Inventory and PricingInventory and Pricing

Marketing I: Unit 6Marketing I: Unit 6

I. The Process of I. The Process of Handling StockHandling Stock

1.1. Receiving goodsReceiving goods2.2. Checking themChecking them3.3. Marking them with Marking them with

informationinformation4.4. Transferring them to Transferring them to

their selling locationtheir selling location

1. Receiving Goods1. Receiving Goods Receiving records must be completed that Receiving records must be completed that

may includemay include– Person who received the shipmentPerson who received the shipment– Who shipped the mdse and where it was Who shipped the mdse and where it was

shipped fromshipped from– Name and number of carrierName and number of carrier– Weight of items deliveredWeight of items delivered– Shipping chargesShipping charges– Dept or store that ordered the mdseDept or store that ordered the mdse– Date the shipment was receivedDate the shipment was received

2. Checking the Mdse2. Checking the Mdse Important to make sure the Important to make sure the

correct mdse was received and correct mdse was received and that it was undamaged.that it was undamaged.

Invoices (the bills) should always Invoices (the bills) should always be verified with a physical count be verified with a physical count of the mdseof the mdse

Proper checking could save the Proper checking could save the business a lot of money.business a lot of money.

Damaged or unordered mdse Damaged or unordered mdse may need to be returnedmay need to be returned

4 methods of 4 methods of checkingchecking

Blind Check MethodBlind Check Method

The mdse is counted, listed, The mdse is counted, listed, and described on a dummy and described on a dummy invoice then checked invoice then checked against the actual invoice at against the actual invoice at a later time. This gets the a later time. This gets the mdse to the sales floor mdse to the sales floor quicker if the actual invoice quicker if the actual invoice hasn’t been received yet.hasn’t been received yet.

Direct Check MethodDirect Check Method

The mdse is checked directly The mdse is checked directly against the actual invoice or against the actual invoice or purchase orderpurchase order

Spot Check MethodSpot Check Method A random check of one carton A random check of one carton

in a shipment (ex. Checking in a shipment (ex. Checking one box out of 20)one box out of 20)

The box would be checked for The box would be checked for quanity, then one item would quanity, then one item would be checked for qualitybe checked for quality

Used for checking canned Used for checking canned goods, paper products, and goods, paper products, and pharmaceuticals.pharmaceuticals.

Quality Check MethodQuality Check Method

Inspects the workmanship and Inspects the workmanship and general characteristics of the general characteristics of the mdse.mdse.

All damaged goods should be All damaged goods should be reportedreported

3. Marking the Mdse3. Marking the Mdse Most common way to mark mdse is Most common way to mark mdse is

with with UPCs (Universal Product UPCs (Universal Product Codes).Codes). These are preprinted These are preprinted labels with codes to describe and labels with codes to describe and price the mdse. These can be price the mdse. These can be scanned into the computer to use in scanned into the computer to use in tracking sales and inventory levels.tracking sales and inventory levels.

Used for source marking and pre-Used for source marking and pre-retailing markingretailing marking

Electric or Hand-Operated Electric or Hand-Operated Pricing MachinesPricing Machines– This method isn’t used This method isn’t used

much today b/c of the wide much today b/c of the wide use of bar code scannersuse of bar code scanners

Price Ticket Price Ticket InformationInformation PricePrice Store #Store # Model or Style numbersModel or Style numbers ColorColor SizeSize Keeping track of this info helps a Keeping track of this info helps a

business determine what is business determine what is popular and to simplify shopping popular and to simplify shopping for consumersfor consumers

4. Transferring Mdse4. Transferring Mdse

Moving it to the sales floor or Moving it to the sales floor or stock room after completing stock room after completing steps 1-3. steps 1-3.

Old mdse needs to be put on Old mdse needs to be put on sale for a short time, then sale for a short time, then moved out to a warehouse or moved out to a warehouse or distribution centerdistribution center

II. Inventory II. Inventory ManagementManagement Perpetual Inventory SystemPerpetual Inventory System – –

Keeps up-to-date count of inventory, Keeps up-to-date count of inventory, including sales and returns.including sales and returns.

