus the cost of the merchandise.

question

Maintained markup

answer

the actual sales realized for the merchandise minus its costs

question

- markdown (sales)
- discounts to employees
- inventory shrinkage due to shoplifting and employee theft

answer

The difference between initial markups and maintained markups are due to various reductions such as:

question

markdowns, variable pricing

answer

Retailers adjust prices over time (_______) and for different customer segments (_________)

question

Clearance Markdowns

answer

To get rid of slow-moving, obsolete merchandise

question

Promotional Markdowns

answer

To increase sales and promote merchandise. To Increase traffic flow and sale of complementary products generate excitement through a sale

question

To generate cash to buy additional merchandise

answer

Reason for Taking Markdowns:

question

Sell-Through

answer

Identifies markdown items when its weekly
sell-through percentages fall below a certain level

question

Rule-Based

answer

Cuts prices on the basis of how long the merchandise has been in the store

question

Markdown Optimization

answer

Software is used to determine when and how much
markdowns should be taken to produce the best results by continually updating pricing forecasts on the basis of actual sales and factoring in differences in price sensitivities

question

Variable Pricing

answer

Retailers use a variety of techniques to maximize profits by charging different prices to different customers

question

Individualized Variable Pricing - First Degree of Price Discrimination

answer

Set unique price for each customer equal to customer's willingness to pay (Auctions, Personalized Internet Prices)

question

Dynamic Pricing (Individualized Pricing)

answer

the process of charging different prices for goods or services based on the type of customer, time of the day, week, or even season, and level of demand

question

Self-Selected Variable Pricing - Second Degree of Price Discrimination

answer

Offer the same multiple-price schedule to all customers (quantity discounts, early bird special, over weekend travel discount, clearance markdowns for fashion merchandise, coupons, price bundling, multiple unit pricing or quantity discount)

question

Variable Pricing by Market Segments - Third Degree of Price Discrimination

answer

Charge different groups different prices (senior discounts, kids menu)

question

Leader Pricing, Odd Pricing, Product Line Pricing

answer

3 pricing techniques

question

Leader Pricing

answer

Certain items are priced lower than normal to increase customers traffic flow and/or boost sales of complementary products. Best items: purchased frequently, primarily by price-sensitive shoppers. Examples: bread, eggs, milk, disposable diapers. Might attract cherry pickers

question

Product Line Pricing

answer

A limited number of predetermined price points. $59.99 (good), $89.99 (better), and 129.99 (best).

question

- eliminates confusion of many prices
- merchandising task is simplified
- gives buyers flexibility
- can get customers to "trade up"

answer

Name some benefits for Product Line Pricing

question

Odd Pricing

answer

A price that ends in an odd number (.9) like $2.99.

question

- Consumers perceive as $2 without noticing the digits
- 9 endings signal low prices
- Retailers believe the practice increases sales, but probably doesn't

answer

Assumption behind Odd Pricing:

1 of 44

question

Pricing decision

answer

_________ is important because customers have alternatives to choose from and are better informed

question

Perceived benefits / price

answer

Value =

question

benefits, price

answer

retailers can increase value and stimulate sales by increasing ______ or reducing ______

question

Good-value pricing

answer

Offers the right combination of quality and good service to fair price. Existing brands are being redesigned to offer more quality for a given price or the same quality for less price.

question

Everyday low price (EDLP)

answer

involves charging a constant everyday low price with few or no temporary price discounts

question

High - Low Pricing

answer

involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items

question

EDLP

answer

The following are characteristics of:
- Assures customers low prices
- Reduces advertising and operating expenses
- Better supply chain management (Fewer stockouts, Higher inventory turnover)

question

Hi-Lo

answer

The following are characteristics of:
- Higher profits through price discrimination
- Build short-term sales and generates traffic
- More excitement

question

Value-added pricing

answer

Attaches value-added features and services to differentiate offers, support higher prices, and build pricing power

question

Pricing Power

answer

is the ability to escape price competition and to justify higher prices and margins without losing market share.

