Retailing in India
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Transcript of Retailing in India
McGraw-Hill/IrwinLevy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Introduction to the Introduction to the World of RetailingWorld of Retailing
Chapter 1Chapter 1
• Retailing – a set of business activities that adds value to the products and services sold to consumers for their personal or family use.
• A retailer is a business that sells products and/or services to consumers for personal or family use.
What is Retailing?
DEFINITIONS
• RETAILING is the business activity of selling goods and services to the final consumer
• RETAILER is any business which directs its marketing effort towards the final consumer for the purpose of selling goods or services -
-greater than 50% of the total sales must be retail sales to be a retailer
-many types of retailers
CONTRASTING RETAIL AND WHOLESALE OPERATION
• RETAILERS• Sell smaller product quantities on a more
frequent basis• Store facilities open to the general public• Higher per unit price due to individual unit
sales• Almost exclusive reliance on one price policy• Ultimate consumers makes initial sales
contact• Considerable emphasis placed on store
atmosphere
CONTRASTING RETAIL AND
WHOLESALES OPERATION
WHOLESALERS• sell larger product quantities on a less
frequent basis• over-the-counter sales seldom made to
general public• lower per unit price due to bulk package
sales• more extensive use of variable price structure• sales representatives make initial sales
contract• little or no emphasis on facility atmospherics
RETAILING IS:
educational, excitingdynamic, demandingsmall town, big citylocal, regional, national, internationalthe management of changethe most imp link in the distribution channela major economic forcea significant area for career opportunities
Examples of Retailers
• Retailers:-Sears, Holiday Inn, McDonalds, Amazon.com, Jiffy Lube, AMC Theaters, American Eagle Outfitter, FAO Schwartz, Kroger
• Firms that are retailers and wholesalers that sell to other business as well as consumers:-Office Depot, The Home Depot, United Airlines, Bank of America, Sams Clubs
How Retailers Add Value• Breaking Bulk
-Buy it in quantities customers want
• Holding Inventory
-Buy it at a convenient place when you want it
• Providing Assortment
-Buy other products at the same time
• Offering Services
-See it before you buy, get credit, layaway
Doll can be bought on credit or put on
layaway
Doll is featured on floor display
Doll is offered in convenient locations in quantities of oneDoll is developed in
several styles
How Retailers Add Value
Doll is developed at manufacturer
The value of the product and service increases as the retailer performs functions.
Manufacturer’s PerspectiveThe Four P’s of Marketing
Distribution
Retailers are part of the
distribution channel
Retailers are part of the
distribution channelProduct
Price
Promotion
Accounting Finance
MISOperations
Marketing
Human Resources
Retailers are a Business Like Manufacturers
Decision Variables for Retailers
Customer Service
Store Design and Display
MerchandiseAssortment
Communication Mix
LocationPricing
Retail
Strategy
Retailing is a High Tech Industry
- Selling Merchandise over the Internet
- Using Internet to manage supply chains
- Analyze POS data to tailor assortments to stores
- Computer systems for merchandise planning
Career Opportunities in RetailingStart Your Own Business
• Walton Family (Wal-Mart)• Fisher (The Gap)• Wexner (Limited)• Menard (Menard’s)• Marcus, Blank (The Home Depot)• Kellogg (Kohl’s)• Schulze (Best Buy)• Levine (Family Dollar)• Gold (99Cent Only)
List of Retail Entrepreneurs on Forbes 400 Richest Americans
Misconceptions About Careers in Retailing
• Don’t need college• Low pay• Long hours• Boring• Dead-end job
• No benefits• Everyone is part-
time• Unstable
environment
Why You Should Consider Retailing
• Entry level management positions
-Department manager or assistant buyer/planner
-Manage and have P&L responsibility on your first job
• Starting pay average with great benefits
- Some retailers pay graduate school
• No two days are alike
• Buying for financially oriented people
• Management for people people
Types of Jobs in Retailing Most entry level jobs are in
store management or buying, but…
retailers also have staff specialists:
--accounting and finance
--real estate
--human resource management
--supply chain management
--advertising
--public affairs
CHARACTERISTICS OF RETAIL CAREERS
• Many job opportunities in smallest towns or largest urban center
• High job security, even in times of economic stagnation
• Many opportunities for advancement• Many opportunities for women• Salaries vary significantly; often low pay at
start• Skills gained in retailing are transferable to
other job opportunities• The downsides of retail careers are:
image problemsconstant evaluation
JOB SKILLS NEEDED IN RETAIL
1. Merchandising buying supplier management selling relationship building advertising & promotion display building
2. Operationswarehousing receivingdeliverysecuritycustomer servicestore management
JOB SKILLS NEEDED IN RETAIL
3.Sales Promotionadvertisingdisplaypublicitysales promo
activities
4.Controlasset management creditA/P, A/R, auditingdata processing
5.Personnel recruitingselecting trainingcompensationunion issues
RETAIL CHALLENGE
You are given the job to head a committee to select a new president for a retail chain.
