Tam 2300 Exam 2

Front 1

primary purpose of the P & L statement

Back 1

To demonstrate whether the firm has made a profit• To update plans & modify strategies

Front 2

basic retail price structure

Back 2

cost + markup = retail price

Front 3

low-end price range

Back 3

lowest relative price; flea markets, outlets

Front 4

budget range

Back 4

below average price; ass and discount stores

Front 5

moderate range

Back 5

average price, department and speciality stores

Front 6

better range

Back 6

above average price, higher quality, not exclusive design

Front 7

bridge range

Back 7

price between better and designer

Front 8

designer range

Back 8

highest price, exclusive department store

Front 9

prices

Back 9

first price, below price, premium price

Front 10

first price

Back 10

original retail price, planning price, all price changes are based on the first price, may or may not be the first price the customer sees

Front 11

first price formula

Back 11

cost + markup = first price

C + MU = R

Front 12

premium price

Back 12

premium price = first price + additional markup. Results in a higher markup %. Higher price to consumer than the first price

Front 13

below first price

Back 13

below first price = first price = % of the first price. Results in lower markup %, lower price to consumer

Front 14

components of pricing strategies

Back 14

market price position, price lining, price endings, role of first price, role of markdowns, price advertising

Front 15

above-market pricing (premium pricing)

Back 15

high quality products, customers are insensitive to price, strong customer service

Front 16

at-market pricing

Back 16

similar prices to its competitors

Front 17

below-market pricing

Back 17

less than its competitors, lower gross margin, loweroperating expenses, self-service or warehouse types

Front 18

price lining

Back 18

Products within a specificgroup (similar goods) areseparated into several pricepoints according to quality,fabric, cost, etc. and arepriced accordingly

Front 19

price points

Back 19

prices set for thedifferent groupings

Front 20

odd price endings

Back 20

.99, .95 etc. vs .00:traditional pricing, consumer perceives the price to be lower,low-end, budget, & moderate goods,Promotional & clearance goods

Front 21

Even price endings:

Back 21

better, bridge, & designer goods

Front 22

first price is a basis for

Back 22

Additional markups (for premium price)

Temporary markdowns (for price promotion) Permanent markdowns (for clearance price)

Front 23

markdown

Back 23

Reduction in price

Timing: throughout season or at end

Temporary or permanent

Front 24

functions

Back 24

Inventory management

Sales promotion

Financial management

Front 25

price advertising

Back 25

Timing available for the special price:

Temporary markdowns

Quick markdown schedules

Front 26

pricing strategy

Back 26

particular combination of pricing componentsdesigned to appeal to a firms’ target customers

Front 27

examples of pricing strategies

Back 27

Prestige

􏰁 Everyday-Low Pricing (EDLP)􏰁

High-low (Hi-Lo)

􏰁 Quick Markdown

Front 28

prestige pricing

Back 28

Premium Price

􏰁 Intensive Customer Service Environment

􏰁 Even price endings: regular merchandise

􏰁 Markdowns (permanent): clearance

􏰁 Prices not featured in ads.

EX: Nordstroms

Front 29

EDLP Pricing

Back 29

Everyday-LowPricing􏰁

Low“regular”price(Nopromotionalpricing)

Firstprice/BelowFirstPrice

Odd price endings

Markdowns:clearance 􏰁

Prices featured in ads

EX: discount store, wal-Mart, The home depot

Front 30

Hi-Lo pricing

Back 30

Premium price: as a comparison or reference price 􏰁

Even price endings: regular merchandise

Markdowns:temporary, mark back up, stimulate demand, permanent for clearance, Prices (temporary MDs) featured in ads. 􏰁 Ex. Dept. Store

Front 31

Quick MD Pricing

Back 31

Premium price: as a comparison or reference price, Odd price endings, Markdowns: scheduled May advertise % off (designer prices, etc.)