question

- price sensitivity
- cost
- competition
- legal constraint

answer

Considerations in setting price are...

question

Decrease

answer

When price increases, sales ______

question

Fewer customers feel the product is a good value

answer

When price increases, sales decrease. Why is that?

question

Decrease

answer

If customers are very price sensitive, sales _____ significantly with price increase

question

Price Elasticity

answer

A commonly used measure of price sensitivity. is = to the percent change in quantity sold / percent change in price.

question

remain competitive

answer

Most retailers routinely collect price data about their competitors to adjust their prices to ________.

question

- Develop lines of private label merchandise
- Negotiate with national brands manufacturers for
exclusive distribution rights
- Have vendors make unique products for the retailer

answer

How can retailers reduce price competition?
- Develop lines of _________
- Negotiate with national brands manufacturers for
________
- Have vendors make ________ for the retailer

question

Theoretically, retailers maximize their profits by setting prices based on the price sensitivity of customers and the cost of merchandise and considering the prices being charged by competitors.

answer

Theoretically, retailers maximize their profits by setting prices based on the _____________ and the __________ and considering the prices being charged by __________

question

50,000

answer

In reality, retailers need to set price for over ______ SKUs many times during year

question

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

answer

How Do Retailers Set Retail Prices?

question

cost of merchandise + markup

answer

Retail Price =

question

retail price - cost / retail price

answer

MarkUp Percentage =

question

50 percent

answer

Traditionally, apparel retailers used a ______ markup, referred to as keystoning that set the retail price by simply doubling the cost.

question

Initial markup

answer

Retail selling price initially set for the merchandise minus the cost of the merchandise.

question

Maintained markup

answer

the actual sales realized for the merchandise minus its costs

question

- markdown (sales)
- discounts to employees
- inventory shrinkage due to shoplifting and employee theft

answer

The difference between initial markups and maintained markups are due to various reductions such as:

question

markdowns, variable pricing

answer

Retailers adjust prices over time (_______) and for different customer segments (_________)

question

Clearance Markdowns

answer

To get rid of slow-moving, obsolete merchandise

question

Promotional Markdowns

answer

To increase sales and promote merchandise. To Increase traffic flow and sale of complementary products generate excitement through a sale

question

To generate cash to buy additional merchandise

answer

Reason for Taking Markdowns:

question

Sell-Through

answer

Identifies markdown items when its weekly
sell-through percentages fall below a certain level

question

Rule-Based

answer

Cuts prices on the basis of how long the merchandise has been in the store

question

Markdown Optimization

answer

question

Variable Pricing

answer

Retailers use a variety of techniques to maximize profits by charging different prices to different customers

question

Individualized Variable Pricing - First Degree of Price Discrimination

answer

Set unique price for each customer equal to customer's willingness to pay (Auctions, Personalized Internet Prices)

question

Dynamic Pricing (Individualized Pricing)

answer

the process of charging different prices for goods or services based on the type of customer, time of the day, week, or even season, and level of demand

question

Self-Selected Variable Pricing - Second Degree of Price Discrimination

answer

question

Variable Pricing by Market Segments - Third Degree of Price Discrimination

answer

Charge different groups different prices (senior discounts, kids menu)

question

Leader Pricing, Odd Pricing, Product Line Pricing

answer

3 pricing techniques

question

Leader Pricing

answer

question

Product Line Pricing

answer

A limited number of predetermined price points. $59.99 (good), $89.99 (better), and 129.99 (best).

question

- eliminates confusion of many prices
- merchandising task is simplified
- gives buyers flexibility
- can get customers to "trade up"

answer

Name some benefits for Product Line Pricing

question

Odd Pricing

answer

A price that ends in an odd number (.9) like $2.99.

question

- Consumers perceive as $2 without noticing the digits
- 9 endings signal low prices
- Retailers believe the practice increases sales, but probably doesn't

answer

Assumption behind Odd Pricing:

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Retail Management Chapter 7

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