What is a consequence of failing to price merchandise correctly?

When merchandise is not priced correctly, it can lead to excess inventory accumulation. Proper pricing strategies are essential for aligning perceived value with customer expectations. If prices are set too high, customers may choose not to purchase, resulting in unsold stock. Conversely, if prices are set too low, it may not cover costs or could devalue the product. Excess inventory can tie up capital and increase holding costs, making it critical to find the right balance in pricing to maintain healthy inventory turnover.

In a retail setting, effective pricing not only drives sales but also helps manage inventory levels effectively. Having excess inventory can lead to various challenges, like increased storage costs and potential markdowns, which can further erode profitability. Therefore, pricing merchandise accurately is vital for optimizing inventory management and avoiding unnecessary excess.