Rank the following criteria on a scale of 1-10(where 10 is high) on the importance of each criteria in evaluating candidates.
1. hard work 6. initiative 2. analytical skills 7. leadership 3. creativity 8. organization 4. decisiveness 9. risk taking 5. flexibility 10. stress tolerance
RETAILERS ARE AN IMPORTANT LINK IN THE CHANNEL OF DISTRIBUTION
Retailer provide services for manufacturersbuyingselling assortment creatingstockingdeliveringcredit extendinginformingconsultingtransferring ownership
RETAILERS ARE AN IMPORTANT LINK IN THE CHANNEL OF DISTRIBUTION
Retailers provide services for consumersbuyingsellingbulk breakingassortment creatingstockingdeliveringcredit extendinginformingconsultingtransferring ownership
RETAILER AS A PRODUCER/CONSUMER LINK
• Assortment Gap• Quantity gap• Space Gap• Time gap
Retailers create utility!!
Retailers are intermediaries who are very interested in channel relationships.
Improved channel relationships often involve forming vertical marketing systems.
RETAIL IMAGES ARE IMPORTANT BECAUSE
1. Simplify the consumer’s decision making and shopping process.
2. Attract shoppers who have a self image close to the retailer’s image.
3. Help segment consumer markets and improve targeting.
4. Differentiate the retailer from competing retailers and other businesses.
THE PROBLEM OF RETAILING
Must balance ability of the firm’s merchandising programs
to meet the needs of targeted consumers
With ability of the firm’s administrative plans to
meet the retailer’s need to operate effectively and efficiently
*See Key Performance Measures for Retail Businesses
THE RETAIL CHALLENGE IS TO OFFER THE RIGHT
MERCHANDISING BLEND the right product in the right quantities in the right place at the right time at the right price by the right appeal with the right service
QUOTE FROM SAM WALTON FOUNDER OF WALMART
“For my whole retail career, I have stuck to one guiding principle…give your customers what they want, and customers want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience.
You love it when you visit a store that somehow exceeds your expectations, and you hate it when a store inconveniences you, or gives you a hard time, or just pretends you’re invisible.”
Classification of Retail Operations
ClassificationClassificationof of
Retail Retail EstablishmentsEstablishments
ClassificationClassificationof of
Retail Retail EstablishmentsEstablishments
OwnershipOwnership
Level of ServiceLevel of Service
Product AssortmentProduct Assortment
PricePrice
22
Classification of Ownership
IndependentRetailers
IndependentRetailers
Chain StoresChain Stores
FranchisesFranchises
22
Level of Service
Full Service Self Service
Discount stores Exclusive storesFactory outlets Warehouse clubs
22
Types of Stores and Their Characteristics
Type of RetailerType of RetailerType of RetailerType of Retailer
Department StoreDepartment Store
Specialty StoreSpecialty Store
SupermarketSupermarket
Convenience StoreConvenience Store
DrugstoreDrugstore
Full-line DiscounterFull-line Discounter
Specialty DiscounterSpecialty Discounter
Warehouse ClubsWarehouse Clubs
Off-price RetailerOff-price Retailer
RestaurantRestaurant
Service Service LevelLevel
Service Service LevelLevel
Mod Hi-HighMod Hi-High
HighHigh
LowLow
LowLow
Low-ModLow-Mod
Mod-LowMod-Low
Mod-LowMod-Low
LowLow
LowLow
Low-HighLow-High
Assort-Assort-mentment
Assort-Assort-mentment PricePricePricePrice GrossGross
MarginMarginGrossGrossMarginMargin
BroadBroad
NarrowNarrow
BroadBroad
Med-NarrowMed-Narrow
MediumMedium
Med-BroadMed-Broad
Med-BroadMed-Broad
BroadBroad
Med-NarrowMed-Narrow
Med-NarrowMed-Narrow
Mod-HighMod-High
Mod-HighMod-High
ModerateModerate
Mod HighMod High
ModerateModerate
Mod LowMod Low
Mod Lo-lowMod Lo-low
Low-lowerLow-lower
LowLow
Low-HighLow-High
Mod HighMod High
HighHigh
LowLow
Mod HighMod High
LowLow
Mod LowMod Low
Mod LowMod Low
LowLow
LowLow
Low-HighLow-High
22
Major Types of Retail Operations
Department StoresDepartment Stores
Specialty StoresSpecialty Stores
SupermarketsSupermarkets
DrugstoresDrugstores
Convenience StoresConvenience Stores
Discount StoresDiscount Stores
RestaurantsRestaurants
Blockbuster
33
Categories of Discount Stores
Categories Categories of Discount of Discount
StoresStores
Full-LineDiscounters
Discount Specialty Stores
WarehouseClubs
Off-PriceDiscount Retailers
33
Mass Merchandising
Retailing strategy using
moderate to low prices on
large quantities of
merchandise and lower
service to stimulate high
turnover of products.
