Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Chapter 5 Appendix

Sales Arithmetic and Pricing

Types of Prices

List price – standard price Net price – after discounts Zone price – based on geographical

location FOB shipping point – buyer pays FOB destination – seller pays

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Discounts Lower the Price

Quantity discountsNon-cumulativeCumulative

Cash Trade Consumer

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Promotional Allowances Promotional Support

Free-GoodsAllowance*

Plus Advertising Allowance †

Plus MerchandisingAllowance

 

 Direct to consumer national TV promotion…1.705 GRPs88% reach1.7 billion impressions Year-round physiciandetailing and sampling Major trade and medicalJournal advertisingsupport

  Option A Option B ‡ Reduced Price Feature Display

12-oz liquid

81/2%

off invoice

Up to$1.25 perDozen

$1.00 perDozen

$.75 per dozen reduced price feature

$.75 per dozenfloor or endcap display

5-oz liquid

81/2%

off invoice

Up to$.75 perDozen

$.50 perDozen

$.50 per dozen reduced price feature

$.50 per dozenfloor or endcap display

60-oz tablets

81/2%

off invoice

Up to$1.25 perDozen

$1.00 perDozen

$.75 per dozen reduced price feature

$.75 per dozenfloor or endcap display

24-oz tablets

81/2%

off invoice

Up to$.75 perDozen

$.50 perDozen

$.50 per dozen reduced price feature

$.50 per dozenfloor or endcap display

GREAT NEW DEAL!Four double –strength sizes to strengthen your profits!

Also available – up to 25% billback allowance for four-color roto advertising or consumer coupon programs.Unlimited purchases allowed for claiming billack allowances.Retail buy-in period: July 15 through August 30, 2002.Advertising performance period: July 15 through November 8, 2002.Claim deadline: 45 days following appearance of ad.Contact your representative for complete details.

* Through participating wholesaler.† All ads should feature both liquid and tablets.‡ Provided advertising coverage is in at least 75% of the applicant’s trading area.

Exhibit A: Various Promotional Allowances Available to Resellers

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Exhibit B: Types and Examples of Discounts

Types of Discounts

Quantity DiscountNoncumulative(one-time)Cumulative(yearly purchases)

Cash discounts

Trade discounts

Consumer discounts

Discount Examples

Buys 11 dozen, get 1 dozen free.20 percent off on all purchases.$5-off invoice for each floor-stand purchase.5 percent discount with purchase of 8,000 units.8 percent discount with purchase of 10,000 units.10 percent discount with purchase of 12,000 units.2/10 end-of-month.2/10 net 30.40 percent off to retailers.50 percent off to wholesalers.15 cents off regular price marked on product’s package10-cents-off coupon.

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Resellers: Markup and Profit

Markup Gross profit Net profit Channel of distribution markup Markup arithmetic Return on investment

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What Is the Percent Markup?

$1.00 = cost to retailer

$1.00 = dollar markup

$2.00 = selling price

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What Is the Percent Markup?, cont… It depends on whether you use

Selling Price, orCost

Dollar markup is divided by either selling price or cost to retailer

Selling price = 50% Cost = 100% We use selling price in calculating the percent of

markup

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What Is Markup?

Markup is the dollar amount added to the product cost to determine its selling price

Markup is often expressed as a percentage

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Exhibit C: Example of Markup on Selling Price in Channel of Distribution

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Exhibit D: Example of Using Unit CostConsumer goods salespeople often break down costs and talk of unit costs and profits. Here is the arithmetic one salesperson used in her presentation:$1.80 = Regular cost of each unit-.53 = Special promotional allowance____$1.27 = Deal cost$2.29 = Manufacturer’s suggested selling price$2.19 = Normal retail selling price 18% = Retailer’s normal profit ($2.19 - $1.80 = 39¢ markup) ( 39¢ / $2.19 = 18% markup)$1.39 = 3-day special price suggested for retailer to advertise product. 8.6% = 3-day sale profit margin ($1.39 - $1.27 = 12¢) ( 12¢ / $1.39 = 8.6% markup)$1.89 = 2-week special price suggested for in-store promotion. 33% = After-sale profit margin ($1.89 -$1.27 = .62) (.62 / $1.89 = 33% markup) 18% = Normal profit ($2.19 - 1.80 = 39 ¢) (39 ¢ / $2.19 = 18%)

The above information (except for the arithmetic in parentheses) was on a sheet of paper with the buyer’s company name at the top. The seller showed how the buyer could purchase a large quantity and make 8.6 percent profit by selling each item for $1.39 instead of the normal $2.19.The retailer’s customers save 80¢ ($2.19 – $1.39 = 80 ¢). After the three-day sale, the retailer increases the price to $1.89 for two weeks and makes 33 percent instead of the 18 percent markup.Some numbers are rounded up.

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Exhibit E: Profit Forecaster for Granola Bars Shown to Buyer

3-Day Special 2-Week Special Normal

Total storesDeal datesRegular cost per dozenLess allowance ($.53)Deal cost per dozenFeature priceCases purchasedTotal investmentTotal gross salesTotal gross profitReturn on investment (ROI)

100June 1 – June 30

$21.60- 6.36$15.24

1.39500a

$7,620b

$8,340c

$720d

9.0%e

100

$21.60- 6.36$15.24 1.391,000

$15,240$22,680 $7,440

49%

100

$21.60

$21.60 2.19f

1,500$32,400$39,420 $7,020

22%g

a 5 cases per store d $8,340 - $7,620 = $720b 500 x 15.24 = $7,620 e $720 ÷ $7,620 = 9.0%c 500 x 12 = 6,000; 6000x $1.39 = $8,340 f $21.60 ÷ 12 @ case = $1.80 (regular cost)

g $7,020 ÷ $32,400 = 22%

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Organizations: Value and ROI

Value analysis Product cost compared to true value Unit costs ROI is listened to

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