Inventory and Pricing Marketing I: Unit 6

I. The Process of Handling Stock 1. Receiving goods 2. Checking them 3. Marking them with information 4. Transferring them to their selling location

1. Receiving Goods Receiving records must be completed that may include Receiving records must be completed that may include –Person who received the shipment –Who shipped the mdse and where it was shipped from –Name and number of carrier –Weight of items delivered –Shipping charges –Dept or store that ordered the mdse –Date the shipment was received

2. Checking the Mdse Important to make sure the correct mdse was received and that it was undamaged. Important to make sure the correct mdse was received and that it was undamaged. Invoices (the bills) should always be verified with a physical count of the mdse Invoices (the bills) should always be verified with a physical count of the mdse Proper checking could save the business a lot of money. Proper checking could save the business a lot of money. Damaged or unordered mdse may need to be returned Damaged or unordered mdse may need to be returned

4 methods of checking

Blind Check Method The mdse is counted, listed, and described on a dummy invoice then checked against the actual invoice at a later time. This gets the mdse to the sales floor quicker if the actual invoice hasn’t been received yet.

Direct Check Method The mdse is checked directly against the actual invoice or purchase order The mdse is checked directly against the actual invoice or purchase order

Spot Check Method A random check of one carton in a shipment (ex. Checking one box out of 20) A random check of one carton in a shipment (ex. Checking one box out of 20) The box would be checked for quanity, then one item would be checked for quality The box would be checked for quanity, then one item would be checked for quality Used for checking canned goods, paper products, and pharmaceuticals. Used for checking canned goods, paper products, and pharmaceuticals.

Quality Check Method Inspects the workmanship and general characteristics of the mdse. Inspects the workmanship and general characteristics of the mdse. All damaged goods should be reported All damaged goods should be reported

3. Marking the Mdse Most common way to mark mdse is with UPCs (Universal Product Codes). These are preprinted labels with codes to describe and price the mdse. These can be scanned into the computer to use in tracking sales and inventory levels. Most common way to mark mdse is with UPCs (Universal Product Codes). These are preprinted labels with codes to describe and price the mdse. These can be scanned into the computer to use in tracking sales and inventory levels. Used for source marking and pre- retailing marking Used for source marking and pre- retailing marking

Electric or Hand-Operated Pricing Machines Electric or Hand-Operated Pricing Machines –This method isn’t used much today b/c of the wide use of bar code scanners

Price Ticket Information Price Price Store # Store # Model or Style numbers Model or Style numbers Color Color Size Size Keeping track of this info helps a business determine what is popular and to simplify shopping for consumers Keeping track of this info helps a business determine what is popular and to simplify shopping for consumers

4. Transferring Mdse Moving it to the sales floor or stock room after completing steps 1-3. Moving it to the sales floor or stock room after completing steps 1-3. Old mdse needs to be put on sale for a short time, then moved out to a warehouse or distribution center Old mdse needs to be put on sale for a short time, then moved out to a warehouse or distribution center

II. Inventory Management Perpetual Inventory System – Keeps up-to-date count of inventory, including sales and returns. Perpetual Inventory System – Keeps up-to-date count of inventory, including sales and returns. Physical Inventory System – Stock is visually inspected and physically counted to determine the quantity on hand. This is also used along with the Perpetual System for income tax purposes Physical Inventory System – Stock is visually inspected and physically counted to determine the quantity on hand. This is also used along with the Perpetual System for income tax purposes

Types of Perpetual Inventory Systems Manual Systems - Paper records of sales, etc are entered into the system. Some info is sent to a tabulating facility where the info is analyzed by computer software Manual Systems - Paper records of sales, etc are entered into the system. Some info is sent to a tabulating facility where the info is analyzed by computer software Computer Based Systems – Faster and more accurate than manual systems. Info is fed into computer by Point of Sale (POS) Terminals Computer Based Systems – Faster and more accurate than manual systems. Info is fed into computer by Point of Sale (POS) Terminals

Types of Physical Inventory Systems Visual Control – Counting the items you can see. Doesn’t count for misplace items, can’t tell rate of sales for each item. Visual Control – Counting the items you can see. Doesn’t count for misplace items, can’t tell rate of sales for each item. Tickler Control – A small portion of the inventory is physically counted each day. The entire inventory is never counted all at the same time Tickler Control – A small portion of the inventory is physically counted each day. The entire inventory is never counted all at the same time

Annual Inventory Count – At least once a year a business may close to count every item in inventory. This is for the business financial statements. Annual Inventory Count – At least once a year a business may close to count every item in inventory. This is for the business financial statements.

Ways to monitor stock levels Dollar/Unit Control Dollar/Unit Control Stock Turnover Rate Stock Turnover Rate Stock List Stock List

Dollar/Unit Control Dollar/Unit Control –Dollar Control – The $ amount that has been invested in inventory in a given period of time –Unit Control – The quantity of merchandise that a business handles in a given period of time using Stockkeeping Units (sku) SKUs are info on an item or group of related items.