􏰁 Ex. Off Price Store

Front 32

Markup = MU

Back 32

cost + markup = retail price

MU = R-C

C = R-MU

Front 33

IMU % Retail

Back 33

IMU% retail = (($R-$C) ÷ $R) x 100

IMU% retail= ($MU ÷ $R) x 100

Front 34

IMU % cost

Back 34

IMU% cost = (($R-$C) ÷ $C) x 100

IMU% cost= ($MU ÷$C) x 100

Front 35

Initial MU

Back 35

“hoped” for or “planned” MU:difference between wholesale price (billed cost) and first price

Front 36

maintained MU

Back 36

“actual” or “achieved” MU: n the final markup obtained by a retail store whenthe merchandise is sold n based on the actual sale of goods

Front 37

MMU

Back 37

net sales - gross cost of goods sold

Front 38

maintained markup percentage (MMU%)

Back 38

= (R – red) – C/(R-red) x 100 = Net Sales – C/Net Sales

or

(R – MD – ED – SH) – C / (R – MD – ED – SH)

Front 39

net sales

Back 39

net sales = R-reduction

Front 40

reductions =

Back 40

Reductions (red) = Markdowns (MD) + EmployeeDiscounts (ED) + Shortages (SH)

Front 41

Which is larger? IMU% or MMU%. Why?

Back 41

IMU% > MMU%. Reductions reduce the IMU%

Front 42

To keep the MMU% as high as possible, you wouldneed to.....?

Back 42

you would need to keep reductions as low as possible.

Front 43

Could IMU% and MMU% be equal?

Back 43

Could be equal only if there are NO reductions.

Front 44

cumulative markup

Back 44

The markup onmerchandise that hasaccumulated over aperiod of time.

CMU% = ((total R - Total C )/ (Total R)) X100

Front 45

gross margin

Back 45

Gross profit on the merchandise that was sold Used to cover operating expenses and provide for a profit ̈

Directly relates to the P&L statement ̈

Merchandise/buyers are responsible for GM

Front 46

Actual Costs (COG)

Back 46

Actual Costs (COG)= Gross Costs (C) – CashDiscounts (CD) + Alteration exp (Alt)

Front 47

cash discounts

Back 47

lower costs

Front 48

alteration expenses

Back 48

+ to costs

Front 49

GM %

Back 49

= (Retail-red)-(Cost-Cash discounts +Alteration exp) x 100(R-red)

Front 50

IMU > MMU

Back 50

if there are reductions

Front 51

IMU = MMU

Back 51

if there are no reductions

Front 52

MMU>GM

Back 52

if alteration expenses are > cash discounts

Front 53

GM>MMU

Back 53

if cash discounts are > alteration expenses

Front 54

factors affecting GM

Back 54

Sales volume- increase

Markup- increase

Cash discounts- increase

Markdown- decrease

Employee Discounts- decrease

Shortages - decrease

Alteration expenses-decrease

Cost of Goods sold-decrease

Front 55

markdown

Back 55

A reduction in the selling price of a piece of merchandise. Difference in the old retail price and the new retail price.

Front 56

temporary markdown

Back 56

for price promotion (e.g., back-to-school)marked down → markdown is cancelled

Front 57

permanent markdown

Back 57

for clearance of inventorygreater markdown

Front 58

basic/staple good markdown

Back 58

one price, a regular price

- Little styling change, stocked year-round at the same price

Front 59

fashion/seasonal good markdowns

Back 59

two prices, a regular price & aclearance price

- Demand for regular change in styling or time of year

- Must plan zero-to-zero inventories several times a year

Front 60

functions of markdowns

Back 60

inventory management, sales promotion, financial management

Front 61

inventory management

Back 61

get rid of unwanted merchandise (out-of-season goods, broken assortments,overstocks) => permanent markdowns

Front 62

Sales promotion:

Back 62

motivate customers to buy more => temporary markdowns

Front 63

financial management

Back 63

=> temporary markdowns

Front 64

Major causes of MDs

Back 64

Stiff competition

Dispose off old and damaged stock ̈

Close a line of merchandise

Front 65

errors in buying and selling

Back 65

Sales planning, Insensitive to customer, Bad timing, Sales personnel, Returns

Front 66

MD$

Back 66

first price - New (reduced) price

Front 67

MD%

Back 67

$MD/R

Front 68

New retail

Back 68

NR = R-MD

Front 69

markdown cancellation

Back 69

Retailers hold special sales temporarily 􏰂 then theremaining merchandise returned to the originalprice or higher than original. MD cancellations between each MD so that the MD%is always off the first price (R)

Front 70

$ markdown cancellation =

Back 70

$ Markdown cancellation = Remarked price –Markdown price

Front 71

net markdown

Back 71

Difference between the total markdown and the markdowncancellation􏰀.

Front 72

$ Net markdown =

Back 72

$ Total markdown - $ Markdown cancellation.

Front 73

net markdown %

Back 73

$ net markdown / R