MarkOn

Profit Margin
An increase in the price of a retail

product that occurs fairly soon after

another increase.
Most common during peak retail
seasons such as the weeks prior to the
Christmas holiday.
A price raise that occurs after a
previous mark up.

An increase in the price of a retail product that

occurs relatively soon after another increase.

Additional Mark-On are most common during

peak retail seasons, such as the weeks before

Christmas.

Relatively high
Entry to the market is cheap and

easy to set up
Firms can enter and exit readily
Have a sturdy brand recognition,

strong supply chains and enjoys

economies of scale

Bargaining power of buyers in

this industry is relatively strong

Our

business gets to choose

suppliers that provides better
quality goods and price

Makes price comparison easier

Increase the fame of our product

Mark-on-Selling-Price
That

is, the markup is viewed as a

percentage of the selling price and not as a
percentage of cost as it is with the Markupon-Cost method.
For example, using the same information as
was used in the Markup-on-Cost, the
Markup-on-Selling-Price is reflected in this
formula:
Markup Amount Selling Price= Markup
Percentage
$15 $65= 23%

The calculation for setting initial price

using Markup-on-Selling-Price is:

Item
Cost

(1.00

Markup
Percentage) = Price
$50 (1.00 .23) = $65
A markup pricing method in which
markup is viewed as a percentage of
the products selling price and is
determined by dividing the cost of
each
item
by
one
minus
a
predetermined percentage.

For marketers selling through resellers

the pricing decision is complicated by

resellers need to earn a profit and the
marketers need to have some control
over the products price to the final
customer.
In these cases setting price involves
more than only worrying about what
the direct customer is willing pay since
the marketer must also evaluate
pricing to indirect customers (e.g.,
resellers customers).

Clearly

sales
can
be
dramatically
different
than
what
the
marketer
forecasts if the selling price to the final
customer differs significantly from what
the marketer expects.
For
instance,
if
the
marketing
organization has forecasted to sell
1,000,000 novels if the price to the final
customer is one price and resellers decide
to raise the price 25% higher than that
price the marketers sales may be much
lower then forecasted.

The steps include:

1.Examine Company and Marketing Objectives

2.Determine an Initial Price

3.Set Standard Price Adjustments

4.Determine Promotional Pricing

5.State Payment Options

For instance, if the marketing objective is to

build market share it is likely the marketer

will set the product price at a level that is at
or below the price of similar products offered
by competitors.

Also, the price setting process looks to

whether the decisions made are in line

with the decisions made for the other
marketing
decisions
(i.e.,
target
market,
product,
distribution,
promotion).
Thus, if a company with a strong brand
name targets high-end consumers with
a high quality, full-featured product,
the pricing decision would follow the
marketers desire to have the product
be considered a high-end product.

In this case the price would be

set
high
relative
to
competitors products that do
not offer as many features or
do not have an equally strong
brand name.
Pricing decisions like all other
marketing decisions will be
used to help the department
meet its objectives.

Marketers

have
at
their
disposal several approaches for
setting the initial price which
include:
1.Cost Pricing
2.Market Pricing
3.Competitive Pricing
4.Bid Pricing

As this example shows marketers

must take care in setting the

initial price so that all channel
partners feel it is worth their
effort to handle the product.
For
companies
selling
to
consumers, this price also leads
to
a
projection
of
the
recommended selling price at the
retail level often called the
manufacturers suggested retail
price (MSRP).

The MSRP may or may not be the

final price for which products are

sold.
For strong brands that are highly
sought by consumers the MSRP
may in fact be the price at which
the product will be sold.
When resellers are involved
marketers must recognize that all
members of the channel will seek
to profit when a sale is made.

If a marketer seeks to sell the

product at a certain retail price

(e.g., MSRP) then the price
charged to the first channel
member to handle the product
can potentially influence the
final selling price.
The retailer in turn will add to
their purchase price when
selling to consumers.

Under cost pricing the marketer

primarily looks at production

costs as the key factor in
determining the initial price.
This method offers the advantage
of being easy to implement as long
as costs are known.
But one major disadvantage is
that it does not take into
consideration the target markets
demand for the product.

This

could
present
major
problems
if
the
product
is
operating in a highly competitive
market
where
competitors
frequently alter their prices.
There are several types of cost
pricing including:
1.Markup Pricing
2.Cost-Plus Pricing
3.Breakeven Pricing

MARK-ON
RATE

This pricing method, often utilized

by resellers who acquire products

from suppliers, uses a percentage
increase on top of product cost to
arrive at an initial price.
For
resellers
that
purchase
thousands
of
products
(e.g.,
retailers) the simplicity inherent in
markup pricing makes it a more
attractive pricing option than more
time-consuming methods.

