Price

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 Hello Students
Today we will discuss
about price

Price means the

rate at which we
It is not that
purchase any
easy, so let
goods or
me explain in
services ,
detail
Right

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To understand price
we need to
understand its key
elements
Such as Cost, Profit,
Margin, Discounts

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Let’s see whether
you are right or
wrong Sir, on the basis of
these elements price is
decided am I right ?

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Let me explain
these element A cost is an expenditure required to produce or
quickly sell a product or get an asset ready for normal
use. In other words, it’s the amount paid to
manufacture a product, purchase inventory, sell
merchandise, or get equipment ready to use in a
business process.

1) Cost

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Let me explain
these element Profit describes the financial benefit when
quickly revenue generated from a business activity
exceeds the expenses, costs, and taxes
involved in sustaining the activity. Profit is
calculated as total revenue less total
expenses.

2) Profit

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Let me explain
In business and commerce
these element
generally, margin refers to the difference
quickly
between the seller's cost for acquiring
products and the selling price.
Margins appear as percentages of net sales
revenue

3) Margin

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Let me explain
these element Discounts are reductions of the regular price of a
quickly product or service in order to obtain or increase
sales. These discounts— commonly referred to as
"sale" or markdowns—are utilized in a wide range of
industries by both retailers and manufacturers.

4) Discounts

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it is time to
learn how to
calculate
price.
Now what
you'll learn ? How to calculate Rupee and percentage
markup based on cost or retail
How to calculate markdown in Rupees,
and how to determine sale price and
maintained markup

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 Let’s Mark up ….
Understand A percentage added to the cost to get the retail selling
the concept of price.
Markup &
Mark down Mark Down ….
Planned reduction in the selling price of an item, usually
to take effect either within a certain number of days
after seasonal merchandise is received or at a specific
date.

OR
The difference between the highest current bid price
among broker-dealers in the market and the lower price
that a dealer charges a customer.
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  Gross profit
Let’s  Maintained markup
Understand
its key terms
Profit vs. Markup

A business’s profit is not the same as its markup.

Markup is the difference between the cost of an
item and the retail price.
Profit is what’s left over after all other expenses
have been paid.

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 Basic Markup Calculations
Let me first
explain you Retailers and wholesalers use the same formulas
about Markup to calculate markup. The most basic pricing
price formula is the one for calculating retail price:
 Cost (C) + markup (MU) = retail price (RP)
Two other formulas can be derived from
this formula:
 Retail price (RP) – markup (MU) = cost (C)
 Retail price (RP) – cost (C) = markup (MU)

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 Ohk,
Take an
example of
sports good Sir, Can you explain us
with example ?

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Sport goods outlets buys Cricket bats from a supplier for Rs.1500.
While he sells at a retail price of Rs.2100
Find the Markup Value ?
Retail price (RP) – cost (C) = markup (MU)
Which
formula we Rs.2100 Rs.1500 Rs.600
will use In % Term what % of markup value outlets
then ? added in purchase Value?
Good Markup Value ( MU) / Cost (C)*100
Now Put
Rs.600 Rs.1500 100
respective
values in it 40%
Lets Calculate …. 14
 Ohk,
I will explain
Sir, Can you explain us
% Markup ?

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 In most business situations, the markup
figure is expressed as a percentage MU(%),
rather than a rupee figure MU(₹).
Percentage Most sellers compute markup based on retail
Markup is… price rather than cost, because:
• the markup Value on retail sounds smaller

Yes Sir, it
will be a
Can I explain better idea
this with same
example ?

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Sport goods outlets buys Cricket bats from a supplier for Rs.1500.
What is the retail price of Cricket bat if the manager applies a 40% markup ?
Cost (C) + Markup (MU) = Retail Price (RP)
Her we go Rs.1500 (1500 *0.40)Rs.600 Rs.2100

Sport goods outlets sell a Cricket bat at retail price of Rs2100 by

adding 40% markup, what would be his purchase price ?

Retail price (RP) – markup (MU) = cost (C)

Rs.2100 (1-2100/1.40)Rs.600

Rs.1500

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Students hope
I am able to No doubt sir, we
explain understood very well
properly Can you explain us the
Markdown concept ?

Ohk,
Let’s
understand

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Sport goods outlets manager markdown the price of old bats by 30%.
If the Retail price of bat is Rs.2100 ,
What is the amount of discount he is offering ?
What would be the new sale price be ?
Retail Price (RP)- Markdown (MD) = New Retail Price (NRP)
Rs.2100 (2100 *0.30)Rs.630 Rs.1470

Retail Price – New Retail Price = Discount

Rs.2100 Rs.1470 Rs.630

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Students hope
u understood
the concept of Yes Sir, But we
Markup & have doubt
Markdown How fmcg
companies use
these concepts?

Ohk,
Can you
Let’s
elaborate more
understand
in fmcg
prospective?

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 Students fmcg
companies
generally uses
schemes &
offers for their No sir, What
business do you mean by
Schemes ?

Ohk,
Let’s find it
then..

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Understanding Price Calculation & Trade Schemes of FMCG sector

Time to absorb some basics on FMCG Pricing and

Trade Schemes – something that prominently
differentiates FMCG from other sectors.

