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Virtual business retailing 3.0

Virtual business retailing 3.0. Lesson 1 - Pricing. Main Idea. Pricing is a vital concern for business owners It is crucial for merchandise to sell, so the price of an item must project value to the customer

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Virtual business retailing 3.0

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  1. Virtual businessretailing 3.0 Lesson 1 - Pricing

  2. Main Idea • Pricing is a vital concern for business owners • It is crucial for merchandise to sell, so the price of an item must project value to the customer • Correct pricing of merchandise is essential for the business to generate a profit, & profit is necessary for every business to remain in operation

  3. In this unit, you will learn • about the fundamentals of pricing • factors to consider when setting a selling price • some of the legalities of pricing • & mathematics involved in pricing

  4. Objectives After completing this lesson, you will be able to: • Calculate price based on unit cost & desired profit • Compute margin based on price & unit cost • Maximize profit by analyzing & adjusting price & margin • Explain the relationship between price, demand, & profits • Explain when & how to implement a markdown • Change product pricing to remain competitive

  5. What is price? • Amount of $ a business charges for items it offers for sale • Must help a business make a profit • Must be reasonable for customers to pay

  6. Determining selling price • Consider cost & profit • Cost = amount of $ the store pays to purchase the merchandise from a supplier • Key factors that influence cost • Discounts • Terms for timely payment • Profit = total revenue of a business – all expenses over a specific period of time • Each product sold should contribute to profit • In determining selling price, consider all costs including: • Overhead & operating expenses (electricity, water, employee salaries) • Businesses must make a profit to stay in business

  7. Price = Cost + Desired Profit • Example: • An item has a cost of $3.50 and a desired profit of $1.00 • $3.50 Cost + $1.00 Profit = $4.50 (Price)

  8. margin • The difference between the retail price of an item & the cost of the item to the store • AKA markup (%) • Stores set a global percentage markup for the majority of merchandise (based on cost)

  9. Margin = Price – Cost • Example: • An item has a price of $9.00 and a cost of $4.50 • $9.00 Price - $4.50 Cost = $4.50 (Margin)

  10. Pricing & competition • Pricing to meet the competition • Store’s merchandise sells for about the same price as the competition •  price  demand selling more & attracting more customers; smaller margin •  price   demand successful if customers feel there is extra value or convenience

  11. Supply & demand • The amount of product available to sell & the willingness of customers to buy •  supply   demand & price •  supply   demand & price

  12. Price too high or low • Well-informed/price savvy customers • Price too high – no value/$ to customer • Price too low – assume product defect

  13. Market share • The % that a store has of the total shares in its trading area • Trading area – the area that a store attracts customers from • An important indicator of how well the store is doing compared to its competitors •  price   market share •  price   market share

  14. markdowns •  price of merchandise  sales of a product not selling according to projections •  store’s margin(can be counteracted by the  in sales) • Can also attract more customers

  15. Markdown amount =Price X Markdown Percentage • Markdown price = Current Price - Markdown Amount • Example: • An item currently sells for $12.00 & will get a markdown of 30% • $12.00 price X .30 Markdown Percentage = $3.60 (Markdown Amount) • $12.00 Current Price - $3.60 Markdown Amount = $8.40 (Markdown Price)

  16. Markup Amount =Cost X Markup Percentage • Price = Cost + Markup Amount • Example: • An item that has a cost of $7.50 & will get a markup of 40% • $7.50 cost X .40 Markup = $3.00 (Markup) • $7.50 Cost + $3.00 Markup = $10.50 (Price)

  17. Pricing laws • Laws regarding pricing protect customers from unfair pricing

  18. Sherman Antitrust Act – 1890 • Makes monopolies illegal • Covers price fixing (an illegal act committed by competitors who get together to set the price of certain merchandise)

  19. Clayton Antitrust Act – 1914 • Robinson-Patman Act – 1936 • Outlawed the practice of price discrimination (the act of charging different prices to different customers for the same merchandise)

  20. Consumer Goods Pricing Act – 1975 • Implemented the practice of manufacturer suggested retail prices • Prevents required set retail price & punishing storeowners who do not follow the pricing

  21. 2007 – US Supreme Court eased restrictions of manufacturers setting minimum retail prices • Minimum resale prices can have either pro-competitive or anti-competitive effects • Pricing practices are to be judged by the “rule of reason” • A jury can weigh all of the circumstances of a case in determining whether or not a particular pricing practice imposes a restraint on competition

  22. summary • Pricing merchandise correctly in order for it to sell is of vital importance to retailers • Factors to take into consideration: • Cost • Profit • Margin • Competition • Supply & Demand • Pricing Laws

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