1. Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

2. A5-2 Chapter 5 Appendix Sales Arithmetic and Pricing

3. Types of Prices List price – standard price Net price – after discounts Zone price – based on geographical location FOB shipping point – buyer pays FOB destination – seller pays A5-3

4. Discounts Lower the Price Quantity discounts  Non-cumulative  Cumulative Cash Trade Consumer A5-4

5. Promotional AllowancesPromotional Support Free-Goods Allowance* Plus Advertising Allowance † Plus Merchandising Allowance Direct to consumer national TV promotion… 1.705 GRPs 88% reach 1.7 billion impressions Year-round physician detailing and sampling Major trade and medical Journal advertising support Option AOption B ‡Reduced Price FeatureDisplay 12-oz liquid 8 1/2 % off invoice Up to $1.25 per Dozen $1.00 per Dozen $.75 per dozen reduced price feature $.75 per dozen floor or end cap display 5-oz liquid 8 1/2 % off invoice Up to $.75 per Dozen $.50 per Dozen $.50 per dozen reduced price feature $.50 per dozen floor or end cap display 60-oz tablets 8 1/2 % off invoice Up to $1.25 per Dozen $1.00 per Dozen $.75 per dozen reduced price feature $.75 per dozen floor or end cap display 24-oz tablets 8 1/2 % off invoice Up to $.75 per Dozen $.50 per Dozen $.50 per dozen reduced price feature $.50 per dozen floor or end cap display GREAT NEW DEAL! Four double –strength sizes to strengthen your profits! Also available – up to 25% billback allowance for four-color roto advertising or consumer coupon programs. Unlimited purchases allowed for claiming billack allowances. Retail buy-in period: July 15 through August 30, 2002. Advertising performance period: July 15 through November 8, 2002. Claim deadline: 45 days following appearance of ad. Contact your representative for complete details. * Through participating wholesaler. † All ads should feature both liquid and tablets. ‡ Provided advertising coverage is in at least 75% of the applicant’s trading area. Exhibit A: Various Promotional Allowances Available to Resellers A5-5

6. Exhibit B: Types and Examples of Discounts Types of Discounts Quantity Discount Noncumulative (one-time) Cumulative (yearly purchases) Cash discounts Trade discounts Consumer discounts Discount Examples  Buys 11 dozen, get 1 dozen free.  20 percent off on all purchases.  $5-off invoice for each floor-stand purchase.  5 percent discount with purchase of 8,000 units.  8 percent discount with purchase of 10,000 units.  10 percent discount with purchase of 12,000 units.  2/10 end-of-month.  2/10 net 30.  40 percent off to retailers.  50 percent off to wholesalers.  15 cents off regular price marked on product’s package  10-cents-off coupon. A5-6

7. Resellers: Markup and Profit Markup Gross profit Net profit Channel of distribution markup Markup arithmetic Return on investment A5-7

8. What Is the Percent Markup? $1.00 = cost to retailer $1.00 = dollar markup $2.00 = selling price A5-8

9. What Is the Percent Markup?, cont… It depends on whether you use  Selling Price, or  Cost Dollar markup is divided by either selling price or cost to retailer Selling price = 50% Cost = 100% We use selling price in calculating the percent of markup A5-9

10. What Is Markup? Markup is the dollar amount added to the product cost to determine its selling price Markup is often expressed as a percentage A5-10

11. Exhibit C: Example of Markup on Selling Price in Channel of Distribution A5-11

12. Exhibit D: Example of Using Unit Cost Consumer goods salespeople often break down costs and talk of unit costs and profits. Here is the arithmetic one salesperson used in her presentation: $1.80 = Regular cost of each unit -.53 = Special promotional allowance ____ $1.27 = Deal cost $2.29 = Manufacturer’s suggested selling price $2.19 = Normal retail selling price 18% = Retailer’s normal profit ($2.19 - $1.80 = 39¢ markup) ( 39¢ / $2.19 = 18% markup) $1.39 = 3-day special price suggested for retailer to advertise product. 8.6% = 3-day sale profit margin ($1.39 - $1.27 = 12¢) ( 12¢ / $1.39 = 8.6% markup) $1.89 = 2-week special price suggested for in-store promotion. 33% = After-sale profit margin ($1.89 -$1.27 =.62) (.62 / $1.89 = 33% markup) 18% = Normal profit ($2.19 - 1.80 = 39 ¢) (39 ¢ / $2.19 = 18%) The above information (except for the arithmetic in parentheses) was on a sheet of paper with the buyer’s company name at the top. The seller showed how the buyer could purchase a large quantity and make 8.6 percent profit by selling each item for $1.39 instead of the normal $2.19. The retailer’s customers save 80¢ ($2.19 – $1.39 = 80 ¢). After the three-day sale, the retailer increases the price to $1.89 for two weeks and makes 33 percent instead of the 18 percent markup. Some numbers are rounded up. A5-12

13. Exhibit E: Profit Forecaster for Granola Bars Shown to Buyer A5-13

14. Organizations: Value and ROI Value analysis Product cost compared to true value Unit costs ROI is listened to A5-14