AM 270 Exam 2 Study Guide
AM 270 Exam 2 Study Guide AM 270
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This 5 page Study Guide was uploaded by luke koppa on Friday March 25, 2016. The Study Guide belongs to AM 270 at Colorado State University taught by Ruoh-Nan Yan in Winter 2016. Since its upload, it has received 129 views. For similar materials see Merchandising processes in General at Colorado State University.
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Date Created: 03/25/16
AM 270 Exam 2 Study Guide Chapter 6: Merchandising Perspective on Pricing 1. Two Components of retail price a. Cost: price that the retailer pays b. Markup: price added on to cost resulting in retail price and profit 2. List price vs. Wholesale price vs. first price a. List price= suggested retail price from manufacturer/wholesaler’s catologs b. Wholesale price: price retailer pays for the product i. Various discounts on list price 1. Seasonal discount time dependent 2. Quantity discount (order more, pay less per unit) 3. Trade discount (usually 50% off for retailers) 3. Three categories of cost of goods in the case of apparel products a. Direct Materials (60% of the overall cost) i. Raw supplies (fabric, findings, labels, etc…) b. Direct labor i. Costs that change condition of raw materials (sewing, finishing, etc…) ii. Standard Allowed Minutes measure time required for an operator to produce a specific style/task 1. Used to determine hourly pay rate and unit costs c. Manufacturing Overhead i. Everything else – machines needed for operation, buildings, etc… 4. Variable costs vs. fixed costs a. Variable costs= increase/decrease depending on production volume i. Machine needles b. Fixed costs= do not change depending on production volume i. Salaried employees, rent, utilities ii. There are sometimes exceptions (overtime work, longer hours) 5. What is markup a. Amount added to cost or wholesale price to establish first price i. First price= original retail price b. Markup % = (Markup $) / (Retail $) 6. Initial markup vs. maintained markup (difference) a. Initial markup (IMU)= difference between cost of goods and first price i. IMU = First Price – Cost b. Maintained markup (MMU)= difference between cost of goods and actual selling price i. MMU= selling price (what customer actually paid) cost 7. Types of markdowns and their purposes a. Temporary/promotional = markdown for temporary time for promotional event i. Purpose: stimulate sales and store traffic b. Permanent/clearance = price reduction for slow selling merchandise (no intent to return to list price) i. Purpose: to clear inventory 8. Markdown cancellation a. Elimination of a markdown to restore first price or new retail price b. 3 scenarios i. First price, then revised retail, then back to first price 1. Markdown cancellation ii. First price, then revised retail, then slightly lower than first price 1. Unit cancellation iii. First price, then revised retail, then higher than first price 1. Often due to higher demand or new higher cost 9. Setting prices/markups for fashion merchandise vs. basic goods a. Higher markup leads to a higher gross margin (and operating profit) b. Markdowns positive impact on inventory turnover, but negative impact on gross margin and operating profit i. Selling more, but at lower price c. Fashion industry sells seasonal goods, so markdowns are common at end of season i. Staple goods are always needed, therefore less markdowns 10. Four approaches to handling unsold/distressed merchandise (adv & disadvantage) a. Clearance steep markdowns on old/slowselling styles i. Gets rid of old merchandise so new stuff can come in ii. Lose money due to lowered price rd b. Liquidation/joboff sell to 3 party at low price i. Shorter clearance period & manage new merchandise quicker ii. Really low price c. Consolidation move specific merchandise to specific locations i. Better selling opportunity at higher prices ii. Staging consolidation may cost a lot d. Carry over continue to carry merchandise to next selling period i. Maintain markup ii. But will you be able to sell or store them? 11. Calculations in relation to cost and markup (see assignment #3) 12. Calculations in relation to initial markup, maintained markup, and markdown (see Assignment #3) Chapter 9: Developing Product Lines 1. What is line development a. Determining the actual styles, sizes, and colors that will fill out the line plan 2. Differences between line planning and line development a. Line development identifies specific merchandise vs planning which guides a variety/assortment of the line 3. Three approaches or