CRA Retail Pricing Strategy & Optimization 1 — Questions and Answers
Question 1: Which pricing strategy sets prices consistently low without frequent promotional discounts, aiming to build customer trust through price stability?
- High-Low Pricing
- Everyday Low Price (EDLP) (Correct answer)
- Skimming Pricing
- Competitive Parity Pricing
Correct answer: Everyday Low Price (EDLP)
Everyday Low Price (EDLP) maintains consistently low prices to reduce consumer uncertainty and minimize promotional spending.
Question 2: Price elasticity of demand measures which of the following?
- The markup percentage applied to cost of goods
- The responsiveness of quantity demanded to a change in price (Correct answer)
- The ratio of promotional price to everyday price
- The competitor's price relative to your own
Correct answer: The responsiveness of quantity demanded to a change in price
Price elasticity of demand quantifies how much unit sales change in response to a percentage change in price.
Question 3: Keystone pricing in retail refers to which of the following methods?
- Setting price equal to the competitor's lowest price
- Marking up the wholesale cost by 100% to set retail price (Correct answer)
- Using psychological pricing endings such as $0.99
- Pricing products below cost to drive traffic
Correct answer: Marking up the wholesale cost by 100% to set retail price
Keystone pricing doubles the wholesale cost (100% markup), resulting in a 50% gross margin, which is a common retail baseline.
Question 4: A retailer sells a popular brand of coffee at below cost to attract shoppers into the store, expecting them to buy other full-margin items. This is an example of:
- Dynamic pricing
- Loss leader pricing (Correct answer)
- Price skimming
- Zone pricing
Correct answer: Loss leader pricing
Loss leader pricing intentionally prices certain items below cost to drive store traffic and increase overall basket size.
Question 5: When a retailer sets prices based primarily on what competitors are charging for the same or similar products, this strategy is called:
- Value-based pricing
- Cost-plus pricing
- Competitive pricing (Correct answer)
- Promotional pricing
Correct answer: Competitive pricing
Competitive pricing uses competitor price points as the primary reference to position prices in the market.
Question 6: A retail analyst is reviewing planned markdowns for an apparel category. Which primary goal does a markdown optimization model pursue?
- Maximizing the number of SKUs on promotion
- Clearing excess inventory while maximizing total revenue over the selling season (Correct answer)
- Eliminating all products priced above the competition
- Achieving the highest possible sell-through rate regardless of margin
Correct answer: Clearing excess inventory while maximizing total revenue over the selling season
Markdown optimization balances sell-through speed against realized revenue, clearing inventory without unnecessarily sacrificing margin.
Question 7: Price bundling is a strategy where a retailer:
- Sets different prices for the same item in different store zones
- Offers two or more products together at a combined price lower than buying each separately (Correct answer)
- Raises prices on complementary items when a key item goes on promotion
- Applies a single margin percentage uniformly across all product categories
Correct answer: Offers two or more products together at a combined price lower than buying each separately
Price bundling groups products together at a combined discount to increase average transaction value and move slower-selling items.
CRA Retail Pricing Strategy & Optimization 1
Which pricing strategy sets prices consistently low without frequent promotional discounts, aiming to build customer trust through price stability?