Pricing Policies

FACTORS AFFECTING INDIVIDUAL PRICES. The prices that any firm can charge for its merchandise are subject to many influences. Some or all of the following considerations may apply in a particular case: 1. Fair trade laws, 2. Nationally advertised prices, 3. Desired customer clientele1, 4. Competitor price policies, 5. Market strategy2, 6. Manufacturers' suggested prices, 7. Type of merchandise handled, 8. Policy on loss leaders3, 9. Seasonal nature of sales, 10. Demand factor for certain products, 11. Price lining4, 12. Target return pricing5.

A word about each of these factors will introduce us to the total scene of setting prices. FAIR TRADE LAWS still exist in many states. These laws allow the manufacturer of a product to make agreements with dealers who retail the product on the price at which it can be sold to the public. NATIONALLY ADVERTISED PRICES must be recognized6 by small firms as at least an upper limit to the prices they place on items so advertised. COMPETITOR PRICES on similar lines or merchandise with similar quality must be recognized when active competition exists7 between firms. MARKET STRATEGY is a policy of setting prices and quality in a range not served by competitors. Where a special clientele is served, its buying habits can be reflected8 in price policy. For example, if affluent9 people want special services and special merchandise, they are willing to pay for them. In other cases, the desired clientele may be price-conscious and price policy will be directed to serve them.

MANUFACTURERS' SUGGESTED PRICES are designed by the manufacturers To protect10 the quality image of their products and to protect profit margins11 for the-individual retailer. Price policy is significantly affected by the type of merchandise. Novelties12 or special-interest items normally carry higher markups.

LOSS LEADERS (products sold below cost) are still illegal in some states whose laws reflect an earlier attempt by independent firms To combat13 the increase of chain store competition14 SEASONAL NATURE OF SALES can affect pricing policy by making it possible To alter15 prices with the high and low seasons of sales volume. The nature of OVERALL DEMAND is likewise a consideration in setting individual prices. Elastic demand suggests lower prices. Specialty goods, such as luxury items and style merchandise, carry higher prices. PRICE LINING is a policy of keeping merchandise in fairly well-defined price ranges. Dresses at $19.95, $24.95, and $29.95 would be an example.

TARGET RETURN PRICING involves adding a desired percentage return on investment or a specific dollar amount return to total fixed costs in setting retail prices.

SETTING INITIAL PRICES. Initial prices on merchandise must cover all these items: 1. Markdowns16, 2. Shortages, 3. Damaged merchandise, 4. Employee discounts, 5. Operating expenses, 6. Cost of goods sold, 7. Profits.

When a business owner decides what price to charge for different items and services offered, some kind of method should be used. Poor pricing may end up costing the owner customers and profits. Two basic questions must be answered: 1. Are prices high enough to cover expenses and Assure17 a fair Profit18?, 2. Are prices low enough to meet or undersell the competition and attract customers?

MARKUP19. The term markup refers to the amount which a proprietor adds to the cost of an item in order to arrive at a selling price. The selling price may be expressed in a simple formula: cost price plus markup equals selling price.

If a particular product costs a proprietor $1.00, it may be sold to the customer for $1.50. The markup on the item is $.50 based on the cost.









Because most businesses deal in a large number of different items, an owner should not have to decide on a markup every time new merchandise arrives. A standard markup system should therefore be adapted.

There are two ways of figuring20 markup. One method is based on the cost price. The other more modern method is based on the selling price:

1. Markup based oil cost price:









2. Markup based on selling price:


33 1/3% MARKUP






In theory, for every dollar taken in over the counter, the merchant should know how much is clear profit, how much goes for merchandise, and how much goes for expenses. When a customer gives a merchant $1 for an item, then sales dollar might look like this:

Rent 1

Heat 2

Light 1

Wages 20

Insurance 1

Cost of Merchandise 70

Profit 5

Of course, a merchant does not actually analyze every dollar. But when $1 is multiplied by 10,000 at the end of a six month business period, the effects are important.

MARKDOWN. It is not as difficult to figure as markup. Markdown is simply an amount or percentage cut from the original selling price. For example, if men's shirts are not selling at $16.95, they might sell for $14.95. The dollar value of the markdown is $2.00 and the percentage, found by dividing the markdown by the selling price, is 11.8%. To mark down an item 25%, simply multiply the selling price by 25 %, or divide the selling price by 4 and subtract to find the new selling price.

