Page 163 - DMGT550_RETAIL_MANAGEMENT

Retail Management

Notes 2. Maintained markup: It is the amount of profit a retailer plans to maintain on a particular
sort of merchandise. It is based on the selling price that a retailer intends to get less the cost
incurred on goods sold. As maintained markups are concerned with actual prices received,
therefore, for a retailer, it is always difficult to estimate in advance.
Initial Markup = Retail selling price initially – Cost of goods sold set for
the Merchandise
Where as
Maintained Markup = Actual selling price – Cost of goods sold retailer wants
for its merchandise

The point of difference between initial markup and maintained markup is that initial
markup percentage depends on planned retail operating expenses, profit, reduction and
net sales, whereas maintained markup represents some additional costs from original
retail values caused by discounts, shortages, inventory theft, markdowns and added
markups. The maintained markup percentage can be viewed.
Retail selling price – Merchandise cost
Maintained Markup =
Percentage
3. Gross margin: Gross margin, commonly known as gross profit, is an important
performance measure in retailing. It gives the retailer a measure (estimate) of how much
profit it is making on merchandise sales without considering the expenses associated with
running the store. In other words, gross margin is the difference between Net sales and the
Cost of goods sold.
Gross margin (in `) = Net sales – Total cost of goods

Competition-oriented Pricing

Under this pricing policy, retailers set the prices of merchandise after considering competitor’s
price rather than demand or cost considerations. A company following this policy may not react
to changes in demand or costs till competitors are forced to alter their merchandise price despite
no change in demand and sale. The various competition-oriented pricing alternatives are:
1. Competitive pricing below the market rate: It means setting the merchandise prices simply
to beat the competitor price by charging a price that is below the prevalent market rate.
This policy is advisable only when the retailer follows an optimum inventory plan, procure
merchandise at the right time and at the right price to gain the benefits of cash payment,
trade discount, bulk buying etc.

2. Competitive pricing above the market rate: This policy allows a retailer to set the
merchandise price above the current market rate. This policy seems to be straightforward
and simple but must be applied carefully. This policy is suggested to those retailers who
have some competitive advantages such as:
(a) Excellent consumer service
(b) High level of personal selling, delivery and exchanged facilities

(c) A stock of well-known brands that are not available to its competitors in the nearby
location
(d) Attractive, huge and modern retail infrastructure to offer merchandise

This policy is followed under the following circumstances:

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