UNDERSTAND PRICING STRATEGIES IN THE FASHION INDUSTRY OBJECTIVE 4.02 UNDERSTAND PRICING STRATEGIES IN THE FASHION INDUSTRY

Supply and Demand Supply and demand are BIG parts of economics and they also impact pricing. DEMAND- THE AMOUNTS OF A GOOD OR SERVICE THAT CONSUMERS ARE WILLING AND ABLE TO BUY AT A CERTAIN TIME AND PRICE. SUPPLY- THE AMOUNT OF A GOOD OR SERVICE THAT IS AVAILABLE TO CUSTOMERS

More on SUPPLY AND DEMAND LAW OF SUPPLY AND DEMAND-STATES THAT WHEN AN ITEM IS SCARCE, BUT MANY PEOPLE WANT IT, THE PRICE OF THAT ITEM WILL RISE. CONVERSELY, IF THERE IS A LARGER SUPPLY OF AN ITEM THAN CONSUMER DEMAND WARRANTS, THE PRICE WILL FALL https://www.youtube.com/watch?v=7lPMoyzDiNo https://www.youtube.com/watch?v=Ng3XHPdexNM https://www.youtube.com/watch?v=RP0j3Lnlazs

SUPPLY AND DEMAND RELATIONSHIP IMPACT ON PRICES THE HIGHER THE SUPPLY TYPICALLY THE LOWER THE PRICE DUE TO SO MANY OPTIONS BEING AVAILABLE TO CONSUMERS; THIS DRIVES DOWN PRICE. THE PRODUCT IS IN THE PEAK PHASE OF THE BUSINESS CYCLE. WHEN DEMAND DROPS, SUPPLY WILL REDUCE AND SOMETIMES STOP COMPLETELY. THE PRODUCT IS ON THE DECLINE PHASE OF THE BUSINESS CYCLE.

PRICING STRATEGIES PRESTIGE: SETTING THE HIGHEST PRICE THE MARKET WILL BARE. VS. ECONOMY PRICING-A VALUATION TECHNIQUE WHICH ASSIGNS A LOW PRICE TO SELECTED PRODUCTS.

PRICING STRATEGIES ODD-FIGURE PRICING-THE RETAIL PRICING OF MERCHANDISE A FEW CENTS LESS THAN A DOLLAR DENOMINATION. EXAMPLE: A PAIR OF SHOES IS SOLD FOR $19.99 INSTEAD OF $20 IN ORDER TO SOUND LIKE A BETTER DEAL This is used by retailers who want to emphasize value (Target, TJ Maxx, Old Navy, etc.) and NOT by retailers who want to emphasize luxury or quality.

PRICING STRATEGIES CONTINUED… LIQUIDATORS: STEP IN THE CHANNEL OF DISTRIBUTION ONCE A PRODUCT HAS REACHED THE DECLINE PHASE OF THE BUSINESS CYCLE. LOSS LEADERS: SELLING A SPECIFIC PRODUCT UNDER COST WHICH INCREASE STORE TRAFFIC DRAMATICALLY ENOUGH AND INCREASES SALES OF OTHER PRODUCTS. TRADEOFF IS PROFITABLE. Example: When staples sells pencils for $0.01 during back to school- they won’t make money off of the pencils but they will bring traffic into the store!

Even More Pricing Strategies KEYSTONE MARKUP-DOUBLING THE COST PRICE TO ARRIVE AT THE RETAIL PRICE. EXAMPLE: ($50.00 (COST)+$50.OO=$100.00 RETAIL PRICE) Why do this? It is easy!

METHODS FOR CALCULATING RETAIL PRICES FORMULA FOR CALCULATING PRICE: RETAIL PRICE = COST + MARKUP MARKUP = RETAIL PRICE – COST COST = RETAIL PRICE - MARKUP

MARKDOWNS MARKDOWNS: PRICE REDUCTIONS; DISCOUNTS; TYPICALLY CALCULATED ON A PERCENTAGE OF THE RETAIL PRICE. MARKDOWN % = MARKDOWN / ORIGINAL RETAIL PRICE MARKDOWN % OF NET SALES = TOTAL MARKDOWNS / TOTAL NET SALES MARKDOWN RATIO: CALCULATED FOR SPECIFIC TIME PERIOD; USED TO MEASURE THE PERFORMANCE OF DEPARTMENTS, BUYERS, SALESPEOPLE, AND INDIVIDUAL PRODUCTS

OPERATING STATEMENTS NET SALES MINUS COST OF GOODS SOLD EQUALS GROSS PROFIT. GROSS PROFIT MINUS EXPENSES EQUALS NET PROFIT FIXED COST: EXPENSES WITH A SET PRICE. VARIABLE COST: EXPENSES THAT VARY FROM MONTH TO MONTH; BASED ON USAGE; UTILITY BILLS

PRICE MARKET CATEGORIES DESIGNER: COUTURE; CUSTOM MADE, ONE OF A KIND, VERY EXPENSIVE, TIME CONSUMING, HIGH LEVEL OF QUALITY AND SERVICE. SMALL MARKET AND NARROW LINE OF GOODS. EXAMPLE: WEARING A CUSTOM PRADA GOWN TO THE RED CARPET. BRIDGE: MOST EXPENSIVE READY TO WEAR(OFF THE RACK), PRODUCED IN LIMITED QUALITY, EXPENSIVE, LIMITED QUANTITY TO MAINTAIN EXCLUSIVITY, UPSCALE DEPARTMENT STORES AND BOUTIQUES WITH LIMITED ASSORTMENTS. EXAMPLE: NORDSTROM, NEIMAN MARCUS, BRANDS LIKE MICHAEL KORS. MANY OF THE NICER STORES AND BRANDS AVAILABLE AT SOUTH PARK MALL THAT ARE NOT AT OTHER MALLS. BETTER: MASS PRODUCTION OF HIGH QUALITY GOODS. STILL DESIGNER LABELS, LOCATED AT BROADER SELECTION OF FINE DEPARTMENT STORES. EXAMPLE: BELK, DILLARD, BRANDS LIKE RALPH LAUREN, CALVIN KLEIN, BANANA REPUBLIC, MANY OF THE “MALL” STORES AND BRANDS

PRICE MARKET CATEGORIES (CONTINUED) MODERATE: MEDIUM PRICE MERCHANDISE OF WELL KNOWN BRANDS. STYLES ARE ADAPTED FROM PROVEN ACCEPTED DESIGNS. FASHION FOLLOWERS DRIVEN. ITEMS ARE SOLD THROUGH CHAIN STORES. KNOCKOFFS ARE COPIED FASHION FROM ACCEPTED STYLES. THEY ARE ADAPTED BY FASHION STYLISTS. EXAMPLE: H&M, OLD NAVY, TARGET, ZARA, FOREVER 21 DISCOUNT: MERCHANDISE THAT WAS ORIGINALLY INTENDED TO BE SOLD AT A DIFFERENT PRICE POINT OR RETAILER BUT HAS BEEN REDUCED DUE TO OVERBUYING OR LACK OF CUSTOMER INTEREST EXAMPLE: TX MAXX, MARSHALLS, ROSS, NORDSTROM RACK