Notes: 1. клиентура; 2. рыночная стратегия; 3. товар, продаваемый в убыток (для привлечения покупателей); 4. шкала цен; категория цен; 5. назначение цен, обеспечивающих получение, "целевой" нормы прибыли; 6. признавать; 7. существовать; 8. отражать; 9. богатый; 10. защищать; 11. коэффициент прибыльности, коэффициент доходности (отношение чистой прибыли к чистой выручке); 12, новинка; 13. бороться; 14. конкуренция между сетью магазинов; 15. изменять, менять; 16. маркдаун, снижение цены, величина скидки (с первоначально установленной цены); 17. гарантировать, обеспечивать; 18. справедливая прибыль; 19. розничная наценка; 20. подсчитывать, оценивать; исчислять

1. Match the words with their definitions.


1) All the people who use the services of a particular firm.

2) The percentage of the wholesale or cost price added to produce the retail or selling price.

3) A deduction in the price of goods to encourage sales.

4) One of a number of similar shops belonging to the same company.

5) A plan of future action which, in a company, is usually decided by senior management.

6) A product sold at a loss to encourage trade.

7) A goal or result aimed at; an objective.

8) The difference between the cost of buying or producing something and the price for which it is sold.

2. Supply the sentences with the missing words.


1) Are qualifications gained in Britain ... in other European countries?

2) Their stock prices fell to levels that didn't... the true value of their assets.

3) The Common Law has always... individual rights.

4) Communities who live by hunting and gathering still....

5) The schools were fighting endlessly to... truancy.

6) He could resign if he wanted and... himself of £156,000 a year pension.

7) This doesn't... the fact that the problem has got to be dealt with.

8) They both come from relatively... backgrounds.

9) He must have made a... amount of money.

10) The five year boy demonstrated the ability to read, write and do simple... .

3. What are the synonyms (from the text) of the following words?

To influence to defend

Producer benefit

To permit to fight

Rival to change

Primary major

4. Complete the following sentences by putting the bracketed verb into the right tense.

1) We (to find) that if a firm has sales of $100,000 and gross margin of $40,000, it (to have) an average markup on total sales of 40 percent.

2) In the UK, price increases (to restrict) by the operation of Price Code from 1972 to 1979.

3) Critics of price control (to argue) that if profits are restricted the level of investment (to reduce).

4) It is possible that free markets with minimum state intervention (to encourage) competition.

5) The economic organization of every human society (to characterize) by certain social costs and certain social benefits.

6) 6), Public goods (to produce) and (to consume) in great "lumps" and the users can't (to charge) through the pricing system.

7) Firms (to supply) goods and services motivated by their desire for profits.

8) The important point to notice is that the price mechanism under perfect conditions (to operate) automatically.

5. Complete the following sentences with one of the prepositions: Of/in/to/forth/from

1) A factory plans to sell 10,000 units... its product... the coming year.

2) Almost every firm today has sales... each of the four areas shown... Fig. 14-1.

3) The term markup denotes the total amount added... the cost of merchandise... setting the initial prices.

4) Operating expenses and desired profits are clearly set... on the budgeted income statement.

5) It can be seen... Table 14—2 that 20 percent... sales, for example, is equivalent... 25 percent of cost.

6) ... real life, perfect knowledge about the prices... goods and resources is by no means a free good.

7) It is maintained that the pricing system operates... the face of extreme inequalities... income and wealth.

8) Most ... the industrialized and less developed countries have experienced persistently rapid rises... prices... their economies.

6. Complete the following sentences by putting it, they, there With an appropriate form of the verb:

1) ... (to argue) that a market economy responds more quickly to changing economic conditions in world markets.

2) Overall inflation remained subdued despite exchange rate effects. ... (to be) several offsetting factors.

3) ... (to continue) to be considerable diversity in economic activity across regions in 1993.

4) ... (to be) also a significant pickup in export receipts.

5) ... (to be) also a response to a lesser need for working capital.

6) Although long-term rates came down at the beginning of 1944, ... (to remain) high relative to current inflation.

7) Broader price measures also indicate that inflation rate remained very low. ... (to be) about 07 percent compared to 1.6 percent in 1992.

8) Nevertheless, ... (to be) substantial increases in spending on some goods such as household appliances, furniture and clothing.

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