Stock Turnover – the number of times the average inventory has been sold and replaced over a given period of time. It is the most effective way of determining how well inventory is being managed. Stock Turnover – the number of times the average inventory has been sold and replaced over a given period of time. It is the most effective way of determining how well inventory is being managed. Net Sales_____________ Net Sales_____________ Average inventory on hand Average inventory on hand

Figuring Stock Turnover Ratios Example: Example: –January Net Sales $49,500 –January Average inventory$8,250 $49,500 / $8,250 = 6 This means the business sold and replaced its inventory 6 times during January. Stock Turnover Rate Worksheet (Daily Grade)

Stock Lists – are used to help a business keep up with how much of a certain item should be kept in stock. Stock Lists – are used to help a business keep up with how much of a certain item should be kept in stock. –Basic Stock List – used for items that should always be in stock. Staple mdse varies depending on the type of business. –Model Stock List – used for fashionable mdse. –Never Out List – used for best selling products that make up most of the store’s sales. Quantity will go down as popularity of the item goes down.

How Technology impacts Inventory Management UPCs with standard product identifier bar code symbols capture sku-level information at the POS UPCs with standard product identifier bar code symbols capture sku-level information at the POS Standard electronic data interchange (EDI) transactions communicate electronically from business to business. Standard electronic data interchange (EDI) transactions communicate electronically from business to business. Standardized shipping container marking (SCM) is used to identify case and case contents Standardized shipping container marking (SCM) is used to identify case and case contents

These examples of technology help businesses to operate more efficiently and therefore be more profitable. These examples of technology help businesses to operate more efficiently and therefore be more profitable.

III. Pricing Techniques Psychological Pricing - techniques that create an illusion for customers or make shopping easier for them. Psychological Pricing - techniques that create an illusion for customers or make shopping easier for them. Discount Pricing - reductions from the usual price Discount Pricing - reductions from the usual price

Examples of Psychological Pricing Odd-Even Pricing Odd-Even Pricing –Odd numbered prices (.79, $9.95, $699) convey a bargain image. –Even numbered prices ($10, $50, $100) convey a quality image

Prestige Pricing sets higher- than-average prices to suggest “we are better than the competition” attitude to the customer. Prestige Pricing sets higher- than-average prices to suggest “we are better than the competition” attitude to the customer. –Examples: Rolls Royce automobile, Waterford crystal, Lenox china.

Multiple-Unit Pricing – suggests bargains and increases sales. Multiple-Unit Pricing – suggests bargains and increases sales. –Ex. 3 cans of beans for $.99 You are not required to purchase all

Bundle Pricing is including several complementary products in a package that is sold at a single price. Bundle Pricing is including several complementary products in a package that is sold at a single price. –Ex. Perfume that is packaged with lotions, shower gel, etc. The set isn’t broken – must get it all.

Promotional Pricing - used with sales promotions when prices are lower than usual. Two types are: Promotional Pricing - used with sales promotions when prices are lower than usual. Two types are: –Loss Leader – Pricing an item below cost to draw in customers –Special Event – prices are reduced for a specific happening such as “back to school”, or an “Anniversary Sale”, etc

Everyday Low Prices (EDLP) are low prices set on a consistent basis with no plans to raise them or offer discounts. Everyday Low Prices (EDLP) are low prices set on a consistent basis with no plans to raise them or offer discounts. –Walmart is known for this policy

Price Lining - all merchandise in a given category are offered at a certain price Price Lining - all merchandise in a given category are offered at a certain price –Ex. All blouses are $25, $35, and $50 (depending on quality differences) –Dollar Tree (Where Everything is $1) uses this technique Which other pricing technique is used in this ad?

Examples of Discount Pricing Cash discounts – offered to encourage customers to pay bills quickly Cash discounts – offered to encourage customers to pay bills quickly –Ex. 2/10 N30 (Just like in the last unit)

Quantity Discounts – offered to buyers for placing large orders. Quantity Discounts – offered to buyers for placing large orders. –Ex. Family pack of meat is sold cheaper by the pound than a smaller pack.

Trade Discounts – not really a discount but a way a manufacturer might quote it’s prices to wholesalers and retailers. Trade Discounts – not really a discount but a way a manufacturer might quote it’s prices to wholesalers and retailers. –Ex. A wholesaler may get 40% off the Suggested Retail Price and a Retailer may get 30% off.

Seasonal Discount – Reduced prices when buying out of season Seasonal Discount – Reduced prices when buying out of season –Ex. Christmas decorations at drastically reduced prices after Christmas –Swimsuits sold after the summer season

Promotional Discounts Rebates, Coupons, Trade- In Allowances, etc Promotional Discounts Rebates, Coupons, Trade- In Allowances, etc

6 Steps for Setting a Price 1. Determine your objective – is it to increase sales, establish an image, etc. 2. Study costs – remember hidden costs such as payroll and shipping charges

3. Estimate demand – how much are the customers willing to pay at a given price 4. Study the competition 5. Decide on a pricing strategy 6. Set price