However, the advantage of ease of use

is
sometimes
offset
by
the
disadvantage that products may not
always be optimally priced resulting in
products that are priced too high or
too low given the demand for the
product.
Resellers differ in how they use
markup pricing with some using the
Markup-on-Cost method and others
using
the
Markup-on-Selling-Price
method.

Using this method, markup

is reflected as a percentage
by which initial price is set
above
product
cost
as
reflected in this formula:
Markup Amount Item
Cost = Markup Percentage
$15 $50 = 30%

The

calculation for setting

initial price is determined by
simply multiplying the cost of
each item by a predetermined
percentage then adding the
result to the cost:
Item Cost + (Item Cost x
Markup Percentage) = Price
50 + (50 x .30 = $15) = $65

For example, in the Markup-

on-Cost example where the

markup is 30% the gross profit
is $15 ($65-$50).
If the reseller using Markupon-Selling-Price
received
a
gross profit of $15 their
markup would only be 23%
($50/[1.00-.23] = $65).

In

the same way markup pricing

arrives at price by adding a certain
percentage to the products cost, costplus pricing also adds to the cost by
using a fixed monetary amount rather
than percentage.
For instance, a contractor hired to
renovate a homeowners bathroom will
estimate the cost of doing the job by
adding their total labor cost to the cost
of the materials used in the renovation.

The homeowners selection of ceramic

tile to be used in the bathroom is likely

to have little effect on the labor needed
to install it whether it is a low-end, low
priced tile or a high-end, premium
priced tile.
Assuming
most
material
in
the
bathroom project are standard sizes and
configuration, any change in the total
price for the renovation is a result of
changes in material costs while labor
costs are constant.

Breakeven

pricing is associated with

breakeven analysis, which is a forecasting
tool used by marketers to determine how
many products must be sold before the
company starts realizing a profit.
Like the markup method, breakeven
pricing does not directly consider market
demand when determining price, however
it does indicate the minimum level of
demand that is needed before a product
will show a profit.

From this the marketer can then

assess whether the product can

realistically achieve these levels.
The formula for determining
breakeven
takes
into
consideration both variable and
fixed costs as well as price, and is
calculated as follows:
Fixed Cost Price Variable Cost
Per Unit = # of Units to Breakeven

In our example, 40,000 units x

$120 = $4,800,000.
Under the market pricing method
cost is not the main factor driving
price decisions; rather initial
price is based on analysis of
market
research
in
which
customer
expectations
are
measured.
The main goal is to learn what
customers in an organizations
target market are likely to
perceive as an acceptable price.

Market pricing is one of the most

common methods for setting

price, and the one that seems
most logical given marketings
focus on satisfying customers.
The main reason is that using the
market pricing approach requires
a strong market research effort to
measure customer reaction.
For many marketers it is not
feasible to spend the time and
money it takes to do this right.

Additionally for some products, especially

new high-tech products, customers are not

always knowledgeable about the product to
know what an acceptable price level should
be.
Consequently, some marketers may forego
market pricing in favor of other approaches.
For those marketers who use market pricing,
options include:
1.Backward Pricing
2.Psychological Pricing
3.Price Lining

MARK-ON
SELLING
PRICE

In some marketing organizations the price

the market is willing to pay for a product is

an important determinant of many other
marketing decisions.
This is likely to occur when the market has
a clear perception of what it believes is an
acceptable level of pricing.
For example, customers may question a
product that carries a price tag that is
double that of a competitors offerings but is
perceived to offer only minor improvements
compared to other products.

In these markets it is important to

undertake research to learn whether

customers have mentally established
a price range or reference price for
products in a certain product
category.
In situations where a price range is
ingrained in the market, the
marketer may need to use this price
as the starting point for many
decisions and work backwards to
develop product, promotion and
distribution plans.

For instance, assume a company sells

products through retailers.

The marketer must then decide whether
they can create a product with
sufficient features and benefits to
satisfy customers needs at this cost
level.
One effect dubbed "odd-even" pricing
relates to whole number pricing where
customers may perceive a significant
difference in product price when pricing
is slightly below a whole number value.

This effect can also be used to

influence potential customers who

receive product information from
others.
Many times a buyer will pass
along the price as being lower than
it is either because they recall it
being lower than the even number
or they want to impress others
with their success in obtaining a
good value.