33
Hypermarket and Supercenter
HypermarketHypermarket A large retail store combining
a supermarket and a full-line discount store.
A large retail store combining a supermarket and
a full-line discount store.
SupercenterSupercenter Retail store combining groceriesand general merchandise goods
with a wide range of services.
Retail store combining groceriesand general merchandise goods
with a wide range of services.
33
Non store Retailing
Major FormsMajor Formsofof
NonstoreNonstoreRetailingRetailing
Major FormsMajor Formsofof
NonstoreNonstoreRetailingRetailing
Automatic VendingAutomatic Vending
Direct RetailingDirect Retailing
Direct MarketingDirect Marketing
Electronic RetailingElectronic Retailing
44
Direct Retailing
Door-to-DoorDoor-to-Door
Office-to-Office
Office-to-Office
Home SalesParties
Home SalesParties
Direct RetailersDirect Retailerssell products:sell products:
Direct RetailersDirect Retailerssell products:sell products:
NFL.COM44
Direct Marketing
TelemarketingTelemarketing
Catalogs & Mail OrderCatalogs & Mail Order
Direct MailDirect Mail
Types Types of of
DirectDirectMarketingMarketing
Types Types of of
DirectDirectMarketingMarketing
Electronic RetailingElectronic Retailing
44
Electronic Retailing
On-Line RetailingOn-Line Retailing
Shop-at-Home NetworksShop-at-Home NetworksTypes Types
ofofElectronicElectronicRetailingRetailing
Types Types ofof
ElectronicElectronicRetailingRetailing
44
Basic Forms of Franchising
Business FormatFranchising
Business FormatFranchising
Product and Trade Name Franchising
Product and Trade Name Franchising
Basic FormsBasic Formsof of
FranchisingFranchising
Basic FormsBasic Formsof of
FranchisingFranchising
55
Retail Marketing Strategy
Develop the “Six Ps”Develop the “Six Ps”
Define & Select a Target Market
Define & Select a Target MarketKey Tasks Key Tasks
in in StrategicStrategicRetailingRetailing
Key Tasks Key Tasks in in
StrategicStrategicRetailingRetailing
66
Defining a Target Market
STEP 1:Segment the Market
STEP 1:Segment the Market
DemographicsDemographics
GeographicsGeographics
PsychographicsPsychographics
66
Choosing the Retailing Mix
STEP 2:Choose the Retailing Mix
STEP 2:Choose the Retailing Mix
ProductProduct
PricePrice
PromotionPromotion
PlacePlace
PersonnelPersonnel
PresentationPresentation
66
The Retailing Mix
TargetTargetMarketMarket
ProductProduct
PricePrice
PromotionPromotion
PlacePlace
PersonnelPersonnel
PresentationPresentation
66
Product Offering
The mix of products offered to
the consumer by the retailer;
also called the product
assortment or merchandise
mix.
