1. Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved Ch. 12: Pricing & Selling Profit margin controls Calculating initial markup & required markup Determining profitability of a department or store Pricing individual items Price line structures Markdowns & closeouts Calculating profits A retail buyer’s role in the selling process

2. Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved Retail Markup Terminology Initial markup – The difference between the invoice cost of an item & the first sales price marked on it by the store Cumulative markup – The total of retail prices of all items in a department, minus the total costs of the same items Required markup – A percentage used as a guideline for all store markups to ensure profitability Maintained markup – A percentage in relation to net sales that reflects profit after true cost of sales

3. Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved Formulas for Markups Cumulative markup of inventory Markup Total retail value of inventory = percentage Planned expenses + profit (not Planned including discounts) + reductions = markup Planned sales + reductions percentage Original retail price (always 100%) minus (initial markup percentage) x (percent of reduction) minus (cost of reduction) = “Maintained markup” percentage

4. Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved Common Retail Pricing Policies Keystoning – Adding a flat percentage of profit to every item Loss-leaders – Pricing a few items below profitable levels to draw people into a store Price lining – Marking every item in a particular cost range at the same retail price Skimming – A type of price lining that skews each item’s price toward the high end for that item Price zones – Setting price ranges & developing product assortments in each range

5. Copyright © 2006 by John Wiley & Sons, Inc. All rights reserved Setting Markdowns Mark goods down while active demand still exists for them (except in high-end stores) Experiment with timing of markdowns & document the results First round of markdowns should clear most (but not all) of the sale merchandise out Markdown amounts should vary with type of goods Experiment with “stepping out” of price line patterns to see what is most effective