Transcript Lesson 1: Pricing

Lesson 1: Pricing
Objectives
You will:
 Calculate price based on unit cost and desired
profit
 Compute margin based on price and unit cost
 Maximize profit by analyzing and adjusting
price and margin
 Explain the relationship between price,
demand, and profits
 Change product pricing to remain competitive
1. Determining Selling Price
 Price - the amount of money a business
charges for items it offers for sale
 Must consider two things:
 Cost - the amount of money the store pays to
purchase the merchandise from a supplier
 Profit – total revenue of a business less all
expenses
 Consider factors of discounts
 Each product a business sells SHOULD contribute to the
business’s profit
 Must consider overhead costs and operating expenses
 Ie: paying employees, paying rent, electricity bills, etc.
2. Margin
 The difference between the retail price of
an item and the cost of the item to the
store
 AKA markup
 Represented as a %
 An item with a cost of $5 that sells for
$7.50 has a markup of $____. What
percentage is the markup?
3. Pricing and Competition
 Pricing to ‘meet the competition’ – scoping out
what your products sell for in other competitors’
stores and pricing yours the same
 Pricing below competitors – hope for a larger
quantity to be sold, which will increase profits
 Can create price wars
 Pricing above competitors – successful if
customers feel there is extra value or
convenience in purchasing at the store with the
higher price
4. Supply and Demand
 The amount of product available to sell
and the willingness of customers to buy
that product.
 Merchandise not readily available or that
is low in supply can create higher
customer demand and prices
5. What happens when a
price it too high or too low?
 Too high – customers won’t see enough
value for their dollar in the merchandise
and won’t purchase it
 Too low – (SIGNIFICANTLY lower) –
customers may assume there is
something wrong with the product and
not purchase it
6. Market Share
 The % that a store has of the total sales
in its area
 Provides important indication of how well
the store is doing compared to its
competitors
 Lower prices can increase market share,
higher prices can decrease market share
7. Markdowns
 Reducing the price of merchandise that is
not selling well
 Well-promoted markdowns can help
attract more customers to the store
 Considered a normal part of doing
business and should be considered when
planning prices
8. Pricing Laws
 Passed by state and federal government to
protect customers from unfair pricing
 Sherman Anti-Trust Act of 1890 – makes
monopolies illegal, covers price fixing (where
competitors get together to set the price)
 Clayton Anti-Trust Act of 1914, Robinson-Patman
Act of 1936 – outlawed price discrimination
(charging different prices to different customers of
protected classes)
 Consumer Goods Pricing Act of 1975 – established
MSRP – manufacturer’s suggested retail price
9. Key Math Concepts
1.
2.
3.
4.
5.
6.
Price = Cost + Desired Profit
Margin = Price – Cost
Markup Amount = Cost x Markup Percentage
Markup Price = Cost + Markup Amount
Markdown Amount = Price x Percentage
Markdown Price = Current Price – Markdown
Amount
10. Examples
1. Calculate the price of an item that has a cost
to the business of $3.50 and a desired profit
of $1.00.
2. Calculate the margin of an item with a price
of $9.00 and a cost of $4.50.
3. Calculate the new price of an item that costs
$7.50 and receives a markup of 40%.
4. Calculate the new price of an item that sells
for $12.00 and will get a markdown of 30%.
Answers
1. $3.50 + $1.00 = $4.50
2. $9.00 - $4.50 = $4.50
3. $7.50 x .40 = $3.00
$7.50 + $3.00 = $10.50
4. $12.00 x .30 = $3.60
$12.00 - $3.60 = $8.40