9.00 Explain pricing strategies for making effective pricing decisions.

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9.00 Explain pricing strategies for making
effective pricing decisions.

• 9.03 Calculate the selling price of merchandise
  and services.

D. MARKETING A SMALL BUSINESS
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Profit

• Revenue remaining after the expenses of running
  the business have been deducted.
• Factors that affect profit
• demand -- business expenses
• prices -- the economy
• chance
• Ways to increase profit
• increase worker efficiency -- increase sales
• reduce business expenses

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Cost of Merchandise Sold

• The amount paid by a business for products
  purchased for resale or for use in the production
  of other goods.
• The first expense that must be paid.
• Is deducted directly from sales revenue to
  determine gross profit.

• Formula (used on the income statement)
• Sales Revenue
• - Cost of merchandise sold
• Gross profit
• - Business Expenses
• Net profit

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Basic Pricing Calculations

• Retail Price Cost Markup
• RP C MU
• Variations of the equation
• C RP - MU
• MU RP - C

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Keystone Pricing

• A common pricing method used by retailers.
• Retail price is calculated by doubling the cost
  of the merchandise.
• cost 25.00
• retail price 50.00

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Markdowns

• The most common type of price change
• Used as a tool to stimulate sales, dispose of
  slow moving products, meet competitors prices,
  and/or increase customer traffic
• Markdowns are expressed as a of net sales.
• MARKDOWN PERCENTAGE (MD) DOLLAR MARKDOWN
  (MD)/Net Sales (NS)
• MD cannot be calculated until goods are sold
  because they are based on net sales.

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Reasons for Markdowns

• Buying errors
• Pricing errors
• Special sales
• Broken assortments

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Quantity Discounts

• Reductions in price given by manufacturers/wholesa
  lers when a large or specified quantity is
  purchased.
• Cumulative quantity discounts Based on total
  purchases over a specified period of time.
• Non-cumulative quantity discounts Given for a
  one-time purchase or shipment.

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Trade Discounts

• Also called functional discounts
• Offered to channel members for performing certain
  functions like storing or record keeping
• Can be stated as a percentage off the list price
  or as a series of percentages off the list price.
  Example List price less 45 or List price
  less 30, less 15, less 5 (2000 less 30/12/5)

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Cash Discounts

• Offered to buyers as an incentive for paying the
  invoice quickly.

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Cash Discounts

• Ordinary dating
• based on the date of the invoice
• 2/10, net/30
• buyer receives a 2 discount if the invoice is
  paid within 10 days, or the full (net) amount is
  due in 30 days

• Advanced dating
• indicates that the payout period does not begin
  until the date indicated in the terms
• 5/10, net/30, June 15
• buyer receives a 5 discount if the invoice is
  paid within 10 days of June 15, or the full
  amount is due 30 days from June 15

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Cash Discounts

• End-of-month dating
• The payout period does not begin until the last
  day of the month in which the invoice is dated.
• 2/10, net/30, EOM
• 2 discount if the invoice is paid within 10 days
  of the last day of the month of the invoice, or
  the full (net) amount is due 30 days from the
  last day of the month

• Receipt-of-Goods dating
• The payout period does not begin until the buyer
  receives the goods from the seller.
• 2/10, net/30, ROG
• 2 discount if the invoice is paid within 10 days
  of receiving the goods, or the full (net) amount
  is due 30 days from when the goods are received

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Cash Discounts

• Extra dating
• The buyer has additional days in which to pay and
  still receive the cash discount.
• 3/10, 60X, net 90
• a 3 discount if the invoice is paid within 10
  days plus 60 days from the invoice date, or the
  full (net) amount is due in 90 days