66
Retail Promotion Strategy
RetailRetailPromotion Promotion
StrategyStrategy
RetailRetailPromotion Promotion
StrategyStrategy
AdvertisingAdvertising
Public RelationsPublic Relations
PublicityPublicity
Sales PromotionSales Promotion
66
Factors to Consider in Site Selection
Economic growth potential
Economic growth potential
Area competitionArea competition
GeographyGeography
66
Location Decisions
Freestanding StoreFreestanding Store
Shopping Center Tenant
Shopping Center Tenant
Mall TenantMall Tenant
On Linehttp://www.mallofamerica.com
On Linehttp://www.mallofamerica.com
66
Shopping Center and Mall Locations
AdvantagesAdvantages
• Design attracts shoppers
• Activities and anchor stores draw customers
• Ample parking
• Unified image
DisadvantagesDisadvantages
• Expensive leases• Failure of common
promotion efforts• Lease restrictions• Anchor store
domination• Direct competitors
66
Presentation of the Retail Store
Employee Type & DensityEmployee Type & Density
Merchandise Type & DensityMerchandise Type & Density
Fixture Type & DensityFixture Type & Density
SoundSound
OdorsOdors
Visual FactorsVisual Factors
Factors Factors inin
CreatingCreatingStore’sStore’s
Atmosphere Atmosphere
Factors Factors inin
CreatingCreatingStore’sStore’s
Atmosphere Atmosphere
66
Personnel and Customer Service
Suggestive SellingSuggestive Selling
Trading UpTrading Up
Two Common Two Common SellingSelling
TechniquesTechniques
Two Common Two Common SellingSelling
TechniquesTechniques
66
Trends in Retailing
Trends in Trends in RetailingRetailing
EntertainmentEntertainment
Convenience and EfficiencyConvenience and Efficiency
Customer ManagementCustomer Management
88
Customer Management Strategies
Customer Relationship Marketing
Customer Relationship Marketing
LoyaltyProgramsLoyalty
Programs
ClientelingClienteling
88
Traditional vs. Marketing
• With the cost of customer attraction escalating, companies are paying more attention to holding on to their existing customers
• Long-standing customers are less expensive to reach and less expensive to serve
• Customer relationships are assets that should be evaluated and managed as rigorously as any financial or physical assets
• Relationship marketing not only focuses on customer retention, but also takes a long-term perspective
Fig. 11.1 Traditional Versus Relationship Marketing
Relationship Marketing
Traditional Marketing
Interactive Marketing -Value-added Product/ Service Emphasized
Value Created/ Customer Retention
Customer Acquisition/Satisfaction
Marketing Mix - Core Product Emphasized
Adapted from Jag Sheth, AMA Faculty Consortium/Evolution of Global Marketing and the Relationship Imperative, 1996
Short-term Focus Long-term Focus
Relationship Marketing Defined
“To establish, maintain, and enhance (usually but not necessarily long-term) relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met. This is achieved by a mutual exchange and fulfillment of promises.”
___Grönroos (Service Management and Marketing, 1990)
What is Relationship Marketing?
• The cornerstone of marketing is getting close to customers in order to better identify and satisfy their needs
• Realize that marketing is responsible for more than “just the sale”
• The focus is shifting from the transaction to the
relationship
• It is difficult to separate service operations and delivery from relationship building
• Managing customer relationships continues to be paramount, so is the growing importance of managing relationships with suppliers and resellers
Continuum of Relationships
Industry Relationship Bandwidth
Pu
re
Tra
nsa
ctio
nal
Exc
han
ge
Pur
eC
olla
bor
ativ
e E
xch
ange
Flaring - OutUnbundling
StrategyAdded AugmentationStrategy
Core Core ProductProduct
Augmented Augmented ProductProduct
Relationship Marketing -
Goals and Outcomes
• Whereas the goal of traditional marketing is customer acquisition, under relationship marketing the focus shifts to creating value
• The objective is to create more value through interdependent, collaborative relationships with customers, the outcome is customer retention
• Relationship marketing is ongoing, constantly looking for opportunities to generate new value
• Retaining customers requires marketers to exhibit care and concern after they have made a purchase
• The sale often represents only the beginning of the relationship between the buyer and seller
Building Lasting Customer Relationships
• Sellers can resist the natural tendency toward decline and complacency by developing what we refer to as “relationship enablers”
• It is the seller’s responsibility to nurture the relationship beyond its simple dollar value
• Using the relationship enablers sellers can minimize relationship decay and strengthen the bonds that lead to long-term, perhaps even lifetime associations
Figure 11.2 Key Relationship Variables
RelationshipEnablers
TrustTrust CommitmentCommitment
DependenceDependence CooperationCooperation
InformationExchange
InformationExchange
Marshall Field’sLayout
• Over 800,000 square feet
• Lower level & 9 floors– Men’s only on Second Floor– Women’s on Third, Fourth & Fifth Floor– Both have accessories on First Floor
Marshall Field’s Layout
• 2 Juice Bars in 2003– Bally Total Fitness– Crunch Fitness
• 3 restaurants– 7 on State– Café– Walnut Room
• 2 food courts• Australian Homemade Ice Cream• 2 Starbucks coffee bars
Marshall Field’s Layout
• Lighting, music & decor determined by department
• Shoes Department– 16,000 square feet
• Cosmetic Departments – 26,000 square feet
Marshall Field’s Layout & Displays
• Crowded• Stocked like a
department store• Primary displays,
few secondary displays
• Lots of racks• Hectic, congested
transportation between floors
Lord & TaylorLayout
• 7 Floors – First Floor
• Accessories• Cosmetics
– All were very small
• Felt like a cheap, crowded department store
• Light music in background• Store signs looked cheap• Plain mannequins
– No makeup– No faces
• Racks overflowing
NordstromLayout
• Easy to read map
• Very Spacious
• Customer Friendly Shopping Environment– Comfy Chairs
• Main Level– Cosmetics – Women’s Shoes
• Second Level– Men’s Merchandise
• Third Level– Women’s Apparel
– High-end designer lines
• Classic or Conservative Collections– Wood trim
• Modern Collections– Vibrant colors– Lighting displays
• Clean displays to accent special items
• Add home décor to give display style
• Racks are not stuffed full
NordstormLayout & Display
NordstromLayout & Displays
• Displays include everything including accessories
• Every displays has a certain look to it
• Each display pulled products together
Merchandise Planning Is Done at the Category Level
• Why?
