MKTG 461 Ch 14

What is value?
A. It refers to inexpensive merchandise.
B. It is the relationship between what consumers have and what they want.
C. It is the relationship between desires and needs.
D. It is the relationship between what consumers receive and what they paid for it.
E. It refers to the lowest price and the lowest quality merchandise or service.
Retailers using a(n) _____ strategy frequently—often weekly—discount the initial prices for merchandise
through sales promotions.
A. disintermediated pricing
B. penetration pricing
C. high/low pricing
D. price skimming
E. everyday low-pricing
A(n) _____ strategy emphasizes the continuity of retail prices at a level somewhere between the regular
nonsale price and the deep-discount sale price of high/low retailers.
A. leader pricing
B. keystoning
C. high/low pricing
D. price skimming
E. everyday low-pricing
Which of the following is NOT a benefit typically ascribed to an everyday low pricing (EDLP) strategy?
A. Increased profit margin
B. Improved customer loyalty
C. Improved inventory management
D. Increased sale advertising
E. Stockout reduction
How does an improved inventory management through the use of an everyday low pricing (EDLP)
strategy benefits retailers?
A. It increases the total sales.
B. It increases the number of rain checks.
C. It leads to more frequent sales and markdowns.
D. It results in a need for more backup stock.
Which of the following statements holds true for an everyday low-pricing (EDLP) strategy?
A. Slow-selling merchandise can be sold by discounting the price.
B. It allows retailers to charge higher prices to customers who are not price sensitive.
C. Customers need to wait for items to go on sale.
D. The use of EDLP increases the need for sale- advertising.
E. EDLP retailers do not have to incur the labor costs of changing price tags.
How can a retailer that wants to use an EDLP strategy persuade customers away from high/low strategy
A. By using price lining
B. By using a demand-oriented method for setting retail prices
C. By assuring customers of low prices
D. By refusing to accept manufacturers’ coupons
Which of the following is NOT a factor that retailers consider in setting prices?
A. Price sensitivity of consumers
B. The cost of the merchandise and services
C. Competition
D. Legal restrictions
E. Language barriers
A price experiment:
A. can be used to measure the price sensitivity of customers.
B. cannot be performed if the retailer uses POS terminals.
C. is a less accurate method of determining buyer response to price changes than a consumer panel.
D. is useful for obtaining data for a cost-oriented pricing strategy.
E. is a risky procedure when competition is a factor.
A price experiment:
A. is method of determining the most profitable price for a product.
B. cannot be performed if the retailer uses POS terminals.
C. is a less accurate method of determining buyer response to price changes than a consumer panel.
D. is useful for obtaining data for a cost-oriented pricing strategy.
E. is a quick and efficient method to decide on a price for a product.
Cliff struggled with the price of produce at his well-established produce markets. The reputation of
the markets attracts repeat customers from a 50-mile radius. Recently, local farmers started increasing
produce prices for him due to the upsurge in gas prices. Now, Cliff feels it is time to pass the costs onto
his customers. Which of the following should Cliff estimate to determine the effect of price changes?
A. Price elasticity
B. Break-even point quantity
C. Fixed costs
D. Reference price
A commonly used measure of price sensitivity is _____.
A. price variation
B. price elasticity
C. price velocity
D. price adaptability
E. price adjustment
A retailer originally priced a private-label portable DVD player at $99 and sold 1,200 units per week.
After raising the price to $120, sales dropped to 1,000 units per week. What would the item’s price
elasticity be?
A. -2.4005
B. 2.4005
C. -3
D. 3.33
E. -.7855
Which of the following items has the most price elasticity?
A. Fast-food
B. Branded luxury goods
C. Prescription medication
D. Movie tickets
E. Gasoline
Smith’s Electronics originally priced a private-label portable DVD player at $90, and then sold 1,500
units per week. After raising the price to $100, sales dropped to 1,000 units per week. First, determine the
price elasticity, and then determine the profit-maximizing price if the private-label portable DVD player
costs $50.
