Monday, September 17, 2012

Removing average gross margin %'s from retail planning. Thesis based practice and theory.

My thesis (here) tried to answer the question:
"How can the sales price of a product be set in such a fashion that it forms a reflection of the actual costs involved in selling that product?"

("Actual costs" as opposed to the standard average gross margin percentage markup goals.)

The question is basically the same as that posed by Ingvar Kamprad of IKEA below:
"Our pricing policy is fundamental.
The stumbling block is when we price ourselves out of the market. Our economists constantly go on that we must keep our “total gross profit margin” to a certain percentage. I say to the
economists, “What the hell is ‘percentage’ anyhow?”
The key to merchandising, which is much simpler than my DPP based thesis, is to ignore SGA costs (rent, staff, administration, etc) completely and focus on Opportunity Costs. In other words: "What could I have sold on the shelf instead of what I a am selling now, how much more could I have earned" instead of "I sold x at margin y and my rent was z , staff costs the article was profitable".

Cost = Shelf used aka "Space"
Time = Money

Opportunity Cost = Space occupied x time that is occupied

Cost = Space x Time, not a % of sales or a DPP calculation.

E-mail: ajbrenninkmeijer (a)

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