Question

CASE STUDY PRICING IN MERCHANDISING In mid-October, a key vendor offers a missy top department store buyer a group of long sleeve crew neck knit tops that it had previously purchased. The vendor has 4,800 units of assorted kmit tops available that it can sell to the buyer for a reduced cost price of $6.00; the regular cost price of the tops was $9.00. The buyer previously priced these tops at $29.00, In order to secure the reduced cost price, the buyer has to buy the entire 4,800 umit availability. The vendor has the following color assortment: Striped knit tops, 2,400 units Solids of black and ivory, 1,440 un its Paisley print knit tops,960 units The yendor can ship this assortment and it will be in store by the end of October. The buyer previously purchased the same tops that started selling in mid-September; approximately four weeks of sales have been recorded. Here is a recap of what was received and what was sold in the four-week time period: Average units soild per week Units sold in Units on hand Calorprint nits purchased eeks Stripes mid-October 10,000 2,700 675 7,300 Solids 15,000 1,500 1,125 10,500 Paisley 7,200 1,400 350 5,800 As these are long sleeve knit tops, the buyer set an outdate for November 30 (approx- imately seven weeks from mid-October). Before the vendor discussed the availability with the buyer, there was a promotion planned on the tops for an Election Day sale at $24.99. The buyer has reviewed the selling and feels the purchase would ultimately be advantageous because increased departmental activity will lead to improved sales. 'The buyer's planned markup per- centage for November is 64.0%. To make the correct decisions, the following ques- tions must be answered: a. If the buyer takes advantage of this special purchase, what would the markup for the entire purchase be based on the regular retail price? b. What should the knit tops be promoted at for Election Day? Will $24.99 be a significant incentive for customers to buy multiple units, or should the buyer restrategize the pricing for the event? What promotions would you recommend? CASE STUDY ] PRICING IN MERCHANDISING 125

I need some clarification, especially on part A,

1. If the buyer took advantage of this special purchase what would the markup for the entire purchase be based on the regular retail price? (Note: You need to calculate the total cost and total retail for both purchases in order to solve for the markup)

Does both purchases mean the original order and the special order?

Answer 1

Yes, both the purchases means the Original order (which arrived in mid Sept) and the special order (due to arrive at Oct end if placed now around mid Oct).

The outdate is set at Nov 30, which means the stock will be taken off shelves. Hence the total sales (including projected) units made till November end is relevant and total cost of both the purchases is relevant for computation.

Below chart shows detailed computation with formulas

Formula		A	B	C=A+B		D	E=D/4	F=B-D	G=E*7	H=D+G	I=C-H
	Particulars	Proposed Purchase	Purchased	Total Purchase		Sold 4 weeks	Sale per Week	Stock in hand	7W Sales Forecast	Total Sales	Stock facing outdate
1	Striped Knit Tops (units)	2400	10000	12400		2700	675	7300	4725	7425	4975
2	Solids of Black and Ivory (units)	1440	15000	16440		4500	1125	10500	7875	12375	4065
3	Paisley Print (units)	960	7200	8160		1400	350	5800	2450	3850	4310
4 = 1+2+3	Total tops (units)	4800	32200	37000		8600		23600	15050	23650	13350
5	Rate ($/unit)	6	9			29				29
6 = 4*5	Total Cost ($)	28800	289800	318600		249400				685850
7	Total units Sales till Nov (Col. H total)			23650
8 = 6/7	Average Cost per unit sold (in $)			13.47
9 = 8-$9	Min Markup on Regular Price of $9 (in $)			4.47
10 = 9/$9 %	Min Markup % on Regular Price (in %)			49.68
11 = 7*29	Sales @$29 per unit			685850
12 = 11 - 4*$9	Mark up over regular price			352850
13 = 12/(4*$9) %	Mark up% over regular price			105.960961

Answer 2:

A discount of $4 might be a significant incentive for buyers to purchase.

Further data is not provided to check what pricing strategy would suit the event.

However on the basis of huge stock outdate, it will be good if the buyer restrategize the event.

Several promotion which can be thought of is

(1) Buy 1 @$24.99, Buy 2 @$22.50 each, Buy 3 @$ 20.00 each since these stocks will anyways get outdate on Nov 30.

(2) We can see that similar quantities of stock will get stock outdate - around 4000 to 5000. Hence another strategy can be Pick 1 from each type of top @$20 each or less. This will help move the tops from all three types including ones (like Paisley Prints) which don't have huge demand.

(3) Offer better discount on Paisley discount since they are getting outdate in greater % as compared to units purchased. This will help Paisley units move out faster as other tops are already having demand.