Before we get into the mathematics part of it, let

us re-visit the flow of goods from one layer to the
other in the FMCG framework

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Flow of Goods

Dealer / Whole End

Company /Manufacturer
Company Distributor’s to End User/Consumer
Retailers
/ Stockiest sellers User’s

Let’s understand with Graphic design

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Students
lets
Trade Schemes are usually additional support in terms of Sales
understan Promotion or Trade Promotion or Temporary Price Reduction
d the extended to the trade considering quite a many factors like
Schemes Competitor’s Activities, Seasonality, Company’s own agenda etc.
which is
called Trade Schemes are of 2 types: Primary Scheme & Secondary Scheme
Trade These schemes vary from brand to brand (of a company) and change
scheme on a monthly, sometimes fortnightly basis. Just one more thing
before we finally explore the pricing aspect mathematically, there
are generally 2 methods by which pricing of products is done within a
company: Mark-Up or Mark-Down and on that basis, the schemes,
margins etc. are arrived at for its trade.
The only difference between the 2 is the reference which they use;
Mark-Up would use cost price as the reference and
Mark-Down would use Selling Price as the reference.
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 Ohk ,I will explain
Sir What is the
with other common
terminologies which meaning of
Primary &
they use
secondary
schemes ?

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Primary scheme – A trade scheme that is pre-adjusted in the Delivery
Invoice of the Distributor/SS ( Company to Distributer/dealer/Stockist)
Secondary Scheme – A trade scheme that is reimbursed to the
Distributor/SS on basis of his spend as a part of sales promotion activity
(Distributor to Retailer)
TPR – Temporary Price Reduction. Any activity involving Price reduction of
stock that can gain Market support- for example Rs.5 off
MDCP – Mass Dealer Contact program – An activity conducted
at Wholesale points with an objective to meet Retailers
coming there and promote our products – Buy a 3 Cases of X
products & get 2% extra.( Sell in –Sell out pattern )
Cont.
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QPS – Quantity Purchase Scheme. A secondary scheme that is intended to
gain Wholesale capital and hence penetrate through passive distribution – a
time bound scheme which has different slabs for quantity purchase.
Off takes: These are sales from the retailer to the customer.
Trade Schemes: (Secondary Scheme)These are schemes that are given out
in the market to boost sales from time to time.
Quantity Purchase Schemes (QPS):
These typically look like this:
144 pieces – 8% discount Basically these are discounts
72 pieces – 6% discount offered on purchasing a
48 pieces – 4% discount particular quantity of products
24 pieces – 2% discount

Cont.
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Value Purchase Schemes (VPS):
These would look like this:
Purchase of 10,000 – 8% discount These are discounts offered on
Purchase of 8,000 – 6% discount purchasing products of a predefined value
Purchase of 6,000– 4% discount
Purchase of 4,000 – 2% discount
Display: Shelf /Window/Visibility FOC: Free of Cost
Material that a company pays for. Can Strike Rate: % of all successful
also be a floor standing unit (FSU) in sales calls
Modern Trade
Let me take an example
to understand this

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 Example :-
We shall first see the pricing dynamics of 1 unit of T-Shirt so assume a
retailer who purchases just 1 unit of T-Shirt:
MRP of 1 Unit of T-Shirt is Rs. 165. So we will arrive backwards at all the
price-points from the MRP (Which is known as Reverse Calculation)
Since the retailer gets 15% margin and its mark-up pricing hence putting it in
equation, we would arrive at RLP (Retailer Landing Price)
Company is offering 6 % margin to their dealer with 4% primary scheme while
they are providing quantity purchase scheme like up to 1 box/Case No quantity
purchase scheme &
On purchase of2 box/Case & above 10% quantity scheme is applicable for
retailers to push the sales.

Cont.
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RLP = MRP- Retailer Margin (RM) – Primary Scheme(PS) – Secondary Scheme(SS)
DLP (Distributor Landing Price) = Retailer Landing Price (RLP) - Distributor
Margin (DM) or Distributor’s selling price (DSP)

Therefore in this example since the company follows Mark-Up Pricing:

RLP = 165 – 15% of RLP – 4% ( PS)of RLP – 0(SS would be 0 for purchase of 1 unit)
Similarly when you go to a wholesaler and
RLP + 15% of RLP + 4% of RLP = 165
request him to purchase 4 cases of Shirt,
Hence RLP = 165/(1.19) = 138.65
he would ask kya rate hai: you would say:
Similarly, DLP = 138.65 – DM
“165 MRP hai, aapko padega (165/1.29 =
DLP + 6% of DLP = 143.47
127.9) 128/- mein. (Since he is entitled to
DLP = 143.47/(1.06) = 130.80 10% Secondary Scheme as per the
mansion slab )”
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 Students have Yes Sir,
understood these But how the free
concept now ? issue calculation
taken place ? Can
you explain us ?

Sure why not .

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 Let’s Understand the Free Calculation scenario

1 + 1 = 100% Wrong No. of pieces (Paid for) divided by total no. of

pieces bought -> 1 / 2= 50%

Buy 5 + get 2 free = 28.57%

In cross promotion, Landed price will

Buy 2 perfumes get 1 deo free
consider for calculation

Let me explain %
Can you answer scheme also
this students ?
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 Let’s Understand the % Calculation scenario

PTR 100 Answer -1 5.00 100 * 5% 5.00 Retailer prospective

5 % Trade Scheme ? Answer -2 4.76 100 / 5% 4.76 Distributor prospective

Why ?

Since Discount would be calculated on the Cost price of retailer, which

includes the distributor margin as well , so the error is avoided by
dividing the CP by the 100+% TS.
i.e. 100/1.05= 4.76

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