This document defines important terms related to retail pricing strategies and concepts. It discusses pricing strategies such as everyday low pricing, high-low pricing, price elasticity of demand, yield management, and markup. It also defines pricing discrimination methods like first-degree, second-degree, and third-degree. Other terms covered are leader pricing, loss leaders, zone pricing, and price lining.

1. Important Terms
CH. 14
RETAIL PRICING

2.  Value- relationship of what  Everyday low-pricing
(EDLP)- a pricing strategy that
a customer get
stresses continuity of retail
(goods/services) to what
prices at a level somewhere
he/she has to pay for it. between the regular nonsale
price and the deep-discount
 High/low pricing- a sale price of the retailer’s
strategy in which retailers competitors.
offer prices that are
sometime above their  Low-price guarantee policy-
competition’s everyday low a program that guarantees that
price, but they use the retailer will have the lowest
possible price for a product or
advertising to promote
group of products and usually
frequent sales. promises to match or better
any lower price found in the
local market.

3.  Price elasticity of  Markup- the increase in the
demand- a measure of the retail price of an item after
effect a price change has on the initial markup
consumer demand; percentage has been
percentage change in applied but before the item
demand divided by is placed on the selling floor.
percentage change in price.
 Markup percentage- the
 Yield management- the markup as a percent of
practice of adjusting prices retail price.
up or down in response to
demand to control sales
generated.

4.  Maintained markup- the amount
 Reductions- includes three
of markup the retailer wishes to
things: markdowns, maintain on a particular category
discounts to employees and of merchandise; net sales minus
customers, and inventory cost of goods sold.
shrinkage due to shoplifting,
breakage, or loss.  Pricing optimization software- a
type of software program that
uses a set of algorithms that
 Initial markup- the retail analyzes past and current
selling price initially placed merchandise sales and prices,
estimates the relationships
on the merchandise less the between prices and sales
cost of goods sold. generated, and then determines
the optimal (most profitable) initial
price for the merchandise and the
appropriate size and timing of
markdowns.

5.  Break-even point  First-degree price
quantity- the quantity at discrimination- charging
which total revenue equals customer different prices on
total cost and beyond which the basis of their willingness
profit occurs. to pay.
 Fixed costs- costs that are  Second-degree price
stable and don’t change discrimination- charging
with the quantity of product different prices to different
produced and sold. people on the basis of the
nature of the offering.
 Variable cost- costs that
vary with the level of sales  Price bundling- the
and can be applied directly practice of offering tow or
to the decision in question. more different products or
services for sale at one
price.

6.  Multiple-unit pricing- practice  Leader pricing- a pricing
of offering two or more similar strategy in which certain
products or services for sale at items are priced lower than
one price OR quantity
discounts- the policy of normal to increase the
granting lower prices for higher traffic flow of customers or
quantities. to increase the sale of
complementary products.
 Third-degree price
discrimination- charging
different prices to different  Loss leader- an item priced
demographic market near or below cost to attract
segments. customer traffic into the
store.
 Zone pricing- charging
different prices for the same
merchandise in different
geographic locations to be
competitive in local markets.

7.  Cherry picking- customers  Odd pricing- the practice
visiting a store and buying of ending prices with an odd
only merchandise sold at number (such as 69 cents)
big discounts or buying only or just under a round
the best styles or colors. number ( such as $98
instead of $100).
 Price lining- a pricing
policy in which a retailer  Predatory pricing- a
offers a limited number of method for establishing
predetermined price points merchandise prices for the
within a classification. purpose of driving
competition from the
marketplace.