fashion merchandizing

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    Fashion Marketingand

    Merchandising

    Knitwear Design

    Semester-6

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    Session Plan-11

    Pricing strategies

    Market Penetration

    Skimming

    EDLP Single Pricing

    Books for ref:

    Retail management-text and cases: Swapna Pradhan:Edition-2

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    Pricing Price is the value placed on what is exchanged .

    Integral part of the retail strategy. Costs and operating

    expenses also need to be considered while establishing

    the retail price

    Arriving at the right price for a product or service is one

    of the most difficult tasks for marketing.

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    Factors like the target market, store

    policies, competition and economic

    conditions are considered whilearriving at a price.

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    1. Demand for the product and Target

    market

    For whom is the product meant for ?

    What is the value proposition for the consumer?

    Price of the product is linked to the quality. Eg:

    Electronics.high priced product is perceived tobe of good quality.

    Products like designer clothing, a certain section

    of the population may be willing to pay the price. Hence very imp. to know the tgt mkt and the

    value proposition he is looking for.

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    2. Store Policies and the image to be

    created

    Retailers who want to create a prestige image

    may opt for a higher pricing policy

    Retailer who want to penetrate the market willoffer value for money proposition.

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    3. Competition for the product

    Competition for the product and competitors

    price for a similar product is considered.

    Common product prices of all similar products tobe taken into consideration before finalizing the

    final price.

    If unique product without any competition may

    demand a premium price.

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    4. Economic Conditions

    Imp. For pricing.

    During economic slowdown, prices are generally

    lowered to generate sales.

    Demand and supply conditions also affects.

    If the demand is more than supply, prices can bepremium, however, when supply is more than

    demand, prices have to be economical

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    Elements of retail Price

    Imp. Element : Cost of goods, (cost ofmerchandise + various other expenses (involvedin the movement of the goods from themanufacturer to the actual store). These may befixed or variable.

    Fixed Costs: rent, office equipments, insuranceetc..

    Variable costs: vary with the amount of servicesprovided or goods produced. Salaries of labourdirectly involved, raw material, advertisement orpromotion expenses.

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    Cost of product is the total of fixed and variable

    expenses to the manufacturer for producing and

    distributing the product or service.

    Price is the selling price per unit, customers pay

    for your product or service.

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    Profit Fixing

    Profit to be earned must be planned

    before fixing the retail price. The profit

    figure arrived at can also be expressed as

    markup percentage as

    Retail price = cost + Markup.or

    Cost = Retail Price Markup and

    Markup = Retail Price-Cost

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    Example:

    Cost of a product =Rs200/-

    markup = Rs150/-

    Retail price = 200 +150 = 350/-

    Markup% on retail = 150/350=42.86%

    Based on the cost price, markup %Markup % on cost = 150/200=75%

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    Determining the price

    Break-even Point (BE): is the point at

    which the retailer neither makes profit nor

    loses money.

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    Breakeven analysis is the process used to

    uncover the break even numbers.

    To reach breakeven point, it is imp. To

    determine the fixed and the variable costs perunit.

    Breakeven Revenue=

    Fixed Cost_________1-(variable cost per unit/selling price per unit

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    Eg: Calculating breakeven Revenue

    Determine an appropriate hourly rate ( revenue that canbe charged by a consultant or a service business

    Total fixed cost=Rs40,000/-.

    Variable costs= Rs25/-per hour

    Selling Price=Rs50/-..using the breakeven formula

    = 40,000

    1-(25/50)

    = 80,000/-

    Thus the company needs 80,000 to cover costs. Less thanthis amount will be loss and more means the company is

    making money.

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    Calculating breakeven Units

    To determine how many units must be produced and

    sold to break-even

    Fixed costs = Number of units needed to break evenUnit Contribution margin

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    Eg: Calculating breakeven Revenue

    The unit produced is one hour of consulting. No. of

    hours required to cover costs= Rs 1600/-

    40,000 = 1,600 units (hours per year)

    50-25

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    Mark-Up Pricing It is the difference between the cost of the product and the

    final selling price. Can be in terms of rupee or percentage.

