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Hypothetical Case: Pricing and Promotional Strategies for ShoeWeb

Cost of Goods (COGs)

ShoeWeb is purchasing branded products from its authorized distributors. The products are mainly constructed overseas, but the vendors are responsible for all customs and duty liabilities, passing this cost on to the retailer in the purchase price. About half of the vendors include freight in their prices, and the rest bill the freight separately. For future profitability calculations, ShoeWeb management researches the usual freight costs and estimates that freight will equal 4 percent of the retail value of their purchases.

Initial Mark-Up

The industry standard for IMU is 50 percent, and most manufacturers' SRPs reflect this mark-up. The management does not want to jeopardize relationships with suppliers, so it has no plans to "break" any of the rules these manufacturers make about the pricing and promotional activity surrounding their product lines.

Promotional Strategy

ShoeWeb management will take advantage of promotional opportunities geared around seasonal events. For these events, a small selection of appropriate shoes will be featured and discounted to 20 percent off regular retail price. This will represent a small amount of the total assortment and offerings.

As its fashion products go out of season and the brands eliminate shoes from their lines, ShoeWeb management will practice a combination of returns to vendor and permanent markdowns to reduce stock levels. Clearance shoes will be merchandised separate from regular price offerings to preserve the integrity of the regular pricing structure.

Competitor Prices

ShoeWeb management keeps an ongoing check on their major competitors, both on and offline. The majority of their product is branded, and the competition observes the same SRP and promotional rules as ShoeWeb.

Retail Strategy

The key points of the retail strategy that relate the pricing and promotional strategy are as follows:

  • An emphasis on service and selection rather than low price

  • A need to maximize net margin to cover the expenses of selection, fashion products, quick delivery, and generous return policy

  • A need to preserve the integrity of their products and their retail worth

  • Fair prices, in line with the other retail options customers have

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