• Category: group of products likely to have similar demand patterns. They are substitutes
• How does a category differ from a SKU?
Two Basic Considerations
• Must stock what the customer wants to buy.
• Merchandise in stock must meet the profit goal.
1. Retail Market Strategy Identifies:
1. Target Market
2. Format
3. Bases of SUSTAINABLE competitive advantage
Bases of Sustainable Competitive Advantage
1. Customer Relationship
2. Location
3. Vendor Relationships
4. Information Systems and Logistics
Facts about the Store
• Opened: November 2001
• Cost: $35 Million
• “largest toy store in the world”
• 110,000 square feet
Times Square Location??
Advantages:
High Pedestrian Traffic
Prime tourist attraction area
No longer a “seedy” arear
Drawbacks:
Only a few retailers in the area
Warner Bros. Studio Store 1 block away closed one month before Toys’ opening
So Why Times Square
• Wants to change “store image”Old Image: unimaginative, crowded, an
“ordeal for parents”
New Image: fun, interesting
• Is Times Square location good for this purpose?
Times Square Toys
• Serve as “flagship” for the chain
• Place to showcase company in a new way
• Place for new product introductions (example, Microsoft’s Xbox)
• Sales in store really secondary
Special Features
• 60 foot Ferris wheel
• 5 ton dinosaur that roars
• 25 foot replica of Empire State Building complete with King Kong
Bases of Sustainable Competitive Advantage
5. Effective Employees
6. Low Cost Operations
Multiple Sources of AdvantageWal-Mart
Neiman Marcus
Retail marketing mix
• Retail marketing mix is the term used to describe the various elements and methods required to formulate and execute retail marketing strategy.
• Retail managers must determine the optimum mix of retailing activities and co-ordinate the elements of the mix.
• The aim of such coordination is for each store to have a distinct retail image in consumers’ mind.
• The mix may vary greatly according to the type of market the retailer is in, and the type of product/services.
92.
Retail Marketing Mix
While many elements may make up a firm’s retail marketing mix, the essential elements may include:
• Store location, • merchandise assortments• Store ambience, • customer service, • price, • Communication with customers
10
Mix …
• Personal selling• Store image• Store design• Sales incentives• People• Process• Physical evidence
11
The mix planning
The retail marketing mix is the vehicle through which a retailer’s marketing strategy is implemented and, in planning the mix, retailers should be guided by three basic principles:
1. The mix must be consistent with the expectation of target customers;
2. Elements must be consistent with each other to create synergy; and
3. The mix must be responsive to competitive strategy.95.
Key Element
Place (store location)• Target market• Channel structure• Channel management• Retailer image
• Retail logistics• Retail distribution
14
Key element
Product (merchandise)• Product development• Product management• Product features and benefits• Branding
• Packaging• After-sales services
15
Key element
Price• Costs• Profitability• Value for money
• Competitiveness
• Incentives• Quality• Status
16
Key element
Promotion• Developing promotional mixes• Advertising management• Sales promotion• Sales management
• Public relations• Direct marketing
17
Key element
People element• Staff capability• Efficiency• Availability• Effectiveness• Customer interaction• Internal marketing
18
Key element
Process element
• Order processing
• Database management
• Service delivery
• Queuing system
• Standardisation
19
Retail Marketing Planning
• Retail marketing plan consists of:
• Setting objectives
• Systematic way of identifying a range of options.
