© South-Western Educational Publishing GOALS LESSON 3.4 PRICING MERCHANDISE  Describe the methods buyers use to calculate the cost of merchandise  Calculate merchandise prices

© South-Western Educational Publishing 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”

© South-Western Educational Publishing Estimating the Price of Products  A good buyer can estimate the cost of making an item and the price a customer will pay for it  Ability comes from  Studying types of products  Learning about the materials, production process and cost

© South-Western Educational Publishing 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

© South-Western Educational Publishing Memorizing Prices  Some retail buyers collect as much pricing info as possible and memorize it  Problem if you run into something completely new

© South-Western Educational Publishing 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

© South-Western Educational Publishing Buyer Discounts  The price set by the vendor is the list price  Most retail buyers never pay list price  Discounts are written as a percentage off the list price

© South-Western Educational Publishing 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% taken by you as the buyer, 20% and 10% by previous discounts in the chain

© South-Western Educational Publishing 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

© South-Western Educational Publishing 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

© South-Western Educational Publishing Buyer Discounts  Cash Discounts  Retailers 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

© South-Western Educational Publishing Buyer Discounts  5/20 net 30  5% discount if paid within 20 days, balance due in 30 days  4/10 net 60  4% discount if paid within 10 days, balance due in 60 days

© South-Western Educational Publishing 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

© South-Western Educational Publishing Factors That Affect Price 1.Expenses 2.Cost 3.Profit 4.Store 5.Demand 6.Competition

© South-Western Educational Publishing Factors that Affect Price 1. Expenses  All the money retailers spend to operate the store, handle the merchandise, and manage the business  Employee salaries, bills, etc

© South-Western Educational Publishing Factors that Affect Price 2.Cost 1.The money the retailers pay for the merchandise 3.Profit 1.The amount of money left after the costs and expenses are subtracted from the sales

© South-Western Educational Publishing Factors that Affect Price 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.Demand 1.Consumers desire to buy the product 2.Products in demand can be priced a bit higher

© South-Western Educational Publishing Factors that Affect Price 6.Competition 1.Compare your prices to the competitors and price accordingly

© South-Western Educational Publishing 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

© South-Western Educational Publishing Price Line Policy  A store that usually only has three prices  $16.95, $23.95, $36.95  The customer can clearly categorize the value and quality of each product  Simplifies pricing, selling and stocking

© South-Western Educational Publishing 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!

© South-Western Educational Publishing 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%

© South-Western Educational Publishing Initial Markup  The difference between a product’s cost and initial retail selling price  Markdown: when a products price has been reduced

© South-Western Educational Publishing Merchandise Markdowns Reasons  Buying Errors Wrong styles, colors, quantity  Pricing Errors Priced too high  Returned Items Poor Inventory  Seasonal or promotional reasons