THE PSYCHOLOGY OF PRICE (THE MARKUP & MARKDOWN GAME) Presenter: PAUL ERICKSON

Transcription

1 THE PSYCHOLOGY OF PRICE (THE MARKUP & MARKDOWN GAME) Presenter: PAUL ERICKSON

2 initial markup (IMU)

3 Which is the Highest Markup? A. Keystone B. Flintstone C. The Buyer was stoned D. Tombstone

4 difference between markup & margin markup initial markup and maintained markup retail aspect from buyer s perspective margin initial margin and gross margin accounting aspect from business owner s perspective

5 retail method of calculation

6 retail method of calculation original selling price - cost / original selling price Example: $100 - $40 / $100 = 60%

7

8 Zizzybaloobah/Fickr

9 that s what I always price it at I multiple the cost by 2.2 I double the cost and then add a $1 or $2

10 three key elements

11 three key elements markdowns operating expenses desired net profit

12 three key elements markdowns operating expenses desired net profit

13 three key elements markdowns operating expenses desired net profit

14 IMU formula

15 IMU = (markdown % + operating expense % + desired net profit %) / 100% + markdown%

16 markdowns = 20% operating expenses = 40% desired net profit = 6% =.55

17 annual sales $1,000,000 IMU 52.5% 55% MDS 20% 20% MMU 43% = $430K 46% = $460K EXP 40% = $400K 40% = $400K NET 3% = $ 30K 6% = $ 60K

18 pricing for profit 52.5% 55% $9.00 cost $9.00 cost $19.00 retail $19.99 retail

19 psychology of pricing

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21 competitive pricing

22 competitive pricing multiple pricing discount pricing loss leaders know your competition customer service

23 Joseph A. Bank

24 competitive pricing multiple pricing discount pricing loss leaders know your competition customer service

25 JC Penney

26 competitive pricing multiple pricing discount pricing loss leaders know your competition customer service

27 Loss leaders

28 competitive pricing multiple pricing discount pricing loss leaders know your competition customer service

29 competitive pricing multiple pricing discount pricing loss leaders know your competition customer service

30

31 steering clear of cost-base pricing

32 steering clear of cost-base pricing decide on price before knowing cost determine price when writing order

33 steering clear of cost-base pricing decide on price before knowing cost determine price when writing order

34 steering clear of cost-base pricing decide on price before knowing cost determine price when writing order = then make decision to buy

35

36 initial markup review

37 initial markup review right product price? determine each product category separately steer clear of cost-base pricing use psychological pricing when possible key expenses go up, so should IMU

38 initial markup review right product price? determine each product category separately steer clear of cost-base pricing use psychological pricing when possible key expenses go up, so should IMU

39 initial markup review right product price? determine each product category separately steer clear of cost-base pricing use psychological pricing when possible key expenses go up, so should IMU

40 initial markup review right product price? determine each product category separately steer clear of cost-base pricing use psychological pricing when possible key expenses go up, so should IMU

41 initial markup review right product price? determine each product category separately steer clear of cost-base pricing use psychological pricing when possible key expenses go up, so should IMU

42

43 Expense Percents Advertising 3.3% Occupancy cost 8.0% Payroll 19.5% Markdowns 20.6%

44 Retailers are losing over $200 billion a year due to markdowns. --United States Census Bureau & National Retail Federation

45 decision making

46 best laid plans of mice and men

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48

49

50 the calculation

51 markdown percent calculation total retail markdown $ net sales (sales after markdowns) Example: $ 20 $ 80 = 25%

52 the good and the bad

53 the good keeps inventory fresh assures good cash flow cost of doing business

54 the good keeps inventory fresh assures good cash flow cost of doing business

55 the good keeps inventory fresh assures good cash flow cost of doing business

56 the bad higher than other expenses on the income statement raises the cost of goods sold and result in a net loss

57 the bad higher than other expenses on the income statement raises the cost of goods sold and result in a net loss

58 root causes of excessive markdowns

59 root causes poor buying too large assortments duplication overbuying

60 root causes poor buying too large assortments duplication overbuying

61 Overbuying 1. 90% of your sales come from inventory less than 10 weeks old 2. Recognize short shelf life 3. Recognize slow sellers in season

62 Increase your profit when discounting..

63 Do not advertise % or specific $ off at this time!

64 psychological pricing

65

66 math of psychological pricing original price: $ % off = $28.50 psychological pricing $29.99 = 21% off original price: $ % off = $78.00 psychological pricing $79.99 = 18% off

67 same message? 25% off plus take an additional 15% off = 40% off =36.25% 50% off plus take an additional 20% off = 70% off =60%

68 markdown rules

69 markdown rules plan plan plan use a budget don t be under price points not percentages learn from every markdown pay your tuition

70 markdown rules plan plan plan use a budget don t be under price points not percentages learn from every markdown pay your tuition

71 markdown rules plan plan plan use a budget don t be under price points not percentages learn from every markdown pay your tuition

72 markdown rules plan plan plan use a budget don t be under price points not percentages learn from every markdown pay your tuition

73 markdown rules plan plan plan use a budget don t be under price points not percentages learn from every markdown pay your tuition

74 markdown truths

75 markdown truth #1 Always explain to your customer why the items are marked down

76 markdown truth #2 Overbuying is the number one cause of excessive markdowns

77 markdown truth #3 Your first markdown is the cheapest!

78 markdown truth #4 The price you paid has nothing to do with the markdown price

79 markdown truth #5 Learn from every markdown

80 markdown truth #6 Always keep your markdown items at the back of the store!

81 markdown truth #7 Nurture your customers who do not shop you on price alone

82 final word on markdowns commit to lean inventories maintain liquidity avoid the last buy use an open-to-buy plan and follow it

83 Please remember to fill out your survey!