A. $90
B. $85.70
C. $75
D. $70.25
E. $70
When pricing products, retailers must:
A. choose a pricing policy considering the company’s overall strategy.
B. observe the competition to offer the same price by price fixing.
C. reduce stockouts by keeping prices higher than the competition.
D. risk supply chain mishaps by keeping process low.
E. price consistently throughout the chain
Retailers collect price data about their competitors to:
A. see if they need to adjust their prices.
B. match supply and demand.
C. maximize their sales and profits by means of yield management.
D. assess the quality of services provided.
Catherine had checked the price of an airline ticket in November to fly to Daytona Beach for her spring
break. She was surprised when she checked again in February that the price had increased significantly.
The airline had adjusted its prices based on the demand. This practice is known as _____.
A. price bundling
B. yield management
C. odd pricing
D. high-low pricing
E. predatory pricing
Yield management means:
A. setting prices by simply marking up the merchandise without considering price sensitivity.
B. understanding and implementing pricing based on costs.
C. implementing steps for reducing markdowns.
D. managing promotions that yields higher sales.
E. adjusting prices in response to demand in order to control sales generated
A drugstore purchases hand cream at $2 per jar and sells them for $15. What is its markup percentage?
A. 60%
B. 87%
C. 40%
D. 5%
E. 22%
The _____ is the difference between the retail price and the cost of an item.
A. markup
B. markdown
C. break-even point
D. variable cost
E. fixed cost
Frankie is a buyer for a department store and is buying some handbags at a cost of $30 from a vendor. He
desires to have a 60% markup to meet the financial goals of this category. What will be the retail price of
these handbags?
A. $75
B. $40
C. $50
D. $60
E. $95
Which of the following factors influences reductions?
A. The cost of alterations
B. The amount subtracted from the gross margin
C. Theft and accounting errors
D. Tax write-off for corporate volunteer hours
E. Format of saving for low profit quarters
The approach of using 50 percent markup is known as _____ because of which the retail price would be
double the cost.
A. activity costing
B. keystoning
C. budget costing
D. cost plus costing
E. regular costing
Joe keystones every product’s price in his skateboard store. Therefore, the initial mark-up percent that Joe
uses is:
A. 25 percent.
B. 50 percent.
C. 100 percent.
D. 10 percent.
E. 200 percent.
_____ is the actual sales realized for the merchandise minus its costs of the merchandise sold.
A. Total profit
B. Net profit margin
C. Fixed price
D. Maintained markup
E. Initial mark-up
The Bow Shop caters to archery enthusiasts. It sells bows starting at $300. The maintained markup used
by the store is 60 percent. Reductions are estimated to be 12 percent. Calculate the store’s planned initial
markup percentage.
A. 55.55 percent
B. 48 percent
C. 60 percent
D. 64.29 percent
E. 72 percent
Mattie owns a clock shop featuring vintage clocks from the 1950s. Mattie plans to achieve a 40%
maintained mark-up, and her reductions are planned at 4%. What is her planned initial markup
A. 42.3%
B. 44%
C. 36%
D. 34.6%
E. 30.6%
Left Lanta is a small retailer in Underground Atlanta, a historical retail district in that city. Here, the
Lanta family sells items for left-handed people. Since the store is located in a kiosk near one of the
entrances to the underground, it is often the target of shoplifters. Therefore, the store is forced to reduce
the actual selling price of its products. The factors such as theft that cause the reduction in the selling
price are called _____.
A. loss margins
B. amortized losses
C. reductions
D. markdowns
E. net losses
A bookstore is considering stocking a limited edition of Alice in Wonderland dolls at a cost of $125 each.
The manager calculated the retail price with an initial markup percentage of 48 percent and plans to ticket
the product with a “.00” ending. What would the initial retail price be on the doll?
A. $180
B. $190
C. $240
D. $280
E. $63
The retail price of a sweater is $75, and the initial markup is 51 percent. Calculate the cost of the
A. $33.75
B. $25.71
C. $28.50
D. $36.75
E. $42.85
The merchandise cost from the vendor for an MP3 player is $82.50, and the retailer who is selling the
device wants to use an initial markup percentage of 67 percent. Calculate the initial retail price.
A. $149.50
B. $272
C. $55
D. $123
E. $250
Because of markdowns, discounts to employees and customers, and merchandise reductions, _____.
