© south-western educational publishing goals lesson 3.4 pricing merchandise describe the methods...

© South-Western Educational Publishing

GOALSGOALS

LESSON 3.4 PRICING MERCHANDISE

Describe the methods buyers use to calculate the cost of merchandise

Calculate merchandise prices


Calculating The Cost

Everyone likes a “good deal” A good deal is an exchange in which you

think you received your money’s worth Bought a product that is worth more than

you paid for it As a retailer, you also need to purchase

merchandise that is a “good deal”


Estimating the Price of Products

A good buyer can estimate the cost of making an item and the price a customer will pay for itAbility comes from

Studying types of products Learning about the materials,

production process and cost


Estimating the Retail Price

The buyer estimates the amount a customer would be willing to pay for the product

From this estimated retail price the buyer subtracts the amount the retailer wants to earn on each sale


Memorizing Prices

Some retail buyers collect as much pricing info as possible and memorize itProblem if you run into something

completely new


Building Up Prices

Method used by buyers who are very knowledgeable about the products they buy and the process of making the products.Estimate the cost of the material in a

dress, the labor needed to make it, the cost of packaging and profit for the vendor


Buyer Discounts

The price set by the vendor is the list priceMost retail buyers never pay list priceDiscounts are written as a

percentage off the list price


Buyer Discounts

1. Trade discount Also known as Functional discount Given to the buyer for performing some

wholesale or retail service for the vendor Written in Chain form “list less 40-20-10”

40% taken by you as the buyer, 20% and 10% by previous discounts in the chain


Buyer Discounts

2. Quantity discount Offering a discount on large orders Based on # of items ordered

3. Promotional discount A retailer receives a promotional discount

for performing an advertising or promotional service for the vendor

Discount may be lower price, or as free additional merchandise


Buyer Discounts

4. Seasonal discount Retailers can earn a seasonal

discount if they buy and take delivery of products in the off season

Risky because a retailer needs to hold merchandise


Buyer Discounts

Cash DiscountsRetailers can be given a cash

discount for paying bills promptly Usually offered when you pay bill before

it is due May be written as “6/10 Net 30”

6% discount if received in 10 days, balance due in 30 days


Buyer Discounts

5/20 net 305% discount if paid within 20 days,

balance due in 30 days

4/10 net 604% discount if paid within 10 days,

balance due in 60 days


Factors that affect price

The money earned from retail sales must cover the expense of running the business, the cost of the merchandise, and the profit the retail business wants to make


Factors That Affect Price

1. Expenses

2. Cost

3. Profit

4. Store

5. Demand

6. Competition


Factors that Affect Price

1. ExpensesAll the money retailers spend to

operate the store, handle the merchandise, and manage the business Employee salaries, bills, etc



2. Cost1. The money the retailers pay for the

merchandise

3. Profit1. The amount of money left after the

costs and expenses are subtracted from the sales



4. Store The type of store you offer could also

affect the price you charge Offer free delivery, gift wrapping can charge

higher price for items

5. Demand1. Consumers desire to buy the product 2. Products in demand can be priced a bit

higher



6. Competition1. Compare your prices to the

competitors and price accordingly


Price Policy

A retailers can have several policies that affect the price of the merchandise

The policy is designed to affect the customer’s impression of the store and the store’s merchandise Price-line policy Price endings


Price Line Policy

A store that usually only has three prices$16.95, $23.95, $36.95The customer can clearly categorize

the value and quality of each productSimplifies pricing, selling and

stocking


Price Endings Policy

Some retailers assign prices with odd endings, such as $15.69 to all of their merchandise Presents the image of a good value

Some assign prices with even endings, such as $15.50 or $20.00 Presents image of high quality

Don’t use both policies in the same store!


Merchandise Markups

Markup is the amount a retailer adds to the cost of merchandise to calculate the retail price.

Markup is usually expressed as percentage of the retail price.

Markup amount Retail price = Markup percentage

Examples$40.00 $100.00 = 40%$50.00 $125.00 = 40%


Initial Markup

The difference between a product’s cost and initial retail selling price

Markdown: when a products price has been reduced


Merchandise Markdowns Reasons

Buying Errors

Wrong styles, colors, quantityPricing Errors

Priced too highReturned Items

Poor Inventory

Seasonal or promotional reasons

© south-western educational publishing goals lesson 3.4 pricing merchandise describe the methods...

Documents

price of productsa good

retail pricethe buyer

lower price

retail service

list pricemost retail

good deala good deal

list pricediscounts

cost of packaging