Retailing Management, 10e (Levy)
Chapter 13 Retail Pricing
1) The high/low pricing strategy helps sell slow-moving merchandise.
2) Generally, as the price of a product increases, sales for the product will increase.
3) Price elasticity is the percentage change in quantity sold divided by the percentage change in
price.
4) Initial markup is the actual sales realized for the merchandise minus its costs.
5) The break-even point quantity is the quantity at which total revenue equals total cost, beyond
which profit occurs.
6) Buyers generally do not plan for markdowns.
7) Retailers frequently offer a limited number of predetermined price points within a merchandise
category, a practice known as zone pricing.
8) Markdown money is funds a vendor gives the retailer to cover lost gross margin dollars that
result from markdowns and other merchandising issues.
9) Predatory pricing arises when a dominant retailer sets prices below its costs to drive competitive
retailers out of business.
10) Vertical price fixing involves agreements between competing retailers to illegally set the same
prices.
11) 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 have to pay for it.
E) It refers to the lowest price and the lowest quality merchandise or service.
12) 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
13) 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
14) 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
15) How does an improved inventory management through the use of an everyday low-pricing
(EDLP) strategy benefit 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.
E) It increases the sales of slow-moving merchandise.
16) 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 advertising.
E) EDLP retailers do not have to incur the labor costs of changing price tags.
17) How can a retailer that wants to use an EDLP strategy persuade customers away from high/low
strategy competitors?
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
E) By increasing advertising
18) 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
19) 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.
20) A price experiment
A) is a 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.
21) Cliff is struggling 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
E) Markup percentage
22) A commonly used measure of price sensitivity is
A) price variation.
B) price elasticity.
C) price velocity.
D) price adaptability.
E) price adjustment.
23) A retailer originally priced an e-reader 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
24) 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
25) 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
26) When pricing products, retailers must
A) consider the company’s overall strategy when choosing a pricing policy.
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.
27) 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.
E) determine service quality.
28) ________ 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
29) ________ 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
30) A drugstore purchases hand cream at $2 per jar and sells the jars for $15. What is the markup
percentage?
A) 60%
B) 87%
C) 40%
D) 5%
E) 22%
31) 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
32) 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 percent 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
33) 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
34) The approach of using a 50 percent markup is known as ________ and would result in the
retail price being double the cost.
A) activity costing
B) keystoning
C) budget costing
D) cost plus costing
E) regular costing
35) 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.
36) ________ 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 markup
37) 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
38) Mattie owns a clock shop featuring vintage clocks from the 1950s. Mattie plans to achieve a
40% maintained markup, and her reductions are planned at 4%. What is her planned initial markup
percentage?
A) 42.3%
B) 44%
C) 36%
D) 34.6%
E) 30.6%
39) 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.
40) 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 be the initial retail price on the
doll?
A) $180
B) $190
C) $240
D) $280
E) $63
41) The retail price of a sweater is $75, and the initial markup is 51 percent. Calculate the cost of
the product.
A) $33.75
B) $25.71
C) $28.50
D) $36.75
E) $42.85
42) 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
43) 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.