A. the actual selling price is lower than the initial sales price
B. the maintained markup is always less than the gross margin
C. the total revenue becomes equal to the total cost
D. the value of average inventory at cost is less than its receipt value
E. the initial markup is always lower than the maintained markup
_____ is an analytical tool which enables retailers to know of units they need sell to begin making a
A. Yield management
B. Break-even analysis
C. Keystoning
D. Price lining
E. Cost-plus pricing
Which of the following is an example of a fixed cost for a bridal gown shop?
A. The services of the seamstress to fit each gown
B. The cost associated with dying the shoes to match the bridesmaids’ dresses
C. The cost associated with the layaway of variously priced gowns
D. The cost of the mannequin used to display current gowns
E. The cost associated with a generous return policy
Eunice buys a worm farm. She plans to sell a small carton of worms to people who want to fish for
$3. Her fixed costs are $1,201, and her variable cost for each carton sold is $.75. How many cartons of
worms does Eunice need to sell to reach her break-even quantity?
A. 2712
B. 321
C. 400
D. 534
E. 888
Ferdinand runs a pie shop in a busy metropolis. He sells his fresh pies for $7, but it costs him $2.50 to
make them. The cooking equipment in his shop cost him $46,000. How many pies does Ferdinand need
to sell to make $50,000 annually?
A. 33,000 pies
B. 16,000 pies
C. 8,500 pies
D. 21,333 pies
E. 12,645 pies
Which of the following is an example of a variable cost for a retailer of electronic equipment?
A. The display tables for mounting the computer, monitor, and printer
B. The cost associated with the free pack of paper for every computer printer sold
C. The store rent charged by the mall
D. The cost of obtaining the licenses required by the local government
E. The cost of manufacturing the electronic equipment
Reductions in the initial retail prices are known as _____.
A. rain checks
B. fixed costs
C. markdowns
D. variable costs
E. keystoning prices
Which of the following statements describes a situation in which markdowns would NOT be appropriate?
Markdowns would be appropriate on a pair of pillows that had been part of a display and were
showing light wear.
B. Markdowns would be an appropriate pricing strategy for winter parkas that are still in stock in March.
Markdowns would be appropriate for licensed merchandise supporting a movie that was not as popular
as predicted.
Markdowns would be appropriate for national brand merchandise that was priced 15 percent lower in a
neighboring competing store.
Markdowns would be appropriate for a group of t-shirts that have a higher turnover than other t-shirts
in the department.
Which of the following statements is NOT true of markdowns?
A. Markdowns are part of the cost of doing business, and thus buyers plan for them.
B. A buyer’s objective is to minimize markdowns.
C. Retailers have a set of arbitrary rules for taking markdowns.
D. Buyers employ markdowns to promote merchandise and increase sales.
E. Markdowns can increase customer traffic flow.
Which of the following statements on markdowns is FALSE?
A. Markdowns are an unnecessary part of business if planned correctly.
B. Markdowns are an opportunity to increase sales.
C. Promotional markdowns increase customer flow.
D. If markdowns are too low the buyer may be not purchasing enough merchandise.
E. If markdowns are too low the buyer may be pricing their merchandise too low.
Which of the following statements is a limitation of the rule-based approach to taking markdowns?
A. The rule-based approach is based upon gross margin.
B. The approach prohibits input from the vendor.
C. The approach does not follow a fixed schedule.
D. It does not consider the demand for merchandise at different price points.
E. The approach assumes that items in a category do not exhibit the same behavior
How does optimization software help retailers in taking markdowns?
A. It gives retailers the point at which it is optimal to job-out and consolidate.
B. It updates pricing based upon actual sales and factors in differences in price sensitivities.
C. It continually updates buyers on sales by price beginning at the point of sale.
D. It dictates markdown merchandise into one percentage markdown per week in the store.
E. It indicates markdowns based on how long the merchandise has been in the store.
When making a good markdown decision, a retailer should:
A. work closely with its vendors and share the financial burden of the markdowns.
B. only trust its own tastes and intuitions when stocking merchandise.
C. rely exclusively on computer software designed for optimal pricing.
D. consider only the rules-based approach because it has proven its reliability.
E. look to limit them as markdowns hinder customer loyalty.
Some retailers liquidate end-of-season merchandise to retailers like T.J. Maxx, who in return sell it at a
deep discount. What is the benefit to the retailer who liquidates merchandise using this strategy?
