44 terms

retailing chapter 10

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a retailers pricing objectives must interact with these 7 decisions
1. merchandise
2. location
3. promotion
4. credit
5. customer service
6. store image
7. legal constraints
pricing objectives
should be in agreement with its mission statement and merchandising policies
profit-oriented objectives
many retailers establish the objective of either achieving a certain rate of return or maximizing profits
target return objective
is a pricing objective that states a specific level of profit, such as sales or return on capital invested, as an objective
profit maximization
is a pricing objective that seeks to obtain as much profit as possible
skimming
is a pricing objective in which price is initially set high on merchandise to skim the cream of demand before selling at more competitive prices
penetration
is a pricing objective in which price is set at a low level in order to penetrate the marketing establish a loyal customer base
sales oriented objectives
seek some level of unit sales, dollar sales, or market share but do not mention profit
Status Quo Objectives
Retailers who are happy with their market share and level of profits sometimes adopt "don't rock the boat" pricing policies
Pricing Policies
are rules of action, or guidelines, that ensure uniformity of pricing decisions within a retail operation
below-market pricing policy
is a policy that regularly discounts merchandise from the established market price in order to build store traffic and generate high sales and gross margin dollars per square foot of selling space
price zone
is a range of prices for a particular merchandise line that appeals to customers in a certain market segment
above-market pricing policy
is a policy where retailers establish high prices because non-price factors are more important to their target market than price
customary pricing
is a policy in which the retailer sets prices for goods and services and seeks to maintain those prices over an extended period of time
variable pricing
is a policy that recognizes the differences in demand and cost necessitate that the retailer change prices in fairly predictable manner
flexible pricing
is a policy that encourages offering the same products and quantities to different customers at different prices
one-price policy
is a policy that establishes that the retailer will charge all customers the same price for an item
price lining
is a pricing policy that is established to help customers make merchandise comparisons and involves establishing a specified number of price points for each merchandise classification
trading up
occurs when a retailer uses price lining and a salesperson moves a customer from a lower-priced line to a higher one
trading down
occurs when a retailer uses price lining, and a customer initially exposed to higher priced lines expresses the desire to purchase a lowered-priced line
odd pricing
is the practice of setting retail prices that end in the digits 5,8,9 ($29.95, $49.98, $9.99) these are associated with low prices. They are typically used by retailers who sell either at prices below the market or at the market
multiple-unit pricing
occurs when the price of each unit in a multiple-unit package is less than the price of each unit if it were sold individually
bundle pricing
involves selling distinct multiple items offered together at a special price
leader pricing
is when a high-demand item is priced low and is heavily advertised in order to attract customers into the store
loss leader
is an extreme form of the leader pricing where an item is sold below a retailer's cost
high-low pricing
involves the use of high every day prices and low leader "specials" on items typically featured in weekly ads
bait-and-switch pricing
advertising or promoting a product at an unrealistically low price to serve as bait and then trying to switch the customer to a higher-priced product
markup
is the selling price of the merchandise - its cost, which is equivalent to gross margin
SP
the selling price per unit
C
is the dollar cost of merchandise per unit
M
is the dollar markup per unit
basic markup equation
SP= C + M
percentage of markup on selling price
= (SP - C) / SP= M/SP
or
= percentage of markup cost / (100% + percentage of markup on cost)
percentage of markup on cost
= (SP - C) / C = M/C
or
= percentage of markup on selling price / (100% - percentage of markup on selling price)
initial markup
= (original retail price - cost) / original retail price
maintained markup
= (actual retail price - cost) / actual retail price
sometimes referred to as gross margin or just gross
initial markup percentage
= (gross margin + alterations costs + reductions) / (net sales + reductions)
remember that markdowns, stock shortages, and employee and customer discounts are all retail reductions. Some retailers record cash discounts as other income and not as a cost reduction in determining initial markup
markdowns
is any reduction in the price of an item from its initially established price
markdown percentage
= amount of reduction / original selling price
reduction percentage
= amount of reductions / net sales
early markdown policy
markdowns taken early speed the movement of merchandise and also generally enable the retailer to take less of a markdown per unit to dispose of the goods.
cheapeast to take
the first markdown
late markdown policy
allowing goods to have a long trial period before a markdown is taken
markdown money
is what retailers charge to suppliers when merchandise does not sell at what vendor expected