Retail Pricing

Deepshikha Parashar Prasanna kumar M.F.Tech 2nd Sem

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Markups
Markup is the difference between the cost of an item and the retail price

The difference between the lowest current offering price

among dealers and the higher price that a dealer charges to a customer

Types of Markups
Initial markup retail selling price initially set for the merchandise minus the cost of the merchandise

Maintained markup the actual sales realized for the merchandise minus its costs

Initial and Maintained Markup

Reductions $.10
Maintained Markup $.30 Maintained Markup as a Percent of Actual Sales 33% = $.30/$.90

Initial Retail Price $1.00

Cost of Merchandise $.60

 Merchandise costs $.60. If the buyer planned on reductions of 10% of sales and wanted a maintained markup of 33% for the merchandise ,

Initial markup % =

33% + ($0.10/$0.90 = 11.11%) 100% + 11.11%

40%

Maintained markup % Reductions % (as a percent of planned + (as a percent of planned actual sales) Initial markup % = actual sales) Reductions % 100% (as a percent of planned actual sales) Maintained Markup = net sales - invoice costs + cash discounts
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Typical Markup Percentage

Product Category Typical Markup Percentage Based on Cost

Small Appliances (microwave, coffee maker) Large Appliances (refrigerator, dryer) Automobiles

30%

15%-20% 5-10%* (*note dealers make money on factor incentives and sale of accessories) 15-20%

Automobile Accessories (sunroof, CD player) Clothing

100%

Markdown
When merchandise does not sell at the original price the price must be reduced. The basic formula for markdown is:

reduced price original price markdown

Reduction in selling price to stimulate demand, take advantage of reduced costs, or force competitors out of the market. Markdowns are common for domestic goods sold in foreign markets where incomes are lower, where wholesalers demand a larger piece of the revenue
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Reasons for Taking Markdowns

Clearance Markdowns to get rid of slow-moving, obsolete merchandise
Promotional Markdowns
To increase sales and promote merchandise To Increase traffic flow and sale of complementary products generate excitement through a sale

To generate cash to buy additional merchandise

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Optimizing Markdown Decisions

Traditional Approach- Use a set of arbitrary rules Sell-Through: Identifies markdown items when its weekly sell-through percentages fall below a certain level Rule-based: Cuts prices on the basis of how long the merchandise has been in the store Markdown Optimization Software is used to determine when and how much markdowns should be taken to produce the best results by continually updating pricing forecasts on the basis of actual sales and factoring in differences in price sensitivities
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How To Reduce Markdowns

Use Markdown Optimization Models Improve Sales Forecasts and Merchandise Budget Plan

Work with Vendors to Plan Deliveries

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Liquidating Markdown Merchandise

Sell the merchandise to another retailer Consolidate the unsold merchandise

Place merchandise on Internet auction site

Donate merchandise to charity Carry the merchandise over to the next season

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Retail Pricing Strategy

Pricing of products depends on the strategies of the retailers

To introduce a new product, the retailer can opt between

running promotions and low pricing in the initial stage until

the demand rises for the product in the market.

Lowest pricing strategy does not allow retailers to attain

profit in the long run
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High/Low Pricing
Discount the initial prices through frequent sales promotions Advantages
Increases profits through price discrimination Sales create excitement Sells merchandise

Disadvantages
Train people to buy on deal and wait Have an adverse effect on profits

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Everyday Low Pricing

Emphasizes the continuity of retail prices at a level somewhere between the regular none-sale price and the deep-discount sale price of high/low retailers Doesnt mean lowest price Retailers have adopted a low price guarantee policy to reinforce their EDLP strategy Advantages: Assures customers of low prices Reduces advertising and operating expenses Reduces stockouts and improves inventory management
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Pricing Strategies
EDLP Assures customers low prices Reduces advertising and operating expenses Better supply chain management Fewer stockouts Higher inventory turns Hi-Lo Higher profits through price discrimination More excitement Build short-term sales and generates traffic

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Cost Plus Pricing

Cost plus pricing strategy takes into account the profit of the retailer. Cost plus pricing is an easy way to calculate the price of the merchandise. The increase in the retailer price of the merchandise is directly proportional to the increase in the cost price. The customers however do not have a say in cost plus pricing. Cost plus pricing works on the following principle:
Cost Price of the product + Profit (Decided by the retailer) = Final price of the merchandise.
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Manufacturer Suggested Retail Price (MSRP)

According to manufacturer suggested retail pricing strategy the retailer sets the final price of the merchandise as suggested by the manufacturer. The retailer sells his merchandise at a price suggested by the manufacturer.
The retailer sells the product at the same price as suggested by the manufacturer. The retailer sells the merchandise at a price less than what was suggested by the manufacturer Retailers initially quote an unreasonably high price and then reduce the price on the customers request to make him realize that a favour has been done to him.
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Prestige Pricing
According to prestige pricing mechanism, the price of the merchandise is set slightly above the competitors. The retailer can charge higher price than the competitors only under the following circumstances:
Exclusive Brands at the store Brand image of the store Prime location of the retail store Excellent customer service Merchandise not available at any other store Latest Trends

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Competitive Pricing
The cut throat competition in the current retail scenario has prompted the retailers to guarantee excellent customer service to the buyers for them to prefer them over their competitors.
The price of the merchandise is more or less similar to the competitors but the retailers add on certain attractive benefits for the customers. (Longer payment term, gifts etc.) The retailers ensure that the customers leave their store with a smile to have an edge over the competitors. Retailer tries his level best to offer better services to the customers for a better business in future.

