Marketing Study Guide Markup down when stock turn rate up Markup up when stock turn rate down Str cost of goods sold average inventory at cost A grocery store has a low markup Net sales cost of goods sold gross margin Gross margin expenses net profit Beginning inventory purchases cost of goods for sale Cost of goods for sale ending inventory cost of goods sold Example gross margin 40 Cost of goods sold 60 average inventory 100 000 Work out problem 5 6 ns 100 000 ns 833 333 Gm 20 ns Cgs 80 ns Work out problem 10 80 ns 500 000 6 250 000 Cgs 2 000 000 Ending inventory 400 000 Str 2 000 000 Purchase 500 000 1 900 000 500 00 2 900 000 Work out problem 2 900 000 4 000 000 2 000 000 Beginning ending 2 average Bidding o Competing with others they don t know bids o Usually pursuing many jobs o Commonly used with government and non profit organizations o Compete with others because they don t know their bids o Objectives o Maximize long run average expected profit the objective will be to maximize Long Run Average Expected Profit o Market share the price that has the greatest probability of success o Keep workers employed you might have to lose money first in order to gain money in the long run o Maximize revenue may lose money to maximize revenue o LRAEP loss profit x probability o Bid cost loss profit o Example o Maximize TR stabilize work force maximize market share o TR of jobs x probability at price x bid o Price elasticity Inelastic Price up Total Revenue Price down Total revenue Elastic Price up Total revenue Price down Total revenue Unitary Elastic Price up Total revenue Price down Total revenue up down down up o E q2 q1 q1 q2 2 o E 1 inelastic o E 1 elastic o E 1 unitary elastic o Example o Q1 100 000 Q2 75 000 TR 200 000 P1 2 00 P2 3 00 TR 225 000 Inelastic price up total revenue up 100 000 75 000 175 000 2 3 2 5 2 71 71 is less than 1 therefore it is inelastic o in order to make money we have to consider the mark up price o when markup goes up stockturn rate goes down o when markup goes down stockturn rate goes up Beginning Inventory B I Purchases Cost of Goods Available for Sale Ending Inventory E I Cost of Goods Sold CGS Gross Sales GS Returns Allowances R A Net Sales NS Price Elasticitiy EP Q2 Q1 Q1 Q2 2 P2 P1 P1 P2 2 fun fact If you are paid to take merchandise then sell it for a positive value then the MU on ending price can be 100 This is the only scenario in which MU Pe can be 100 What is pricing o Price is one of the 4 P s we learned about in the beginning of the semester o Monetary Pricing has to do with dollars and cents o Non Monetary Pricing is subjective o The pricing feasibility set is the intersection of legal objective marketing mix demand and wholesalers and retailers o When total price increases distrobution increases o When total price increases promotion increases o When monetary price increases promotion increases o When price increases quality increases like in clothing o Pricing philosophy is focused on the cost aspect o The demand based philosophy focuses on the consumer competition and the marketing concept o Mark up Equations Price 1 Pb Beginning price percentage End Price Beginning Price Beginning 2 Pe Ending price percentage End Price Beginning Price End Price 3 4 Mark Up Percentage will always be greater on beginning price than ending price Based on beginning cost Pb MU Pe Pb Pb Based on ending price Pe MU Pe Pb Pe There are 4 Pricing scenarios Cost plus MU on Pb MU Pe Pb Pb Cost plus MU on Pe MU Pe Pb Pe Demand based MU on Pb MU Pe Pb Pb Demand based MU on Pe MU Pe Pb Pe o There DOES NOT always have to be a wholesaler and a retailer o Stock turn rate and markups are related inversely o Social influences forces that change or influence your behavior o Consumer socialization learning to consume o Reference group a group which you identify with o Culture the accumulation of values knowledge and beliefs a society uses o Networking we shape our network with homophily the conscious or unconscious tendency to associate with people who resemble us o 4 scenarios for deriving price o Cost Markup Based on Beginning Price o Cost Markup Based on Ending Price o Demand Based Markup Based on Beginning Price o Demand Based Markup Based on Ending Price o If the beginning price is less than zero you cant have a markup greater than or equal to 100 o What condition must hold for it to be possible for the mark up percentage on PE to be equal to 100 Free merchandise Practice Questions Markup The beginning price of an item is 10 The manufacturer marks up by 20 then the wholesaler marks up by 40 and finally the retailer marks up by 50 What is the cost to the consumer Use cost plus pricing with mark up on beginning price ANSWER 25 20 If the price to the consumer is 40 and the manufacturer marked up by 20 the wholesaler marked up by 40 and finally the retailer marked up by 50 what is the manufacturer s beginning price Use demand based pricing with mark up on ending price ANSWER 9 60 The beginning price of an item is 10 The manufacturer marks up by 20 then the wholesaler marks up by 40 and finally the retailer marks up by 50 What is the cost to the consumer Use cost plus pricing with mark up on ending price ANSWER 41 66 Same information as practice question one but a different result because of alternate method If the price to the consumer is 40 and the manufacturer marked up by 20 the wholesaler marked up by 40 and finally the retailer marked up by 50 what is the manufacturer s beginning price Use demand based pricing with mark up on beginning price ANSWER 15 87 Stock Turn Rate Examples 1 If Gross Margin is 40 of Net Sales what Net Sales are required to obtain a Stock Turn Rate of 5 if Ave Inv C 100 000 5 6NS 100 000 500 000 6NS NS 833 333 2 If GM 20 of NS what NS are required to obtain a STR of 10 if Ave Inv C 500 000 10 8NS 5 000 000 8NS NS 6 250 000 500 000 Price Elasticity Example 1 Last Year s FSU UF Game Sold 100 000 Cokes Q1 at 2 00 P1 This year concessions is thinking of increasing price to 3 00 and think they will sell 75 000 Cokes Should they increase the price MAXIMIZE TOTAL REVENUE P1 2 P2 3 Q1 100 000 Q2 75 000 …
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