Marketing Study GuideMarkup % down when stock turn rate upMarkup % up when stock turn rate downStr = cost of goods sold/ average inventory at costA grocery store has a low markupNet sales - cost of goods sold = gross marginGross margin - expenses = net profitBeginning inventory + purchases = cost of goods for saleCost of goods for sale- ending inventory = cost of goods soldExample: gross margin = 40%Cost of goods sold = 60% average inventory = 100,000Work out problem 5= .6(ns)/100,000 ns= 833.333Gm= 20% nsCgs= 80%nsWork out problem 10=.80(ns)/500,000=6,250,000Cgs=2,000,000Ending inventory = 400,000Str= 2,000,000Purchase 500,0001,900,000500,00=2,900,000Work out problem 2,900,000-4,000,000=2,000,000Beginning + ending / 2 = averageBiddingo Competingwith others they don’t know bidso Usually pursuing many jobso Commonly used with government and non-profit organizationso Compete with others because they don’t know their bidso Objectiveso Maximize long run average expected profit the objective will be to maximize Long Run Average Expected Profito Market share the price that has the greatest probability of successo Keep workers employed you might have to lose money first in order togain money in the long runo Maximize revenue may lose money to maximize revenueo LRAEP= loss/profit x probabilityo Bid – cost = loss/profito Example:o Maximize TR/stabilize work force/ maximize market shareo TR= (# of jobs) x (probability at price) x(bid)o Price elasticityInelastic Price up Total Revenue upPrice down Total revenue downElastic Price up Total revenue downPrice down Total revenue upUnitary Elastic Price up Total revenue Price down Total revenue o E = q2-q1/q1+q2/2o E< 1 inelastico E>1 elastico E = 1 unitary elastico 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 inelastico in order to make money, we have to consider the mark up priceo when markup goes up, stockturn rate goes downo 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 Elasticitiyfun fact: If you are paid to take merchandise, then sell it for a positivevalue, then the MU% on ending price can be > 100%. This is the onlyscenario 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 centso Non Monetary Pricing is subjectiveo The pricing feasibility set is the intersection of legal, objective, marketing mix, demand, and wholesalers and retailers.o When total price increases, distrobution increaseso When total price increases, promotion increaseso When monetary price increases, promotion increaseso When price increases, quality increases like in clothingo Pricing philosophy- is focused on the cost aspecto The demand based philosophy focuses on the consumer, competition and the marketing concept.o Mark up Equations1. Pb - Beginning price percentage = (End Price - Beginning Price)/Beginning Price2. Pe - Ending price percentage = (End Price - Beginning Price)/End Price 3.4. Mark Up Percentage will always be greater on beginning price than ending priceBased on beginning cost (Pb)MU% = Pe - Pb PbBased on ending price (Pe)MU% = Pe – Pb PeThere 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 retailero Stock turn rate and markups are related inverselyo Social influences- forces that change or influence your behavioro Consumer socialization- learning to consumeo Reference group – a group which you identify witho Culture- the accumulation of values, knowledge and beliefs a societyuses. 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 Priceo Cost + Markup Based on Ending Priceo Demand Based Markup Based on Beginning Priceo Demand Based Markup Based on Ending Priceo 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 QuestionsMarkup %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: $25.20If 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: $9.60The 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: $15.87Stock Turn Rate Examples1. 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__ 500,000 = .6NS NS = $833,333 100,0002. 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 = $6,250,000 500,000Price Elasticity Example1. Last Year’s FSU-UF Game. Sold
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