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What are INCOTERMS ?

International Commercial terms INCOTERMS are a set of three-letter standard trade terms most commonly used in international contracts for the sale of goods

First published in 1936

INCOTERMS provide internationally accepted definitions and rules

for international business
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The 11 Incoterms rules

RULES FOR ANY MODE OR MODES OF TRANSPORT EXW FCA CPT Ex Works Free Carrier Carriage Paid To

CIP
DAT

Carriage And Insurance Paid To

Delivered At Terminal

DAP
DDP

Delivered At Place
Delivered Duty Paid
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RULES FOR SEA AND INLAND WATERWAY TRANSPORT

FAS FOB CFR CIF Free Alongside Ship Free On Board Cost And Freight Cost, Insurance and Freight

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TERMS FOR ANY TRANSPORT MODE

EXW - EX WORKS (... named place of delivery)
The Seller's only responsibility is to make the goods available at the Sellers premises. The Buyer bears full costs and risks of moving the goods from there to destination.

FCA - FREE CARRIER (... named place of delivery)

The Seller delivers the goods, cleared for export, to the carrier selected by the Buyer. The Seller loads the goods if the carrier pickup is at the Seller's premises. From that point, the Buyer bears the costs and risks of moving the goods to destination.

CIP - CARRIAGE AND INSURANCE PAID TO (... named place of destination)

The Seller pays for moving the goods to destination. From the time the goods are transferred to the first carrier, the Buyer bears the risks of loss or damage. The Seller, however, purchases the cargo insurance.

CPT - CARRIAGE PAID TO (... named place of destination)

The Seller pays for moving the goods to destination. From the time the goods are transferred to the first carrier, the Buyer bears the risks of loss or damage.
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 DAT - DELIVERED AT TERMINAL (... named terminal at port or place of destination)

The Seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the Buyer's disposal at a named terminal at the named port or place of destination. "Terminal" includes any place, whether covered or not. The Seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.

DAP - DELIVERED AT PLACE (... named place of destination)

The Seller delivers when the goods are placed at the Buyer's disposal on the arriving means of transport ready for unloading at the names place of destination. The Seller bears all risks involved in bringing the goods to the named place.

DDP - DELIVERED DUTY PAID (... named place)

The Seller delivers the goods -cleared for import - to the Buyer at destination. The Seller bears all costs and risks of moving the goods to destination, including the payment of Customs duties and taxes.

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MARITIME-ONLY TERMS
FAS - FREE ALONGSIDE SHIP (... named port of shipment)
The Seller delivers the goods to the origin port. From that point, the Buyer bears all costs and risks of loss or damage.

FOB - FREE ON BOARD (... named port of shipment)

The Seller delivers the goods on board the ship and clears the goods for export. From that point, the Buyer bears all costs and risks of loss or damage.

CFR - COST AND FREIGHT (... named port of destination)

The Seller clears the goods for export and pays the costs of moving the goods to destination. The Buyer bears all risks of loss or damage.

CIF - COST INSURANCE AND FREIGHT (... named port of destination)

The Seller clears the goods for export and pays the costs of moving the goods to the port of destination. The Buyer bears all risks of loss or damage. The Seller, however, purchases the cargo insurance.
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Export documentation
Export documentation plays a vital role in international marketing Exporters are required to follow certain formalities and procedures, using a number of documents. A clear understanding of all documents and their purpose, how to prepare these, number of copies required, when and where to file, is a must for all export professionals.

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Export Documentation in India

Export Documentation in India has evolved a great deal of interest since 1990. India adopted the ADS (Aligned Documentation System) in 1991 which is the Internationally accepted documentation system Export Documents not only gives detail about the product and its destination port but are also used for the purpose of taxation and quality control inspection certification.

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Classification of Export Documents

Commercial Documents Regulatory Documents Export Assistance Documents

Documents Required by Importing Countries

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1-Commercial Documents
These documents are used by exporters/importers to discharge their respective legal and other incidental responsibilities under sales contract.

Principal Commercial Documents Auxiliary Commercial Documents

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2-Regulatory Documents
These are prescribed by various Government

Departments/Bodies for compliance of formalities under relevant laws governing export transactions.

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3-Export Assistance Documents

These are the documents which are required for claiming assistance under the various export assistance measures as may be in operation from to time. Currently, these refer to drawbacks of central excise and customs duties, packing credit facilities..etc

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4-Documentation required by Importing Countries

These are the documents which are required by the importer in order to satisfy the requirements of his Government. These

include certificates of origin, consular invoice, quality control

certificate etc.

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Freight cost
The cost incurred in moving goods. It includes packing, palletizing, documentation and loading unloading charges, carriage costs, and marine insurance costs A freight rate is a price at which a certain cargo is delivered from one point to another. The price depends on the form of the cargo, the mode of transport (truck, ship, train, aircraft), the weight of the cargo, and the distance to the delivery destination. Many shipping services, especially air carriers, use dimensional weight for calculating the price, which takes into account both weight and volume of the cargo
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Thank You

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