Physical Inventory SystemPhysical Inventory System – Stock – Stock is visually inspected and physically is visually inspected and physically counted to determine the quantity on counted to determine the quantity on hand. This is also used along with the hand. This is also used along with the Perpetual System for income tax Perpetual System for income tax purposespurposes

Types of Perpetual Types of Perpetual Inventory SystemsInventory Systems

Manual SystemsManual Systems - Paper records of - Paper records of sales, etc are entered into the sales, etc are entered into the system. Some info is sent to a system. Some info is sent to a tabulating facility where the info is tabulating facility where the info is analyzed by computer softwareanalyzed by computer software

Computer Based SystemsComputer Based Systems – Faster – Faster and more accurate than manual and more accurate than manual systems. Info is fed into computer by systems. Info is fed into computer by Point of Sale (POS) Terminals Point of Sale (POS) Terminals

Types of Physical Types of Physical Inventory SystemsInventory Systems Visual ControlVisual Control – Counting the – Counting the

items you can see. Doesn’t count items you can see. Doesn’t count for misplace items, can’t tell rate of for misplace items, can’t tell rate of sales for each item.sales for each item.

Tickler ControlTickler Control – A small portion of – A small portion of the inventory is physically counted the inventory is physically counted each day. The entire inventory is each day. The entire inventory is never counted all at the same timenever counted all at the same time

Annual Inventory CountAnnual Inventory Count – At – At least once a year a business may least once a year a business may close to count every item in close to count every item in inventory. This is for the business inventory. This is for the business financial statements.financial statements.

Ways to monitor stock Ways to monitor stock levelslevels

Dollar/Unit ControlDollar/Unit Control Stock Turnover RateStock Turnover Rate Stock ListStock List

Dollar/Unit ControlDollar/Unit Control– Dollar ControlDollar Control – The $ amount that – The $ amount that

has been invested in inventory in a has been invested in inventory in a given period of timegiven period of time

– Unit ControlUnit Control – The quantity of – The quantity of merchandise that a business merchandise that a business handles in a given period of time handles in a given period of time using Stockkeeping Units (sku) SKUs using Stockkeeping Units (sku) SKUs are info on an item or group of are info on an item or group of related items. related items.

Stock TurnoverStock Turnover – the number of – the number of times the average inventory has times the average inventory has been sold and replaced over a been sold and replaced over a given period of time. It is the given period of time. It is the most effective way of determining most effective way of determining how well inventory is being how well inventory is being managed. managed. Net Sales_____________Net Sales_____________

Average inventory on handAverage inventory on hand

Figuring Stock Turnover Figuring Stock Turnover RatiosRatios

Example:Example:– January Net Sales January Net Sales

$49,500$49,500– January Average inventoryJanuary Average inventory $8,250$8,250

$49,500 / $8,250 = 6 $49,500 / $8,250 = 6 This means the business sold and This means the business sold and

replaced its inventory 6 times replaced its inventory 6 times during January.during January.

Stock Turnover Rate Worksheet (Daily Grade)Stock Turnover Rate Worksheet (Daily Grade)

Stock ListsStock Lists – are used to help a – are used to help a business keep up with how much of a business keep up with how much of a certain item should be kept in stock.certain item should be kept in stock.

– Basic Stock ListBasic Stock List – used for items that – used for items that should always be in stock. Staple mdse should always be in stock. Staple mdse varies depending on the type of business.varies depending on the type of business.

– Model Stock ListModel Stock List – used for fashionable – used for fashionable mdse. mdse.

– Never Out ListNever Out List – used for best selling – used for best selling products that make up most of the store’s products that make up most of the store’s sales. Quantity will go down as popularity of sales. Quantity will go down as popularity of the item goes down.the item goes down.

How Technology How Technology impacts Inventory impacts Inventory ManagementManagement

UPCs with standard product identifier UPCs with standard product identifier bar code symbols capture sku-level bar code symbols capture sku-level information at the POSinformation at the POS

Standard electronic data interchange Standard electronic data interchange (EDI) transactions communicate (EDI) transactions communicate electronically from business to electronically from business to business.business.

Standardized shipping container Standardized shipping container marking (SCM) is used to identify marking (SCM) is used to identify case and case contentscase and case contents

These examples of technology These examples of technology help businesses to operate more help businesses to operate more efficiently and therefore be more efficiently and therefore be more profitable.profitable.

III. Pricing TechniquesIII. Pricing Techniques

Psychological Pricing - Psychological Pricing - techniques that create an illusion techniques that create an illusion for customers or make shopping for customers or make shopping easier for them.easier for them.

Discount Pricing Discount Pricing - reductions - reductions from the usual pricefrom the usual price

Examples of Examples of Psychological PricingPsychological Pricing Odd-Even PricingOdd-Even Pricing

– Odd numbered prices (.79, Odd numbered prices (.79, $9.95, $699) convey a $9.95, $699) convey a bargain image.bargain image.