• Formulation of plans for achieving goals
• Logical sequence of retailing activities.
102
Importance of retail marketing planning
• Hostile and complex retail marketing environment• External and internal retail organisation factors interact
– Maximising revenue– Maximising profit– Maximising return on investment– Minimising costs
• Each element has conflicting needs• All these variables interact• All these variables result in optimum compromise.
103.
Approaches to planning
Top down approach
• Retail management sets goals and plans for all levels of management.
Bottom up approach
• Various units prepare own goals and plans sent up for approval.
Types of planning
• Annual plan – short term and tactical.
• Long range – three to five years relating to strategic retail management.
• Strategic plans – five to ten years long term plans relating to the adaptation of the retailing approach.
105
Short-term Retail Planning
Short-termTactical planning relating to:• Current retail marketing position• Strategy for the year• Objectives for the year• Action , budgets and controls.• Coordinating retail activities within departments.
25
Long-term plan
Long-term
Medium range planning relating to:• Major factors and forces affecting the retailer.• Long-term objectives.• Resources required.
• Reviewed and updated regularly.• Deals with current business
26
Strategic retail planning
• This is the process of developing and maintaining a strategic fit between the retail organisation’s capabilities and its changing marketing opportunities.
• It relies on developing a clear corporate mission, supporting objectives, creating a sound business portfolio, and coordinating functional strategies.
108.
Corporate level planning
• Retail management should plan which business the retailer should stay in and which new areas to pursue.
• Design the retail organisation to withstand shocks.
• Adapt the organisation to take advantage of market opportunities.
• Define the corporate mission.
109.
Mission statement
• A strategic plan should begin with a mission statement.
• A mission statement is a statement of the retail organization’s purpose, what it wants to achieve in the large environment.
• It guides people in the retail organization so that they can work independently and yet collectively towards overall organizational goals.
What is Price?
• Basis for exchange. What the retailer is willing to sell product/service for; what the consumer is willing to pay to obtain product/service
• No intrinsic value to ANYTHING. If the customer is willing to pay the price, that’s what the product is “worth.”
Pricing Challenges for Retailers
1. All the sales in past decade have conditioned consumers to never pay full price
2. Economic recession – and actually time since 1990s --makes price more important – raises the “value” issue
3. Stores with “everyday low prices” are increasingly important
Two Price Strategies
1. Every day low price – not necessarily lowest price
Advantages: fewer price wars, limited advertising, improved customer service, reduced stock outs, improved inventory management, better profit margins
2. High/low pricing – price sometimes above EDLP, and sometimes below; frequent sales
Advantages: same stuff is sold to different markets, excitement, moves merchandise, signals quality, hard to maintain EDLP
Methods of setting price
1. Cost oriented – take merchandise cost and add fixed percent markup
2. Demand oriented – price is what customer will pay
Which is preferred by marketers? Why?
Retailers actually use both
Initial MU Calculations
• Initial Markup=Maintained Markup + Reductions
Net sales + Reductions
OR in percent terms
• Initial Markup%=Maintained Markup% + Reductions%
100% + Reductions%
Example
• Assume reductions = $14,400
Initial MU = 62,000 + 14,400 = 56.85% 120,000 + 14,400OR in % terms = 51.67% + 12% = 56.85% 100% + 12% ** Initial MU is always greater than maintained MU
if there are reductions
RSP, Cost and Mark Up
Retail Selling Price = Cost = Mark Up
So if RSP is $100 and MU is 56.85%, what is cost?
$100 = cost + (56.85% x RSP)
$100 = cost + (56.85% x $100)
$100 = cost + 56.85
$43.15 = cost
Only trick to keep in mind here is that you always take % MU of RSP NOT of Cost
Adjustments to Price
• Markdowns
• Markdown cancellations
• Additional markups
• Additional markdown cancellations
Markdowns
• Reductions in initial retail selling price• Reasons for taking markdowns
Clearance (get rid of stuff)Promotional (build store traffic)
• Always calculate markdowns as a % of the the last RSP
• Selling price = $25; markdown = $5 Markdown % = 5/25 = 20%
Markdown Cancellation
• Amount by which price is raised after a sale used only for promotional markdowns only in effect up to initial retail price
• IMPORTANT – If an item is marked down 20% and then a 20% Markdown cancellation is applied, the new selling price will NOT be the price before the 20% markdown. WHY NOT?