A. The retailer is able to replace the merchandise with other markdowns.
B. It helps retailers recoup a percentage of the merchandise cost.
C. It is a profitable way for retailers to get rid of undesirable merchandise.
D. The retailer can consolidate the merchandise.
E. It lowers the reputation of the company who purchases the liquidated merchandise.
Which of the following statements does NOT describe a benefit of markdowns for a retailer?
A. Markdowns generate cash flow to pay for new merchandise.
B. It is a way to make room for new merchandise.
C. It rids the store of obsolete merchandise.
D. It increases customer traffic.
E. It is a way to gain a higher gross margin
Jenny runs a produce stand in an inner-city neighborhood. With the recent layoffs, she has become
popular because she gives her day-old produce to the local charity. Which of the following benefits does
Jenny gain by donating produce to the local charity?
A. It requires extra record keeping and transportation costs.
B. It offers her strong public relations benefits.
C. She needs to allocate separate space for her clearance merchandise.
D. She can recover a small percentage of the merchandise’s cost.
E. The keystone price can be deducted from her income.
Which of the following strategies is NOT viable for liquidating markdown merchandise?
A. Sell to another retailer.
B. Consolidate unsold merchandise.
C. Adopt a keystoning strategy.
D. Sell at Internet auction.
E. Return to vendor.
Which of the following is the LEAST profitable method of liquidating markdown merchandise?
A. Sell the merchandise to another retailer.
B. Consolidate the unsold merchandise.
C. Place the remaining merchandise on an Internet auction site.
D. Give the merchandise to charity.
E. Carry the merchandise over to the next season.
Charging each individual customer a different price based on their willingness to pay is called _____.
A. first-degree price discrimination
B. second-degree price discrimination
C. third-degree price discrimination
D. odd pricing
E. leader pricing
Which type of retailer is MOST likely to use first-degree price discrimination?
A. A sub shop
B. A candy store
C. A newspaper stand
D. An antique shop
E. A pet store
d is a website which features a wide range of products from different retailers put up for auction.
The retailers charge customers based on their willingness to pay to maximize profits. Which pricing
technique is being used by the retailers who put their products for auction on
A. First-degree price discrimination
B. Second-degree price discrimination
C. Third-degree price discrimination
D. Odd pricing
E. Leader pricing
Which of the following statements holds true for individualized variable pricing?
A. Customers may feel that they are being treated in an unfair manner.
B. It is a practical approach and is widely used across retail stores.
C. Retailers can easily change the posted prices in stores based on customers’ willingness.
D. Retailers use this form of pricing for promotional and clearance markdowns.
E. This strategy concentrates on the sale of complementary products.
_____ is the practice of offering the same multiple-price schedule to all customers and encourages pricesensitive
customers to take advantage of the lower price.
A. First-degree price discrimination
B. Second-degree price discrimination
C. Third-degree price discrimination
D. Price lining
E. High/low pricing
Which of the following is NOT an example of a second-degree price discrimination strategy?
A. Offering coupons
B. Online auction bidding
C. Price bundling
D. Multiple-unit pricing
E. Promotional markdowns
Manuel’s vacation to Chicago for $395 for three nights in a four star hotel on Michigan Avenue included
airfare and accommodation. If these services were availed individually, it would have been expensive.
This form of second-degree price discrimination is referred to as _____.
A. odd pricing
B. zone pricing
C. leader pricing
D. price bundling
E. variable bundling
_____ is the practice of offering two or more different products or services for sale at one price.
A. Price bundling
B. Psychological pricing
C. Price grouping
D. Conjoint bundling
E. Price lining
A travel brochure shows that a couple can buy a round trip ticket to Orlando, a three-day pass to Disney
World, car rental for four days, and hotel accommodations for 5 nights for $1200 per person. These
services are expensive when availed individually. This offer is an example of _____.
A. price lining
B. psychological pricing
C. bait and switch bundling
D. price bundling
E. conjoint pricing
What is the potential byproduct of promotional markdowns?
A. It is a way of achieving a break-even point.
Promotional markdowns benefit customers because they are charged according their willingness to
C. Retailers aim to get rid of unwanted merchandise through promotional markdowns.
D. The increased in-store traffic can lead to the purchase of other products at regular prices.
E. Buyers are benefitted because they are charged according to the market segment to which they belong
Giant, a retail store, is offering two 6-packs of beer for $5. The price for a single tin is $2.69. What
pricing strategy is Giant using?