– Even numbered prices ($10, Even numbered prices ($10, $50, $100) convey a quality $50, $100) convey a quality imageimage

Prestige PricingPrestige Pricing sets higher- sets higher-than-average prices to than-average prices to suggest “we are better than suggest “we are better than the competition” attitude to the competition” attitude to the customer. the customer. – Examples: Rolls Royce Examples: Rolls Royce

automobile, Waterford automobile, Waterford crystal, Lenox china.crystal, Lenox china.

Multiple-Unit Multiple-Unit PricingPricing – – suggests suggests bargains and bargains and increases sales. increases sales. – Ex. 3 cans of Ex. 3 cans of

beans for $.99beans for $.99 You are not required to purchase all

Bundle Pricing Bundle Pricing is is including several including several complementary complementary products in a products in a package that is package that is sold at a single sold at a single price.price.– Ex. Perfume Ex. Perfume

that is that is packaged with packaged with lotions, shower lotions, shower gel, etc.gel, etc.

The set isn’t broken – must get it all.

Promotional PricingPromotional Pricing - used with - used with sales promotions when prices are sales promotions when prices are lower than usual. Two types are:lower than usual. Two types are:– Loss Leader – Pricing an item Loss Leader – Pricing an item

below cost to draw in customersbelow cost to draw in customers– Special Event – prices are Special Event – prices are

reduced for a specific happening reduced for a specific happening such as “back to school”, or an such as “back to school”, or an “Anniversary Sale”, etc“Anniversary Sale”, etc

Everyday Low PricesEveryday Low Prices (EDLP) (EDLP) are low prices set on a are low prices set on a consistent basis with no plans consistent basis with no plans to raise them or offer to raise them or offer discounts.discounts.– Walmart is known for this Walmart is known for this

policypolicy

Price LiningPrice Lining - - all merchandise all merchandise in a given in a given category are category are offered at a offered at a certain pricecertain price– Ex. All Ex. All

blouses are blouses are $25, $35, and $25, $35, and $50 $50 (depending (depending on quality on quality differences)differences)

–Dollar Tree Dollar Tree

(Where Everything is $1) (Where Everything is $1) uses this techniqueuses this technique

Which other pricing technique is used in this ad?

Examples of Discount Examples of Discount Pricing Pricing Cash discountsCash discounts – offered to – offered to

encourage customers to pay encourage customers to pay bills quicklybills quickly– Ex. 2/10 N30 (Just like in Ex. 2/10 N30 (Just like in

the last unit)the last unit)

Quantity Quantity DiscountsDiscounts – – offered to buyers offered to buyers for placing large for placing large orders.orders.– Ex. Family pack Ex. Family pack

of meat is sold of meat is sold cheaper by the cheaper by the pound than a pound than a smaller pack.smaller pack.

Trade DiscountsTrade Discounts – not really a – not really a discount but a way a manufacturer discount but a way a manufacturer might quote it’s prices to might quote it’s prices to wholesalers and retailers.wholesalers and retailers.– Ex. A wholesaler may get 40% off Ex. A wholesaler may get 40% off

the Suggested Retail Price and a the Suggested Retail Price and a Retailer may get 30% off.Retailer may get 30% off.

Seasonal DiscountSeasonal Discount – Reduced prices – Reduced prices when buying out of when buying out of seasonseason– Ex. Christmas Ex. Christmas

decorations at decorations at drastically reduced drastically reduced prices after prices after ChristmasChristmas

– Swimsuits sold Swimsuits sold after the summer after the summer seasonseason

Promotional Promotional DiscountsDiscounts Rebates, Rebates, Coupons, Coupons, Trade-In Trade-In Allowances, etcAllowances, etc

6 Steps for Setting a 6 Steps for Setting a PricePrice

1.1. Determine your objectiveDetermine your objective – is it to increase sales, – is it to increase sales, establish an image, etc.establish an image, etc.

2.2. Study costsStudy costs – remember – remember hidden costs such as payroll hidden costs such as payroll and shipping chargesand shipping charges

3.3. Estimate demandEstimate demand – how – how much are the customers much are the customers willing to pay at a given willing to pay at a given priceprice

4.4. Study the competitionStudy the competition

5.5. Decide on a pricing Decide on a pricing strategystrategy

6.6. Set priceSet price