#15 Profit and Markup

#15 Explain how a company's profit relates to markup.  Using the same product, demonstrate the ability to calculate retail percentage markup and markdown in dollars and percentages.

Profit and Markup

Today we're going to be learning the process of calculating markups and how that impacts profit.  Look at the photo on page 624.  Read the caption.  

1. Why do you think retailers frequently mark down items or put them on sale?
2. What do resellers consider when determining an item's markup?
3. What are the steps in converting 2/3 to a decimal? 

Objectives

• Explain how a company's profit is related to markup.
• Use the basic formula for calculating retail price
• Calculate dollar and percentage markup based on cost or retail
• Calculate markdowns in dollars and percentages

What is profit really?

If you are a businessperson that sells a radio that cost you $100 and you sell it for $150, what is your profit?  You might say your profit is $50.  That is only partially true.  Read page 627 to explain why that is only partially true?

Basic Markup Calculations

Look at page 628.  

Get out a sheet of paper and lets work through this section on pricing math.

Wrapping it Up

1. How is a company's profit related to markup?
2. What is the basic formula for calculating retail price?
3. Why do retailers prefer to use markup percent based on the retail price instead of the markup percent on cost?

#14 Pricing and the Product Life Cycle

#14 Explain the relationship between pricing and product life cycle.  Write an argument supporting either penetration pricing or price skimming as the best pricing strategy to employ when launching a new product.  Cite examples from news media or other appropriate texts of how each strategy was used in recent product introductions.

Let's see your Baby pics!

I'll give you about 5 minutes to use your phone to see if you can find any baby pics (or when you were younger)

Basic Pricing Concepts

We learned in our last lesson that business owners base their pricing decisions on the following basic concepts:

• Demand-Oriented Pricing
• Competition-Oriented Pricing 
• Cost-Oriented Pricing

Can you describe each of these concepts in your own words?
(26.1 page 604-608)

Pricing Policies and the Product Life Cycle

We learned in marketing 1 about the product life cycle.  With products there are different stages (just like you):  introduction, growth, maturity and decline.  

Before a product is introduced, the business must establish the base price.

• What is a price floor?
• Why is it important that a business know the price floor for a product?

After that the business must determine which basic pricing policy will be used:  (608)

• one-price policy
• flexible-price policy

Pricing Methods for the Each Stage of the Life of a Product

Work with a partner to complete the graphic organizer as you read pages 608-611. (15 minutes)

Let's See What You Learned

What is skimming pricing?

What is penetration pricing?

What type of consumer is likely to purchase a product that has been priced using a skimming pricing strategy?

An auto dealership advertises that it has a one-price, rather than a flexible-price policy.  However, it also advertises that it has the lowest prices around.  Would you like to shop for a car at this dealership?  Why or why not?

What are three things marketers might do to help keep an item, such as a new type of floor cleaner, selling well during the maturity stage?

As the penetration stage continues, what happens to the total costs per unit? Why

Your store applied a skimming pricing policy to a new type of athletic shoe.  As this shoe continues through its life cycle, why is it vital that you keep an eye on sales volume?

Wrapping Up (Exit Ticket)

Write a paragraph supporting either penetration pricing or price skimming as the best pricing strategy to employ when launching a new product of your choice.