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Principles of Marketing - Philip Kotler

Extra charges and markdowns

Wholesalers and retailers is critical to understand the essence of markups and markdowns. In order not to go bankrupt, the company must make a profit, and in this sense, a very important strategic consideration is to establish the percentage mark-up. The percentage is determined as the size of markups and discounts.

There are two methods of calculating the charge based on the cost or selling price:

In order to avoid confusion and misunderstanding Dale Parsons has to decide what kind of formula he will use. For example, Parsons bought a shirt for $ 8. Per piece, and wanted to make their mark on the $ 4. In this case, the percentage of its margin to the cost will be $ 4 .: $ 8. = 50%. If margins are calculated on the basis of the selling price, it will be equal to the percentage of $ 4 .: $ 12. = 33.5%. When calculating the percentage markup most retailers based not on the cost price and the selling price.

Let's say that, knowing the cost of male tie ($ 10.) And the size of the required margin it (25%), Parsons wants to calculate the selling price according to the formula of the sale price:

selling price = cost price + (percentage of the selling price x margin)

selling price = $ 10. 25% of the sales price,

75% of the selling price = $ 10.,

selling price = 13.33 USD.

As the movement of goods through the channel of distribution, each channel member (prior to resell the goods the next link) makes it his own mark. This "chain charge" illustrates an example of a man's suit, for which the buyer pays the store $ 200 Parsons .:

Profit retailer, setting the margin at 25%, is not necessarily higher than the manufacturer's profit, generating just 10% markup. After all, profit is defined more and the number of pieces of goods sold with a certain margin (inventory turnover rate), and the effectiveness of the company's activity (the level of costs, etc.).

In some cases, the retailer would like to be able to count indicators extra charges on the basis of the selling price in the charge indicator on the basis of cost and vice versa. Here is the corresponding formula is:

For example, Parsons discovered that a competitor makes a 30% markup on the cost price, and wanted to know how it will look in terms of the interest margin on the sales price. The calculation looks like this:

As Parsons himself produces a 25% margin on the sale price of the suit, he comes to the conclusion that it is comparable to the premium margin competitor.

In late summer, Parsons discovered that he has accumulated a certain margin of summer trousers. Clearly, the need to produce devaluation, ie Make a discount from the original selling price. At the time, he bought 20 pairs of pants for $ 10. Per piece, and sold 10 pairs for $ 20. Per piece. He now discount unsold pants to $ 15. Per pair and sold at this price 5 pairs. Percentage discounts off the price (markdown) produced by them is calculated as follows:

Price reductions in monetary terms amounted to $ 25 (5 x $ 5 par.), And total sales net -. 275 dollars, that is. (X 10 pairs $ 20.) + (5 x pairs of $ 15.). On this basis, the discount rate will be equal to $ 25 .: $ 275. = 9%.

Percentage discounts are not usually calculated for particular products, and for each department, so that the measurement of the relative effectiveness of marketing can be done by department, comparing the figures for consecutive periods of time. Parsons will use percentages of discounts for measuring the relative purchasing activity and the effectiveness of the sellers from different departments of his shop.