Retailing

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Price Elasticity of Demand

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Sensitivity of customers to price changes in terms of the quantities bought

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Horizontal Price Fixing

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Agreement among manufacturers, among wholesalers, or among retailers to set certain prices. This is illegal, regardless of how "reasonable" prices may be.

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Vertical Price Fixing

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when manufacturers or wholesalers seek to control the retail prices of their goods and services.

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Robinson-Patman Act

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Bars manufacturers and wholesalers from discriminating in price or purchase terms in selling to individual retailers if these retailers are purchasing products of "like quality" and the effect of such discrimination is to injure competition.

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Minimum Price Laws

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State regulations preventing retailers from selling certain items for less than their cost plus a fixed percentage to cover overhead. These laws restrict loss leaders and predatory pricing.

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Predatory Pricing

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Involves large retailers that seek to reduce competition by selling goods and services at very low prices, thus causing small retailers to go out of business.

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Loss Leaders

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Items priced below cost to lure more customer traffic. Loss leaders are restricted by some state minimum price laws.

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Unit Pricing

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Practice required by many states, whereby retailers (mostly food stores) must express both the total price of an item and its price per unit of measure.

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Item Price Removal

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Practice whereby prices are marked only on shelves or signs and not on individual items. It is banned in several states and local communities.

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Bait-and-Switch Advertising

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Illegal practice in which a retailer lures a customer by advertising goods and services at exceptionally low prices, and then tries to convince the person to buy a better, more expensive substitute that is available. The retailer has no intention of selling the advertised item.

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Gray Market Goods

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Brand-name products bought in foreign markets or goods transshipped from other retailers. They are often sold at low prices by unauthorized dealers.

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Market Penetration Pricing

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Strategy in which a retailer seeks to achieve large revenues by setting low prices and selling a high unit volume.

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Market Skimming Pricing

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Strategy wherein a firm charges premium prices and attracts customers less concerned with price than service, assortment, and status.

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Demand-Oriented Pricing

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Approach by which a retailer sets prices based on consumer desires. It determines the range of prices acceptable to the target market.

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Cost-Oriented Pricing

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Approach in which a retailer sets a price floor, the minimum price acceptable to the firm so it can reach a specified profit goal. A retailer usually computes merchandise and retail operating costs and adds a profit margin to these figures.

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Competition-Oriented Pricing

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Approach in which a firm sets prices in accordance with competitors'.

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Price-Quality Association

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Concept stating that many consumers feel high prices connote high quality and low prices connote low quality.

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Prestige Pricing

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Assumes consumers will not buy goods and services at prices deemed too low. It is based on the price-quality association.

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Markup Pricing

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Form of cost-oriented pricing in which a retailer sets prices by adding per unit merchandise costs, retail operating expenses, and desired profit.

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Markup

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Difference between merchandise costs and retail selling price.

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Markup Percentage (at Cost)

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Difference between retail price and merchandise cost expressed as a percentage of merchandise cost:

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Markup Percentage (at Retail)

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Difference between retail price and merchandise cost expressed as a percentage of retail price:

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Initial Markup (at Retail)

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Based on the original retail value assigned to merchandise less the merchandise costs, expressed as a percentage of the original retail price:

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Maintained Markup (at Retail)

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Based on the actual prices received for merchandise sold during a time period less merchandise cost, expressed as a percentage:

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Gross Margin --

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Difference between net sales and the total cost of goods sold. It is also called gross profit.

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Variable Markup Policy

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Strategy whereby a firm purposely adjusts markups by merchandise category.

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Direct Product Profitability (DPP)

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Method for planning variable markups whereby a retailer finds the profitability of each category or unit of merchandise by computing adjusted per unit gross margin and assigning direct product costs for such expenses as warehousing, transportation, handling, and selling.

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Customary Pricing

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Used when a retailer sets prices for goods and services and seeks to maintain them for an extended period.

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Everyday Low Pricing (EDLP

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Version of customary pricing whereby a retailer strives to sell its goods and services at consistently low prices throughout the selling season.

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Variable Pricing

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wherein a retailer alters prices to coincide with fluctuations in costs or consumer demand.

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Yield Management Pricing

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Computerized, demand-based, variable pricing technique whereby a retailer (typically a service firm) determines the combination of prices that yield the greatest total revenues for a given period.

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One-Price Policy

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Strategy wherein a retailer charges the same price to all customers buying an item under similar conditions

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Flexible Pricing

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Strategy that lets consumers bargain over selling prices; those consumers who are good at bargaining obtain lower prices than those who are not

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Contingency Pricing

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Arrangement by which a service retailer does not get paid until after the service is satisfactorily performed. This is a special form of flexible pricing.

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Odd Pricing

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Retail prices set at levels below even dollar values, such as $0.49, $4.98, and $199.

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Leader Pricing

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Occurs when a retailer advertises and sells selected items in its goods/service assortment at less than the usual profit margins. The goal is to increase customer traffic so as to sell regularly priced goods and services in addition to the specially priced items.

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Multiple-Unit Pricing

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Discounts offered to customers who buy in quantity or who buy a product bundle

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Bundled Pricing

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Involves a retailer combining several elements in one basic price

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Unbundled Pricing

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a retailer's charging separate prices for each item sold.

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Price Lining

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Practice whereby retailers sell merchandise at a limited range of price points, with each point representing a distinct level of quality.

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Markdown

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Reduction from the original retail price of an item to meet the lower price of another retailer, adapt to inventory overstocking, clear out shopworn merchandise, reduce assortments of odds and ends, and increase customer traffic.

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Additional Markup

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Increase in a retail price above the original markup when demand is unexpectedly high or costs are rising

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Markdown Percentage

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Total dollar markdown as a percentage of net sales (in dollars):

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Off-Retail Markdown Percentage

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-- Markdown for each item or category of items computed as a percentage of original retail price:

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Additional Markup Percentage

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Looks at total dollar additional markups as a percentage of net sales: