Transcript Ch. 12: Pricing & Selling

Ch. 12: Pricing & Selling
• Profit margin controls
• Calculating initial markup & required markup
• Determining profitability of a department or
store
• Pricing individual items
• Price line structures
• Markdowns & closeouts
• Calculating profits
• A retail buyer’s role in the selling process
Copyright © 2006 by John Wiley &
Sons, Inc. All rights reserved
Retail Markup Terminology
• Initial markup – The difference between the
invoice cost of an item & the first sales price
marked on it by the store
• Cumulative markup – The total of retail prices of
all items in a department, minus the total costs of
the same items
• Required markup – A percentage used as a
guideline for all store markups to ensure
profitability
• Maintained markup – A percentage in relation to
net sales that reflects profit after true cost of sales
Copyright © 2006 by John Wiley &
Sons, Inc. All rights reserved
Formulas for Markups
Cumulative markup of inventory
Total retail value of inventory =
Markup
percentage
Planned expenses + profit (not
Planned
including discounts) + reductions = markup
Planned sales + reductions
percentage
Original retail price (always 100%) minus (initial
markup percentage) x (percent of reduction) minus
(cost of reduction) = “Maintained markup” percentage
Copyright © 2006 by John Wiley &
Sons, Inc. All rights reserved
Common Retail Pricing Policies
• Keystoning – Adding a flat percentage of profit to
every item
• Loss-leaders – Pricing a few items below
profitable levels to draw people into a store
• Price lining – Marking every item in a particular
cost range at the same retail price
• Skimming – A type of price lining that skews each
item’s price toward the high end for that item
• Price zones – Setting price ranges & developing
product assortments in each range
Copyright © 2006 by John Wiley &
Sons, Inc. All rights reserved
Setting Markdowns
• Mark goods down while active demand still
exists for them (except in high-end stores)
• Experiment with timing of markdowns &
document the results
• First round of markdowns should clear most
(but not all) of the sale merchandise out
• Markdown amounts should vary with type of
goods
• Experiment with “stepping out” of price line
patterns to see what is most effective
Copyright © 2006 by John Wiley &
Sons, Inc. All rights reserved