Question

Neiman Marcus and Wal-Mart target different customer segments. Which retailer would you expect to have a higher gross margin?

a) Neiman Marcus
b) Wal-Mart
c) Both have similar gross margins
d) Cannot be determined from the information provided

Answer 1

Neiman Marcus targets luxury customers and has the capacity for higher pricing, leading to higher gross margins, while Wal-Mart has a cost leadership strategy with lower margins.

Step-by-step explanation:

The question concerns which retailer, Neiman Marcus or Wal-Mart, would be expected to have a higher gross margin based on their customer segmentation strategy. Neiman Marcus targets a luxury-focused, higher-income customer segment, which usually allows for higher pricing and, thus, higher gross margins. In contrast, Wal-Mart targets a mass market with a focus on cost leadership, which typically involves lower prices and smaller margins. Because luxury goods often come with a premium price tag, we can expect Neiman Marcus to have a higher gross margin than Wal-Mart.