The higher the price the more likely

customers are to perceive it has being

higher quality compared to a lower priced
product.
Although there is point at which
customers will begin to question the
value of the product if the price is too
high.
In fact, the less a customer knows about
a product the more likely they are to
judge the product as being of higher
quality based on only knowing the price.

When basing pricing decisions on how competitors

are setting their price, firms may follow one of the

following approaches:
1.Below Competition Pricing - A marketer attempting
to reach objectives that require high sales levels
(e.g., market share objective) may monitor the
market to insure their price remains below
competitors.
2.Above Competition Pricing - Marketers using this
approach are likely to be perceived as market
leaders in terms of product features, brand image or
other characteristics that support a price that is
higher than what competitors offer.
3.Parity Pricing - A simple method for setting the
initial price is to price the product at the same level
competitors price their product.

Not all selling situations allow the

marketer to have advanced knowledge

of the prices offered by competitors.
While
the
Internet
has
made
researching
competitor
pricing
a
relatively routine exercise, this is not
the case in markets where bid pricing
occurs.
Bid pricing typically requires a
marketer to submit a price to a
potential buyer that is sealed or
unseen by competitors.

It is not until all bids are obtained and

unsealed that the marketer is informed

of the price listed by competitors.
Bid
pricing
occurs
in
several
industries though it is a standard
requirement when selling to local,
national
and
international
governments.
In these situations the marketers
pricing strategy depends on the
projected winning bid price, which is
generally the lowest price.

However, price alone is only

the deciding factor if the

bidder
meets
certain
qualifications.
The fact that marketers often
operate in the dark in terms of
available competitor research,
makes this type pricing one of
the most challenging of all
pricing setting methods.

Initial Markup (IMU) is

the difference between

the cost and selling price
of an item when it is first
introduced for sale.
It is also called Initial
Mark On, Markon or
Markup.

The

formula
for
this
calculation is: Selling price
cost = Initial Markup Dollars.
If a buyer brings in a new line
of jeans with a cost of $25 per
pair and initially prices them to
sell at $55 per pair, the Initial
Markup is $30.
Selling Price Cost = Initial
Mark Up Dollars

Initial

Markup
is
normally expressed as a
percent.
The Initial Mark Up %,
for the above example,
based on the retail selling
price, is 55% (calculated
as $30 / $55).

The IMU% should always be

based on retail dollars, not cost

dollars as some retailers and
software programs too often
do.
After all, you own a retail
store and record sales at retail.
Your sales goals are expressed
in retail dollars.

Plus, net sales, at retail, are

used as the basis for expressing

account
amounts
from
the
financials.
Selling Price: price for product
offered to public
Markup, margin, or gross profit:
difference between the cost and
the selling price
Basic formula: Cost + Markup =
Selling Price

 The difference is that markup

is now considered a percent of

the selling price rather than
cost
Markup with spoilage: Some
items may not be fit for sale or
will go bad.
Sometimes they can be sold for
a reduced price.

 Sometimes they are a total loss.

The selling price has to be higher to

make up for this loss.

A markup pricing method in which
markup is viewed as a percentage by
which initial price is set above
product cost and is determined by
multiplying the cost of each item by
a predetermined percentage then
adding the result to the products
cost.

A markup pricing method in which

markup is viewed as a percentage of

the products selling price and is
determined by dividing the cost of
each
item
by
one
minus
a
predetermined percentage.
A cost pricing method used to set a
products initial price by applying a
certain percentage to the cost of the
product either through a Markup-onCost method or a Markup-on-Selling
Price method.

The cost price of an object is

the price of an object on which

it is purchased from the vendor.
On the other hand, selling
price is the price on which it is
sold.
Markup is also an important
terminology used in business
studies.

MARK ON
RATE

Markup

is defined as the
difference between the cost of
an item and its selling price.
Markup is the opposite of
discount.
In discount, we reduce some
percentage of amount from the
initial amount, but in markup
we increase certain percentage
with the original amount.

The markup is the total or

gross profit on a certain

commodityor service.
One should not confuse the
markup with discount.
The
discount
is
the
reduction on selling price of
the thing.

On the other hand, markup is the

percent increment in the cost

price of the object.
The net profit takes into account
other factors like the cost of
advertising, the rent of premises
etc.
The mark up is just the gross
profit, so in the above given
example the mark up would be 50.

Markup

is define, when the

difference between the retail price
of the merchandise and its cost.
Markup is most commonly used to
apply to the amount added to the
cost to determine the retail prices
of individual items.
A rise in the price of an particular
item for a sale, we add amount to a
cost price in calculating selling
price.