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73 Cards in this Set
- Front
- Back
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primary purpose of the P & L statement |
To demonstrate whether the firm has made a profit• To update plans & modify strategies |
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basic retail price structure |
cost + markup = retail price |
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low-end price range |
lowest relative price; flea markets, outlets |
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budget range |
below average price; ass and discount stores |
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moderate range |
average price, department and speciality stores |
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better range |
above average price, higher quality, not exclusive design |
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bridge range |
price between better and designer |
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designer range |
highest price, exclusive department store |
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prices |
first price, below price, premium price |
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first price |
original retail price, planning price, all price changes are based on the first price, may or may not be the first price the customer sees |
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first price formula |
cost + markup = first price C + MU = R |
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premium price |
premium price = first price + additional markup. Results in a higher markup %. Higher price to consumer than the first price |
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below first price |
below first price = first price = % of the first price. Results in lower markup %, lower price to consumer |
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components of pricing strategies |
market price position, price lining, price endings, role of first price, role of markdowns, price advertising |
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above-market pricing (premium pricing) |
high quality products, customers are insensitive to price, strong customer service |
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at-market pricing |
similar prices to its competitors |
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below-market pricing |
less than its competitors, lower gross margin, loweroperating expenses, self-service or warehouse types |
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price lining |
Products within a specificgroup (similar goods) areseparated into several pricepoints according to quality,fabric, cost, etc. and arepriced accordingly |
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price points |
prices set for thedifferent groupings |
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odd price endings |
.99, .95 etc. vs .00:traditional pricing, consumer perceives the price to be lower,low-end, budget, & moderate goods,Promotional & clearance goods |
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Even price endings: |
better, bridge, & designer goods |
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first price is a basis for |
Additional markups (for premium price) Temporary markdowns (for price promotion) Permanent markdowns (for clearance price) |
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markdown |
Reduction in price Timing: throughout season or at end Temporary or permanent |
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functions |
Inventory management Sales promotion Financial management |
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price advertising |
Timing available for the special price: Temporary markdowns Quick markdown schedules |
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pricing strategy |
particular combination of pricing componentsdesigned to appeal to a firms’ target customers |
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examples of pricing strategies |
Prestige Everyday-Low Pricing (EDLP) High-low (Hi-Lo) Quick Markdown |
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prestige pricing |
Premium Price Intensive Customer Service Environment Even price endings: regular merchandise Markdowns (permanent): clearance Prices not featured in ads. EX: Nordstroms |
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EDLP Pricing |
Everyday-LowPricing Low“regular”price(Nopromotionalpricing) Firstprice/BelowFirstPrice Odd price endings Markdowns:clearance Prices featured in ads EX: discount store, wal-Mart, The home depot |
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Hi-Lo pricing |
Premium price: as a comparison or reference price Even price endings: regular merchandise Markdowns:temporary, mark back up, stimulate demand, permanent for clearance, Prices (temporary MDs) featured in ads. Ex. Dept. Store |
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Quick MD Pricing |
Premium price: as a comparison or reference price, Odd price endings, Markdowns: scheduled May advertise % off (designer prices, etc.) Ex. Off Price Store |
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Markup = MU |
cost + markup = retail price MU = R-C C = R-MU |
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IMU % Retail |
IMU% retail = (($R-$C) ÷ $R) x 100 IMU% retail= ($MU ÷ $R) x 100 |
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IMU % cost |
IMU% cost = (($R-$C) ÷ $C) x 100 IMU% cost= ($MU ÷$C) x 100 |
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Initial MU |
“hoped” for or “planned” MU:difference between wholesale price (billed cost) and first price |
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maintained MU |
“actual” or “achieved” MU: n the final markup obtained by a retail store whenthe merchandise is sold n based on the actual sale of goods |
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MMU |
net sales - gross cost of goods sold |
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maintained markup percentage (MMU%) |
= (R – red) – C/(R-red) x 100 = Net Sales – C/Net Sales or (R – MD – ED – SH) – C / (R – MD – ED – SH) |
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net sales |
net sales = R-reduction |
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reductions = |
Reductions (red) = Markdowns (MD) + EmployeeDiscounts (ED) + Shortages (SH) |
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Which is larger? IMU% or MMU%. Why? |
IMU% > MMU%. Reductions reduce the IMU% |
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To keep the MMU% as high as possible, you wouldneed to.....? |
you would need to keep reductions as low as possible. |
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Could IMU% and MMU% be equal? |
Could be equal only if there are NO reductions. |
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cumulative markup |
The markup onmerchandise that hasaccumulated over aperiod of time. CMU% = ((total R - Total C )/ (Total R)) X100 |
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gross margin |
Gross profit on the merchandise that was sold Used to cover operating expenses and provide for a profit ̈ Directly relates to the P&L statement ̈ Merchandise/buyers are responsible for GM |
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Actual Costs (COG) |
Actual Costs (COG)= Gross Costs (C) – CashDiscounts (CD) + Alteration exp (Alt) |
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cash discounts |
lower costs |
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alteration expenses |
+ to costs |
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GM % |
= (Retail-red)-(Cost-Cash discounts +Alteration exp) x 100(R-red) |
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IMU > MMU |
if there are reductions |
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IMU = MMU |
if there are no reductions |
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MMU>GM |
if alteration expenses are > cash discounts |
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GM>MMU |
if cash discounts are > alteration expenses |
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factors affecting GM |
Sales volume- increase Markup- increase Cash discounts- increase Markdown- decrease Employee Discounts- decrease Shortages - decrease Alteration expenses-decrease Cost of Goods sold-decrease |
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markdown |
A reduction in the selling price of a piece of merchandise. Difference in the old retail price and the new retail price. |
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temporary markdown |
for price promotion (e.g., back-to-school)marked down → markdown is cancelled |
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permanent markdown |
for clearance of inventorygreater markdown |
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basic/staple good markdown |
one price, a regular price - Little styling change, stocked year-round at the same price |
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fashion/seasonal good markdowns |
two prices, a regular price & aclearance price - Demand for regular change in styling or time of year - Must plan zero-to-zero inventories several times a year |
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functions of markdowns |
inventory management, sales promotion, financial management |
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inventory management |
get rid of unwanted merchandise (out-of-season goods, broken assortments,overstocks) => permanent markdowns |
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Sales promotion: |
motivate customers to buy more => temporary markdowns |
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financial management |
=> temporary markdowns |
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Major causes of MDs |
Stiff competition Dispose off old and damaged stock ̈ Close a line of merchandise |
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errors in buying and selling |
Sales planning, Insensitive to customer, Bad timing, Sales personnel, Returns |
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MD$ |
first price - New (reduced) price |
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MD% |
$MD/R |
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New retail |
NR = R-MD |
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markdown cancellation |
Retailers hold special sales temporarily then theremaining merchandise returned to the originalprice or higher than original. MD cancellations between each MD so that the MD%is always off the first price (R) |
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$ markdown cancellation = |
$ Markdown cancellation = Remarked price –Markdown price |
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net markdown |
Difference between the total markdown and the markdowncancellation. |
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$ Net markdown = |
$ Total markdown - $ Markdown cancellation. |
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net markdown % |
$ net markdown / R |