primary forms of line development a. Purchase finished goods b. Internal line development c. Combination of the 2 4. Permanent vs temporary showrooms a. Permanent offer good ambiance, privacy, complete range of products, and portray the image of the company b. Temporary little privacy, select merchandise, but may have more current trends i. Often at trade shows, may only have swatches/catalogues instead of samples for all products 5. Purchase of finished goods from retailer and manufacturer perspective a. Retailers: view and evaluate which products are best suited for their retail environment b. Manufacturers: sell merchandise, service customers, identify new prospective buyers, introduce/test new products i. May also look at competitors lines 6. Three sources of finished goods a. Branded merchandise – recognizable name b. Private labels c. Licensed products 7. Licensing licensee vs licensor a. Licensing= contract between owner (licensor) of a merchandising property and a company who wants to use the property (licensee) for an agreed period of time, within an agreed territory 8. Private labels pros and cons a. Pros: i. Freedom of merchandise management ii. Control of manufacturing iii. Lower cost, higher margin iv. Enhance store image with good quality products v. Magnet to draw a more diverse customer base b. Cons: i. Additional expenses/efforts ii. Sourcing issues iii. Influence on supply chain management (not able to return slowsellers) iv. Additional training for sales associates v. Negative attitude toward a bad Private Label can transfer to negative attitude toward store in general 9. Internal product development a. Design and engineering of products to be producible, salable, and profitable 10. Three phases of internal product development a. Creative design (preadoption) b. Line adoption c. Technical design (postadoption) 11. Joint product development. How is it different from the traditional method. Benefits? a. Retailers collaborate with manufacturer to develop exclusive line concept and designs b. Early input from retailer leads to reduction in unsalable styles, and save time and money from no need for trade shows, samples, catalogs, etc… Chapter 10: Presenting Product Lines 1. Line presentation (3 levels) a. Internally to executive management, marketing, etc… i. Line adoption phase b. At wholesale level to retail buyers i. Trade shows/markets c. At retail level to ultimate consumers i. Store layout and visual merchandising 2. 2 types of benefits provided in consciously designed environments a. Enhance aesthetic and hedonic experience through participants’ perceptions of products i. Through 5 senses ii. Fashion shows= most effective in providing aesthetic benefits b. Convey utilitarian benefits of products c. Together they enhance sales 3. Types of layout and characteristics a. Grid i. Efficient, easy to browse, but boring ii. Used primarily for utilitarian goods (grocery store) b. Racetrack (loop) i. Guides customer traffic, encourages impulse buying ii. Often used in department stores c. Freeform (boutique) i. Asymmetric, allows ample space and unique arrangements ii. Inefficient 4. Where to locate merchandise (impulse vs. demand, fashion vs. basic) a. Impulse goods placed near point of sale b. Demand and basic should be easy to find but do not need to be on display (people will find them themselves) c. Fashion items should be displayed in heavy traffic areas 5. Adjacency vs. cross merchandising a. Adjacency= clustering complementary products together to facilitate multiple purchases b. Cross merchandising= placing merchandise in multiple locations/departments in different contexts 6. Effects of different types of lighting a. Primary lighting= illuminate store area, typically overhead i. Fluorescent= cost effective ii. Incandescent= warmer lighting for better selling environment iii. High Intensity Discharge (HID)= very energy efficient, but must be used in large, high ceiling stores like Target, Walmart b. Secondary/accent lighting= to direct viewers’ attention to specific merchandise 7. Signage as one of the store image components and two different types a. Permanent signage= no intent to change frequently i. Durable, help identify selling areas b. Temporary signage= intended to be changed frequently i. Disposable, reinforce advertising/stimulate impulse purchases 8. Factors to consider for window displays a. Size and location of window b. Change at least every month c. A theme or idea d. Featured products, materials, props, fixtures e. Work with buyers, merchandisers, marketers
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