A. Price lining
B. Multiple-unit pricing
C. Psychological pricing
D. Price bundling
E. Conjoint pricing
The practice of charging different prices to different demographic market segments is referred to as
A. predatory pricing
B. first-degree price discrimination
C. second-degree price discrimination
D. third-degree price discrimination
E. leader pricing
_____ refers to charging of different prices for different stores, markets, or regions.
A. Zone pricing
B. Geofencing
C. Price lining
D. Price optimization
E. Odd pricing
_____ is the practice of pricing certain items lower than normal to increase customers’ traffic flow or
boost sales of complementary products.
A. Stimulus pricing
B. Leader pricing
C. Follow-up pricing
D. Price lining
E. Odd pricing
Dream Homes is an appliance store. It recently launched its own brand of freezers in order to build
customer loyalty. The store launched three different models to cater to low, middle, and high income
groups. The freezers are also priced accordingly. These freezers are exclusive to Dream Homes and cater
to all customer segments. This pricing strategy involving price points within a merchandise category is
known as _____.
A. price lining
B. price bundling
C. odd pricing
D. zone pricing
E. leader pricing
Why was odd pricing used in the early twentieth century?
A. Odd pricing saved on distribution costs.
B. It was used to increase traffic flow into stores.
C. It offered a limited number of predetermined price points making pricing easier.
D. It eliminated confusion when a customer shopped in different locations.
E. It reduced losses due to employee theft.
At the new toy store that opened near his home, Ryan noticed all the products were priced at $.49, $.79,
or $.99 endings. What type of pricing is the store following?
A. Odd pricing
B. Unit pricing
C. Horizontal pricing
D. Mixed pricing
E. Promotional pricing
_____ are customers who go from one store to another, buying only items that are on special.
A. Innovators
B. Laggards
C. Cherry pickers
D. Whistleblowers
E. Early adapters
_____ enables customers with mobile devices to check prices in stores and purchase online, ostensibly at
a lower price.
A. Horizontal price fixing
B. Price lining
C. Odd pricing
D. Showrooming
E. Keystoning
_____ is the concept of offering customers localized promotions of retailers in close proximity of their
mobile phones.
A. Geofencing
B. Geotagging
C. Geocaching
D. Price lining
E. Leader pricing
Which of the following is set by vendors by withholding benefits such as cooperative advertising or even
refusing to deliver merchandise to noncomplying retailers?
A. Predatory pricing
B. Horizontal pricing
C. Bait and switch
D. Vertical pricing
E. MSRP pricing
_____ is an unlawful, deceptive practice which lures customers into a store by advertising a product at a
lower-than-normal price and then, once they are in the store, induces them to purchase of higher-priced
A. Predatory pricing
B. Horizontal price fixing
C. Bait and switch
D. Scanned pricing
E. Dynamic pricing
Why do vendors encourage retailers to sell at MSRP?
A. To secure a profit
B. To reduce retail price competition among retailers
C. To avoid markdowns
D. To promote national brands as quality brands
E. To drive competitive retailers out of business
A _____ is a promise to customers to sell currently out-of-stock merchandise at the advertised price when
it arrives.
A. rain check
B. price audit
C. bona fide reference price
D. maintained markup
E. dynamic pricing policy
Which of the following pricing practices employs tactics such as inadequate inventory for advertised
A. Bait and switch
B. Deceptive reference pricing
C. MSRP pricing
D. Predatory pricing
E. Horizontal price fixing
An agreement between retailers that are in direct competition with each other to set the same prices is
called _____.
A. horizontal price fixing
B. vertical price fixing
C. MSRP pricing
D. predatory pricing
E. price elasticity
A _____ is the price against which buyers compare the actual selling price of the product, and thus it
facilitates their evaluation process.
A. MSRP price
B. break-even price
C. markup price
D. reference price
E. maintained markup
Periodic price audits are completed at retail stores to ensure that the:
A. prices are high enough to cover costs.
B. prices are lower than the competition.
C. extent and cause of scanning errors are identified.
D. product is priced consistent with the company’s pricing policy.