    Can be calculated on cost or on the retail price

    Selling price = cost + markup

    Markup% (at retail) = (retail selling price-merchandise

    cost) / retail selling price

    Markup% (at cost) = (retail selling price- merchandise

    cost) / merchandise cost

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    1) Eg:

    A buyer pays Rs 100/- for a toy to be sold in his

    store. He intends to sell it at a price of Rs175/-.

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    Markup calculated would be:

    markup% at retail price: 175-100

    175 = 42.86%

    Markup% at cost : 175 -100

    100 =75%

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    2) Eg

    A women blouse costs Rs220/- and retail

    for Rs 460/-

    SP-C = MU X100 = MU%

    SP

    460-220 = 240 = 24 0.52 X100 = 52%

    460 460 46

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    Eg:

    If we need an assortment of shorts which

    will be sold at Rs100/- and markup needed

    is 55%, what should be the cost price?

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    MU = (SP-C)/SP

    55% = (100-C ) / 100

    C = 100 X .45 = 45

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    EG

    The cost of an Item is rs15/- , the planned

    MU is 55%, what will we use as retail

    price?

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    SP = Rs 23.25

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    Cumulative Markup

    It is calculated for a group of products.

    Eg: for a particular month the cost of inventory is

    rs100,000 and the selling price is Rs185,000. If and

    Additional inventory worth Rs 20,000/- has been ordered

    to retail at Rs 35,000/- then the total cost of inventory

    and the value of the stock at the selling price will be

    determined as follow:

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    Cost of Inventory= Rs 100,000 +Rs20000 = 120,000

    Retail value of Inventory= Rs 185,000 + 35,000=220000

    Cumulative markup=

    Markup % at retail = Retail value cost valueRetail value

    = 220,000-120,000

    220,000

    = 100,000

    220,000 =45.46%

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    Initial markup

    It is the difference between the cost price of themerchandise and the initial retail price. The

    initial markup takes into consideration the

    operating expenses, the planned profit, etc

    Initial markup%= (operating expenses + net profit +

    markdowns + employ and consumer discounts +

    alteration costs-cash discounts) / (net sales +markdowns + employee and customer discounts)

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    Maintained Markup

    It is the difference between the gross

    merchandise cost and actual selling price.

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    Retail pricing policies

    and strategies

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    Retail pricing policies and strategies

    Pricing strategy adopted by a retailer can

    be cost-oriented, demand-oriented or

    competition oriented

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    Cost-oriented pricing

    A basic markup is added to the cost of the

    merchandise to arrive at point.

    Retail Price = Cost + markup

    If formula rearranged:

    Cost = retail price markup

    markup = Retail price -cost

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    The difference between the selling price

    and cost is markup. (It should cover all

    operating expenses and transportation

    etc..

    Mark up % can be calculated on retail

    price or cost.

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    Markup% (at retail)= (retail selling price-merchandise

    cost)/retail selling price

    Markup% (at cost)= (retail selling price-merchandise

    cost)/merchandise cost

    When the buyer is aware of the markup% required and

    the selling price, he can also work put the price at which

    he actually needs to procure the product.

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    Single markup does not work always for aproduct category, then variable markuppolicy is followed.

    If variable markup policy followed, buyercan buy product at varying pricing but

    maintain the margins to be earned. Some products may earn a higher marginwhile others a lower.

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    Demand-oriented pricing

    Focuses on the quantities that the customers

    would buy at various prices.

    Depends on the perceived value attached to the

    product by the customer.

    Many times High value product is perceived ashigh quality product and low value product is

    perceived as low quality product

    Understanding of the market and value

    proposition that would look for is the key todemand oriented pricing.

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    Competition-oriented pricing

    When the price adopted by the

    competitors play a key role in determining

    the price of the product.

    Retailer may price the product on par with

    the competition, above the competitors

    price or lower

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    Price Lining: When retailers sell themerchandise only at given prices

    Price zone :is a range of prices for a

    particular merchandise line. Price point: is a specific price in that price

    range.

    Price range: refers to the width of the pricerange, ie..the no. of points that a retailerchooses to offer the range of products at.

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    Pricing Strategies

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    Market Skimming Is a form of price discrimination over time.

    The strategy here is to charge initial high prices and then

    reduce them gradually.

