What Affects Pricing Retail Pricing Strategies Consumer Factors Price Elasticity of Demand Pricing Strategies Cost oriented Competition oriented Sensitivity of buyers to price changes Govt Factors FTC Competition Strategy Variables Target audience Profits Demand Oriented Demand oriented Mfrs Wholesalers Suppliers Supply Demand Estimate how much customers will buy at various price levels Set prices to achieve sales goals Determine prices acceptable to target market Demand ceiling Demand floor Psychological Pricing Price quality relationship Odd pricing Cost Oriented Zone Pricing Refining companies actually map out areas and charge dealers different wholesale prices based on secret formulas that often factor in location the area s affluence or simply what the market will bear Takes into account the cost of merchandise retail operating expenses and desired profits Wholesale Prices Ct Berlin Greenwich NY Albany NYC 0 95 1 01 0 98 1 12 Northern CA Pleasanton Palo Alto 1 20 Markup covers operating expenses and profits Markup Selling price retail price Cost of Goods 1 35 1 Entr e Economics Pinot Bistro Los Angeles 300 solution Many independently owned restaurants aim for an overall food markup of 300 or 4X the cost of the raw ingredients But you might see a 500 markup on a grilled vegetable plate and pay 9 and only a 200 markup on a tenderloin meal and pay 25 Le Francais Wheeling Illinois Grilled Pork Chop with white beans pancetta escarole and assorted olives Total Cost to Restaurant 5 67 Menu Price 19 95 Pinot Bistro Los Angeles Trio of Lamb mustard crusted rack cumin dusted loin and braised shoulder with their own jus Persimmon Salad with grilled radicchio crisp cress and a red wine cranberry vinaigrette Total Cost to Restaurant 16 81 Menu Price 8 50 Total Cost to Restaurant 2 42 Menu Price 32 50 Charlie Palmer Steak Las Vegas New York bone in shell Total Cost to Restaurant 8 33 Menu Price 27 00 2 Cost Example Markup Markup in 300 Markup at cost Retail Selling Price Merchandise Cost Merchandise Cost 200 100 Markup on Retail 100 300 33 Markup at retail Retail Selling Price Merchandise Cost Retail Selling Price Retailer buys a TV for 200 and wants to sell if for 300 Merchandise cost What the retailer pays the mfr unit costs freight costs less discounts Markup on Cost 100 200 50 Initial Markup Initial value of merchandise less the cost of the merchandise Maintained Markup Ex A bike retails for 100 and costs the retailer 60 initial markup is 40 100 60 Based on the actual price received for the merchandise less the cost of the merchandise Ex If the bike sells for 80 maintained markup is 20 original retail price was 100 40 of retail 40 100 Maintained markup on retail is 20 20 100 66 of cost 40 60 How do you determine the initial markup Initial Markup at Retail expenses profits reductions planned sales reductions Ex A florist plans sales of 200 000 has operating expenses of 45 000 desires a profit of 35 000 and is expecting reductions of 20 of sales or 40 000 Initial markup 45 000 35 000 40 000 Maintained Markup Expenses Profits Net Sales X 100 Florist 45 000 35 000 200 000 100 40 200 000 40 000 50 3 Florist Ex cont If flowers cost 8 00 dozen what should the florist charge for the flowers retail selling price Assume a 50 markup on retail Retail Selling Price merchandise cost 1 markup So 8 00 1 5 16 00 Retail Selling Price Cost of Merchandise Markup Converting Markup from Retail to Cost Ex If markup on retail is 18 what is the equivalent markup on cost Answer 18 1 18 Converting Markup from Cost to Retail Markup on Retail Markup on Cost 100 Markup on Cost Ex If markup on cost is 36 what is the equivalent markup on retail Answer 36 1 36 26 A buyer for men s clothing is seeking sport coats to retail for 125 The markup objective on retail is 48 What is the most a buyer can pay a supplier for the jackets 125 100 X 48 X 52 52 of 125 65 00 219 What Should you Pay for Merchandise You are considering vendors for private label shirts You would like the retail price of the shirts to be 25 00 Your markup objective is 45 on retail What is the highest price you can pay to meet this objective Retail Selling Price Cost of Merchandise Markup 25 X 11 25 100 55 45 So 55 of 25 13 75 Determining the Most you Can Pay Markup on Cost Markup on Retail 100 Markup on Retail Setting the Retail Price A gift shop owner must pay a vendor 6 00 for a photo album and she wants to maintain a 60 markup on retail What should she charge for the album Retail Selling Price Merchandise Cost Markup 1 6 00 1 6 15 00 4 Pricing Strategies Markdowns Everyday Low Pricing High Low Pricing Odd Pricing Leader Pricing Multiple Unit Pricing Price Bundling Price Lining One Price Policy Reduction in the initial retail price Markdown as of net sales amount of markdown net sales X 100 Ex You bought 100 sweaters and 80 sell at 50 each while the remainder sell at 30 each Ans Markdown amount 20 sweaters were marked down 20 each so 20 X 20 400 Net Sales Revenue is 80 X 50 20 X 30 4600 Markdown 400 4600 X 100 8 69 Advertising Markdowns to Consumers Markdown of original retail value price reduction per unit original price per unit X 100 Ex A sweater retails for 50 and is marked down to 30 What is the markdown 20 50 X 100 40 5