4.0 Understand the marketing of fashion. Objective 4.02 Understand pricing strategies in the fashion industry.

The Supply and Demand Relationship Price levels respond to the forces of supply and demand. People will pay more for something that is in short supply. If there are only a few of an item, customers will pay a higher price for it. Companies that make and sell that limited item can charge a higher price for it and make more profit. More companies then start to supply that product, it becomes more widely available and the price goes down.

The Supply and Demand Relationship When a product is in high supply, sellers have to settle on less profit per item because they are having to sell it at a lower cost. If there is high demand for a product, people will pay a higher price for it than if demand is low. When demand goes down, the price of an item goes down because not very many people want it.

Inventory Cost Calculations Cost of Goods Sold (COGS): indicates the dollar amount spent on goods that have been sold to customers during the period. Formula: Beginning Inventory at Cost + Cost of Purchases = Cost of Products offered for Sale Cost of Products offered for Sale – Ending Inventory at Cost = Cost of Goods Sold

Gross Margin Gross margin is the money available to cover expenses and generate a profit. Formula: Total Sales - Cost of Goods Sold = Gross Margin

Types of Expenses Selling Expenses: payroll (wages) for the sales staff, advertising costs, delivery costs, etc. Administrative Expenses: management salaries, office supplies, postage, etc. General Expenses: rent, utilities, and other operating overhead.

Profit/Loss When expenses are deducted from the gross margin figure, the resulting number shows net profit (loss). After taxes have been deducted, the final number shows the after-tax profit (or loss) from sales.

Pricing Calculations: Markups A markup is the amount added to the cost of merchandise to determine the selling price. Expressed as a percentage, not a dollar amount. What the retailer hopes to receive in payment from customers. Retail markups are calculated one of two ways. Markup % of Cost = Dollar Markup (retail price–cost) / Cost Markup % of Selling Price = Dollar Markup / Selling Price A keystone markup is doubling the cost to arrive at the retail price.

Pricing Calculations: Markdowns A markdown is the difference between the previously marked selling price of an item and the reduced selling price. Price reductions are used to stimulate the sale of merchandise. Retail markdowns are computed either as a percent of the original ticketed price or a percent of the marked-down selling price. Markdown percent of the ticketed price is often advertised to customer. Ex: 20% off an item

Pricing Strategies Odd-figure pricing is the retail pricing of merchandise a few cents less than a dollar denomination, such as $1.99 or $199.95 Psychologically customers will consider the items to be priced lower than the next higher dollar amount, thus seeming less expensive. Gives the impression the retailer works hard to keep prices as low as possible.

Pricing Strategies Loss leaders are low-priced articles on which stores make little or no profit. Popular items promoted at a reduced price to attract shoppers into the store. Retailers then hope that shoppers will also purchase other regular priced items. Employee discounts are also given to encourage employees to purchase and wear apparel from the retail store. The typical employee discount is between 10% and 30%.

Price Market Categories of Apparel All fashions start as designs. Each design is created for a specific price range, design level, and target customer. The price of garments depends on: The quality of materials. The type and amount of labor used. The complexity of the style and construction. The reputation of the designer or manufacturer.

Price Market Categories of Apparel Fashions, particularly women’s garments are grouped around five main price levels. Designer Bridge Better Moderate Budget

Designer “Prestige” fashions created by name designers. This apparel is also called couture. Custom, made-to-order for each client at high prices. The garments have: Distinctive styling. Made of expensive fabrics. Sewn with attention to detail and finish. Top quality look and fit.

Bridge “Secondary” lines of well-known designers. High prices but not as high as couture. Are the most expensive ready-to-wear apparel produced. Retailed through fashionable dress shops or special designer sections of upscale department stores. These garments have: Expensive fabrics. Fine details. Produced in small quantities. Sportier and more career oriented.

Better High quality but a more reasonable price. More accessible to consumers and retailers than high fashion designs. Retailed in selected specialty and department stores and have familiar design store names.

Moderate Medium-priced merchandise with well- known brand names, such as Gap and Wrangler. Widely available and worn by most people. Mass produced under a manufacturers name. Retailers sell higher-volumes of this level than the more expensive categories.

Budget Lowest-priced category of apparel. Found on retail racks and shelves for the mass market. Almost no original designing is done at this level. Copying is done of other garments, resulting in downscaled knockoffs (copy of a higher priced garment). Created with less expensive materials, fewer details and cheaper trims. Manufactured mostly overseas in low-wage countries, inexpensively and in large numbers.