    The success largely depends on in-elasticity of thedemand.

    Main objective is to benefit from high-short term profits

    (due to newness of the product).

    Such strategy works well for prestige goods or luxury

    items.

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    Market Penetration Opposite of market penetration and aims to capture

    large market share with low prices.

    Low prices stimulate purchases

    Discourage competitors from entering the market as theprofit margins are low.

    Retailers who wish to enter a new market or build on a

    relatively small market share.

    Demand of the product s/b highly elasticie..demand is

    price sensitive and new customers will be attracted to

    the product because of low prices

    Expansionistic pricing:

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    Expansionistic pricing:

    Another form of penetration pricing.

    The product enjoys the high price elasticity of demand, so

    that adoption of low price leads to significant increase in

    sales volumes.

    Good strategy for companies entering new or international

    market .

    A low cost version of a product may be offered at a very

    low price to gain recognition and acceptence by

    consumers. Once accepted more expensive versions may

    be offered at higher price.

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    Price Bundling

    Variation of multiple pricing.various products arebundeled together and sold as one unit.

    Products are put together as package deal and soldtogether at a single price.

    Eg: Fast food resturants putting together and offeringproducts under the happy price menu or computerhardware manufacturer selling the hardware and theprinter and some softwares ata particular price as apackage.

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    Leader pricing

    One or few items are sold at a deep discount to increase

    traffic and sales on complementary items.

    Key to success: product must appeal to large no. of

    people and should appear as a bargain.

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    Multi-Unit Pricing

    The retailer offers discounts to customers

    who buy in quantity or product bundle.

    This involves value pricing for one of the

    same item.

    Eg: one T-shirt may be priced for Rs/-255

    while two T-shirts may be offered at rs/-

    355.

    Helps in moving slow moving products.`

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    Every Day Low Pricing (EDLP)

    Strategy adopted by retailers who continually price their

    products lower than the other retailers in the area.

    Eg: Walmart and Toys R Us follow this regularly.

    Objective: to assure buyers that they need not wait for

    sale or promotion to achieve attractive prices. They

    assume that consumers are attracted by their focus on

    low priced products.

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    Odd Pricing

    Retail prices end in odd numbers, such as

    rs/-99, 199 or 299.

    Used to denote low prices.

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    Single Pricing

    Same price for all products

    Also known as one price policy

    Common eg: dollar shops, charge one price for variety of

    items.

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    Multiple Pricing

    The customer is given discount for makingquantity or bulk purchases.

    Eg: can of soft drink sold at Rs15/- butpack of 3 may be sold at Rs40/-.

    Eg. of psychological pricing where thecustomer believes that he is getting abargain for buying more units.

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    Concept of MRP

    Prior to 1990s packed products were marked

    with two separate prices.

    Retail price..(local taxes extra)

    Maximum retail price Rs (inclusive of all taxes)

    Following complaints, an act was introduced in year 1990

    which instructed manufacturers to print MRP on the

    packed product which is inclusive of al taxes.

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    Adjustments to retail price

    Retail price are adjusted by markdowns or by way of

    promotions.

    Markdowns are permanent reduction in the price,

    May be done as a result of slow selling

    Or as a part of systematic strategy

    Usually done after a determined no. of weeks in order

    to maintain a desired rate of sales

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    Timely markdowns help improve profitability, increseturnover and increse profit.

    Markdown gets necessary due to wrong forecasting,

    overbuying, faulty selling practices or if the odds andends are left of a season

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    Markdown % calucation:

    Total markdown / total sales.

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    Promotions are temporary reduction in the price used to

    generate additional sales during peak selling periods.

    Prices reduced by % (eg 25%off) or to a sale price

    (Rs99) High volume items with a substantial initial

    markup, are usually selected for promotional vehicals

    Promotions may include coupons, which may reduce the

    retail price by an amount or percent.

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    Markups vs Mardown

    A markup is where profit is expressed as

    percentage of costs :

    Price-cost / cost X 100

    A selling price of 30, with a cost of 20 gives a

    markup of 50%

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    Markdown is percentage of the sale price

    Price - cost / price X 100

    Selling price of 60 with a cost of 24, gives

    a markdown of 60%

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    Thank you!