Retail Pricing, Promotion and Customer Service
What this domain tests
This domain covers markup and markdown arithmetic, EDLP versus Hi-Lo pricing, store-level promotion tools, service quality dimensions and complaint handling.
Core rules and concepts
- Markup is the difference between selling price and cost, usually expressed as a percentage of selling price in retail. Keystone pricing doubles the cost, i.e. a 50% markup on retail. Markdown % = (original price − new price) ÷ original price.
- Pricing strategies: EDLP (everyday low price, low promotion, price trust) versus Hi-Lo (high regular prices with frequent discounts to attract cherry-pickers). Also psychological pricing (odd pricing like ₹99), bundle pricing, multi-buy, and loss leaders.
- Legal points: MRP cannot be exceeded; the Legal Metrology rules require correct declarations; the Consumer Protection Act, 2019 covers misleading advertisements and unfair trade practices; 'no refund, no exchange' boards on defective goods are not enforceable.
- Promotion tools at store level: point-of-purchase displays, in-store announcements, loyalty programmes, coupons and digital coupons, sampling, events and festivals, and social media geotargeting.
- SERVQUAL dimensions - reliability, responsiveness, assurance, empathy, tangibles. The service recovery paradox: a well-handled complaint can create more loyalty than a faultless transaction.
Worked example
A shirt costs the retailer ₹600 and is marked to sell at ₹1,000, so markup = 400 ÷ 1,000 = 40% of retail. After six weeks it is reduced to ₹700. Markdown % = (1,000 − 700) ÷ 1,000 = 30%, and the realised margin is 100 ÷ 700 = 14.3% on the new selling price. Reasoning: markdowns are computed on the original price, not the cost, and the remaining margin must still cover store overheads. If the item had been part of an EDLP strategy it would have been priced near ₹850 from day one with no markdown, protecting price trust and avoiding the 30% loss.
Traps that cost marks
- Computing markup on cost when the question says retail markup.
- Dividing markdown by the reduced price instead of the original price.
- Quoting SERVQUAL tangibles first while ignoring reliability, which is the most important dimension for most shoppers.
- Writing that a retailer may charge above MRP during a festival rush.