Retail Management

Name: Vũ Thị Phương Thảo- IEIEIU19020

Chapter 14 – Retail Pricing
PART I: SHORT ANSWER QUESTIONS

1. What types of retailers often have high/low pricing? What types of retailers
generally use an everyday low pricing strategy? How would customers likely react if
a retailer switched its pricing strategy? Explain your response.
Retailers typically employ high or low pricing strategies to keep supply and demand in
the market balanced. Retailers who have a large amount of inventory to sell typically
employ a low pricing strategy in an effort to draw customers who value quantity over
price. Supermarkets, hypermarkets, grocery stores, and stores in malls are a few
examples.
Companies with a well-known brand, such as Adidas or Nike, frequently employ high-
low pricing strategies. They cater to high-end customers and typically have expensive
products, but on special occasions or during festivals, these businesses will reduce their
prices to clear out their inventory. This tactic is employed to maintain their brand name
and sell the necessary number of products.
2. Why do retailers take markdowns?
Retailers may decide to use markdowns for a number of reasons. In some circumstances,
it might be to make room for new products by getting rid of outdated inventory. In other
instances, it might be to draw business during slow times. Markdowns can be a great way
for retailers to move product and increase their bottom line, regardless of the motivation.
A markdown is a reduction or devaluation of the price that was initially planned. It is
used when products do not sell quickly enough.
A markdown strategy directly affects sales in addition to raising sales and lowering stock
levels. Your customers won't be able to buy new items from you because your store will
be stocked with idle inventory. Markdown tactics should not be your primary retail
strategy because they are detrimental to your company's long-term success.
When you have multiple stores in a single location, a store-based local markdown
strategy may be the best option. There is no such thing as an easy way to learn
Markdowns. Instead of excessive markdowns, make better pricing decisions with better
pricing strategies.
Businesses can increase their sales by using marks. When a company reduces the price of
a product or service, it is more appealing for customers. When demand rises for that
product, more sales are generated.
3. How do they optimize markdown decisions?
- Clear stock to make room for a planned assortment change
- Sell through seasonal items before season’s end
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- Move products before their expiration dates

- Jumpstart sales for underperforming products
4. How do they reduce the amount of markdowns by working with vendors?
These markdowns almost always result in chargebacks to the vendors in order to recoup
all or a portion of the markdown.
Chargebacks for markdowns are always negotiable. ALWAYS. Retail customers will
continue to push brands to pay their entire markdown liability. In other words, the retailer
made exactly what it would have made had the product not been discounted. Depending
on how inventive and knowledgeable retailers are about how retail operates, they could
negotiate that down to 50% or less than 50% of the original amount. Here, consultants
like me can be of assistance.
5. How do they liquidate markdown merchandise?
Businesses, brands and retailer can ofer lơ cót products to their customers on a reglar
basis by using the ‘every dat low pricing’ strategy. Instead of offering discounts ,
coupons or promotions, business place an emphasis on offering low cost products to
customers.
6. What are the mechanics of taking markdowns?
There is a valid relationship between a product and the time of the selling season during
which it is on sale. Things related to fashion, for instance, are constantly changing.
Markdowns cannot wait until the end of the selling season as the company wants to offer
popular items while the customer is still interested. Age does not make things more
fashionable.
The timing of markdowns is influenced by the type of store and distribution method. The
first markdown is typically the most cost-effective for the retailer if the goods are reduced
"deeply" enough to quickly draw the target customer. To allow time for subsequent
markdowns on the goods later in the selling season, the first markdown must be made
early enough in the season.
PART II: GET OUT AND DO ITS
1. Go to the Web site for Sandals (www.sandals.com) and see what you can get for an
all-inclusive price. Describe how bundling services and products provide vacationers
with value? Find another example in the travel and tourism industry of price
bundling that successfully increases sales.
Along with cool drinks, exciting water sports, unrestricted play, free internet and phone
calls, and more, The Sandals offers its visitors white sand beaches, delectable dining
options, and lovely accommodations. Bundling is a pricing strategy where a number of
items are sold as a single unit. Unbundling is a pricing strategy in which the various items
are priced separately in an effort to make a sale. Bundling is a better option for
consumers because it lowers the prices of some items that are sold together to entice
customers to buy. Additionally, the client must pay more money because in the no
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bundling technique, the products are priced separately. Since the customer buys items in
bulk, the retailer would profit from the bundling price strategy.

PART III: EXERCISES

1. A department store’s maintained markup is 38 percent, reductions are $560, and

net sales are $28,000. What’s the initial markup percentage?

2. Maintained markup is 39 percent, net sales are $52,000, and reductions are $2,500.
What are gross margin in dollars and the initial markup as a percentage? Explain
why initial markup is greater than maintained markup.
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The initial markup is higher the maintained markup because, to attract the customers,
the business needs to show some reductions in the last price. Hence the initial markup
will be higher than the maintained markups.

3. The cost of a product is $150, markup is 50 percent, and markdown is 30 percent.

What’s the final selling price?

Retail price = Cost + Markup = 150 + 50% of retail price

Retail price – 0.5Retail price = 150

→ Retail price = $300

Final selling price = retail price x (1 – markdown) = 300(1 – 30%) = $210

4. Men’s Wearhouse purchased black leather belts for $15.99 each and priced them to
sell for $29.99 each. What was the markup on the belts?

Markup = 𝑅𝑒𝑡𝑎𝑖𝑙 𝑃𝑟𝑖𝑐𝑒 − 𝐶𝑜𝑠𝑡 = 29.99 − 15.99 = $14 𝑝𝑒𝑟 𝑢𝑛𝑖t

5. (a) The Limited is planning a new line of leather jean jackets for fall. It plans to
retail the jackets for $100. It is having the jackets produced in the Dominican
Republic. Although The Limited does not own the factory, its product
development and design costs are $400,000. The total cost of the jacket, including
transportation to the stores, is $45. For this line to be successful, The Limited
needs to make $900,000 profit. What is its break-even point in units and dollars?

(b) The buyer has just found out that The GAP, one of The Limited's major
competitors, is bringing out a similar jacket that will retail for $90. If The Limited
wishes to match The GAP's price, how many units will it have to sell?