1.

Why is it important for retailers to understand the concept of price elasticity even if
they are unable to compute it?
Retailers find it difficult to compute for price elasticity because many retailers carry
thousands of items and cannot possibly compute elasticities for everyone. The reason
why this is important for retailers to understand because it's the sensitivity of customers
to price changes in terms of the quantities they will buy—because there is often a
relationship between price and consumer purchases and perceptions. If small
percentage changes in price lead to substantial percentage changes in the number of
units bought, demand is price elastic.
2. Which target markets of consumers are more likely to be price sensitive?
Economic consumers: They perceive competing retailers as similar and shop around for
the lowest possible prices.
3. Distinguish between market skimming and market penetration.
Market penetration is used when a retailer seeks large revenues by setting low prices
and selling many units. Profit per unit is low, but total profit is high if sales projections
are met. This approach is proper if customers are price sensitive, low prices discourage
actual and potential competition, and retail costs do not rise much with volume.
Market skimming is when a firm sets premium prices and attracts customers less
concerned with price than service, assortment, and prestige. It usually does not
maximize sales but achieves high profit per unit. It is proper if the targeted segment is
price insensitive, if new competitors are unlikely to enter the market, and if added sales
will greatly increase retail costs.
4. What are the pros and cons of everyday low pricing to a retailer? To a manufacturer?
Pros of EDLP for retailer and manufacturer
The retailer reduces its advertising and product re-pricing costs, and this approach
increases the credibility of its prices in the consumer’s mind. Suppliers may eliminate
special trade allowances designed to encourage retailers to offer price promotions
during the year.
Suppliers or retailers are able to more effectively control and forecast production,
inventory costs, and shipping costs thus stabilizing demand.
At the same time, retailers or manufacturers are able to leverage their own buying
power to reduce their purchase price. These savings, as well, are then passed along to
customers.
Cons of EDLP for retailer and manufacturer
 Your competitors can lower their prices to beat yours, and you may find yourself
in a battle to see who sells the cheapest and still makes a profit.
  You may aggravate your vendors if you constantly haggle for lower prices from
them so that you can pass on lower prices to your customers. Some vendors
may stop doing business with you, and others may start giving you defective
products so they can meet your price requirements.
 Once you establish a reputation for having everyday low prices, you may find that
customers suspect the quality of your products.
 Once you advertise everyday low prices, you cannot put products on sale. You
claim that you already offer the lowest prices, so offering a discount during a sale
would indicate that your prices are higher than they need to be the rest of the
time. This can present problems if you want to move items that do not sell well.
5. Under what circumstances do you think unbundled pricing is a good idea? A poor
idea? Why?
Why unbundled pricing is a good idea?
Unbundled pricing creates transparency and allows you to pick exactly the options you
want. Priced in an unbundled fashion, the customer is more likely to be ticked off by the
price (and therefore fewer people would purchase the add-on each). When a seller
unbundles options, it opens up the transaction negotiation to line-by-line scrutiny.

Why unbundled pricing is a poor idea?

Unbundled pricing may be harder to manage and may lead to people buying fewer
related items