Hien Lo
MK344-1 Retailing
Professor Isaura Beltre
March 22nd, 2024
HW #3
Read Chapter 14 and answer the following questions at the end of the chapter:
Answer questions: 1,3,4,5,6,7, 8 a.
Q1: What types of retailers often use a high/low pricing strategy? What types of retailers
generally use an everyday low-pricing strategy? How would customers likely react if a
retailer switched its pricing strategy from one to the other? Explain your response.
Some examples of retailers that frequently employ a high/low price approach are fashion
boutiques, department stores or luxury brand stores. Customers would be surprised or
skeptical if a store suddenly started using EDLP instead of high/low pricing, which might
feel not satisfied while there is no discount and also concern about the uncertain low
prices. However, customers may get used to it and appreciate this EDLP pricing for the
low prices. Grocery stores, discount stores or warehouse clubs like Walmart, Target are
common places that adopt an EDLP strategy. They may develop a stronger sense of
loyalty and make more frequent purchases if they see the store as more affordable and
reliable. Customers will likely go elsewhere if the store decides to raise prices or adopt
the high/low pricing. Sales and promotions of this approach could sway consumers to
react favorably.
Q3: What is the difference between bundled pricing and multiple-unit pricing?
Bundled pricing combines many products into a single package at a reduced price,
encouraging customers to purchase by its convenience and savings. The products or
services included in the bundle could be related or complimentary things that are
frequently used together or purchased at once. Multiple-unit pricing provides savings for
purchasing bigger quantities of the same item. The discount is usually applied based on
the number purchased, such as "buy one, get one free".
Q4: A department store’s maintained markup is 38 percent, reductions are $560, and net
sales are $28,000. What’s the initial markup percentage?
Initial markup percentage = 39.21%
Q5: Maintained markup is 39 percent, net sales are $52,000, and reductions are $2,500.
What are the gross margin in dollars and the initial markup as a percentage? Explain why
initial markup is greater than maintained markup.
Gross margin = Maintained markup - reductions = (52000 x 39%) - 2500 = $17780
Initial markup percentage = 41.80%
Because stores need to stock more products to reach their planned maintained markup,
initial markup is higher than maintained markup.
Q6: The cost of a product is $150, markup is 50 percent, and markdown is 30 percent.
What’s the final selling price?
Retail price = Cost + markup = 150% + 50% of retail price
Retail price = 150/0.5 = $300
Final selling price = Retail price x (1- markdown) = 300 (1-30%) = 300 ( 1-0.3) = $210
Q7: Orvis purchased black leather belts for $25.99 each and priced these accessories to
sell for $59.99 each. What was the markup on the belts?
Markup = 59.99 - 25.99 = $34
Q8: Answer the following questions:
a. J.Crew is planning a new line of jackets for fall. It plans to sell the jackets for $100. It
is having the jackets produced in the Dominican Republic. Although J.Crew does not
own the factory, its product development and design costs are $400,000. The total cost of
the jacket, including transportation to the stores, is $45. For this line to be successful, J.
Crew needs to make $900,000 profit. What is its break-even point in units and dollars?
Break-even point units = fixed cost / (actual unit sales price - variable cost) =
400000/100-45= 7,272.73
Break- even points in dollars = 7,272.73 x 100 = $727,273
