Week 3 Discussion

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Bellevue University *

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210

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Management

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Feb 20, 2024

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Uploaded by jennb516x

This week's case study will review the Pricing Strategy concepts you learned and practiced last week. Begin by reading the Business Case Scenario. Business Case Scenario Samantha works in a kitchen supply store that sells kitchen fixtures, products, and accessories. She helps the store's owner buy new products and prices the merchandise for sale. During their spring buying trip to Chicago, the store's owner purchased some new stainless-steel pots for the summer season at a cost of $32.00 per pot. When they returned from the buying trip, Samantha was asked to calculate some numbers for the owner. Samantha's calculations showed that over the last quarter:  Expenses averaged 35%  Markdowns averaged 12%  Profit averaged 4.5% The store's planned net sales for the year are $325,000. During an earlier buying trip, the store's owner got great pricing on some pot-hanging racks and wooden ladles that can be grouped together with the new stainless-steel pots in the store. Samantha already priced the racks and ladles, as follows:  1 dozen hanging racks were purchased at $20 each. They will have a retail price of $42 each.  18 wooden ladles were purchased at $18 each. They will have a retail price of $38 each. The store's owner directed Samantha to determine the overall margin % of this group of products to make sure that the targeted profit for the store will be met. Instructions Research the influence of various pricing strategies on product sell-thru and review the content presented in this week's readings, and videos. Then, use that information along with the Business Case Scenario to answer the following: a. Based on Samantha's calculations of the numbers from last quarter, calculate the Initial Markup % (IMU%) needed for the new stainless-steel pots. Then, use the cost complement method to determine the minimum initial retail price for the new pots. Include the calculations used to determine your answer. b. Based on the calculations used to determine the minimum retail price in the previous question, what actual retail price would you recommend that Samantha suggest for the new stainless-steel pots? Justify your recommendation. c. If the store's owner bought 2 dozen stainless steel pots, what would be the average margin percentage for the grouping of pots, hanging racks, and wooden ladles? d. The store owner tells Samantha that he wants to achieve a 51.6% margin for the store. Considering the owner's targeted margin percentage, how does the overall margin for the group of products in the previous question compare with this target? What should Samantha suggest to bring the margin % for the group of products closer to the owner's targeted percentage? e. Explain the benefits of using margin calculations to assess category performance when compared to store plans and goals. Use examples to support your explanation. A. Based on Samantha's calculations of the numbers from last quarter, calculate the Initial Markup % (IMU%) needed for the new stainless-steel pots. Then, use the cost complement method to determine the minimum initial retail price for the new pots. Include the calculations used to determine your answer.

IMU% = (Operating Expenses + Profit + Markdowns) / (Net Sales + Markdowns) IMU% = ( .35 + .045 + .12 ) / ( 1 + .12 ) IMU % = 0.515 / 1.12 IMU % = 0.459 or 46 % Cost Complement % = 100% - Mark Up % 100 % - 46 % = 54 % Cost/cost complement $32.00 / 0.54 = $ 59.26 Retail Price for Pots $59.26 B. Based on the calculations used to determine the minimum retail price in the previous question, what actual retail price would you recommend that Samantha suggest for the new stainless-steel pots? Justify your recommendation. Samantha should recommend a retail price of $59.26 for the pots based on the calculations I used to estimate the minimum retail price. This is the lowest price at which the intended first markup of 46% may be reached. Samantha can make sure the pots are priced competitively and make enough money to cover operating costs, the targeted profit margin, and any markdowns by putting the retail price at that price point. C. If the store's owner bought 2 dozen stainless steel pots, what would be the average margin percentage for the grouping of pots, hanging racks, and wooden ladles? For the pots: Retail price: $59.26 Cost: $32.00 Margin percentage: (Retail price - cost) / retail price = ($59.26 - $32.00) / $59.26 = 46% For the hanging racks: Retail price: $42.00 Cost: $20.00 Margin percentage: (Retail price - cost) / retail price = ($42.00 - $20.00) / $42.00 = 52% For the wooden ladles:

Retail price: $38.00 Cost: $18.00 Margin percentage: (Retail price - cost) / retail price = ($38.00 - $18.00) / $38.00 = 53% The average margin percentage for the grouping of pots, hanging racks, and wooden ladles is: (46 + 52 + 53) / 3 = 50.33% D. The store owner tells Samantha that he wants to achieve a 51.6% margin for the store. Considering the owner's targeted margin percentage, how does the overall margin for the group of products in the previous question compare with this target? What should Samantha suggest to bring the margin % for the group of products closer to the owner's targeted percentage? Compared to the store's goal of 51.6%, the average margin of 50.33% is lower. Samantha should recommend increasing the retail price of the pots to $64 to get the margin percentage for the set of products closer to the owner's desired amount. The total average margin percentage would be 51.6% when added to the margin percentages for the wooden ladles and hanging racks. Samantha may help in bringing the group of items' margin % in line with the owner's target margin percentage by changing the pricing of the pots. This change will make sure that the store reaches the targeted level of profitability and meets its financial goals. E. Explain the benefits of using margin calculations to assess category performance when compared to store plans and goals. Use examples to support your explanation. 1. Margin calculations provide a fair review of a category's financial performance. It allows for an in-depth review of profitability by calculating both the revenue and the costs associated with it. 2. It is easy to spot places where a category is failing or excelling by comparing the actual margin percentage with the store's planned or targeted margin percentage. Making decisions and setting priorities for efforts to increase profitability can be helped by this understanding. 3. By calculating margins, it can be done to find out which areas are performing poorly and which are exceeding. This makes it possible to make sensible choices like raising the amount of resources given to high-margin areas or changing the price and marketing of underperforming categories to increase profitability. In general, margin calculations offer helpful information about the performance of a category, helping managers and store owners to make decisions based on data and line goals with finances.

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