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Recall from Section 4.1 that one of the types of discounts is known as a sale discount. Markdowns are no different from offering a discount. Like many others, you may have walked into Target to buy one item but left with five instead. Many times customers will not only purchase the item on sale but also, as long as they are on the premises, grab a few other items, which are regularly priced and very profitable. Having items on sale attracts customers to the store. Though special marketing events such as a 48 hour sale reduce the profitability per unit, by increasing the volume sold these sales can lead to a greater profit overall. Sales attract customers because almost everyone loves a deal. When products are discontinued, this leaves shelf space underused, so it is better to clear the item out altogether to make room for profitable items that can keep the shelves fully stocked. Selling a damaged product at a discount is better than not selling it at all.

Clearing out damaged or discontinued items.

In the case of seasonal inventory, such as Christmas items on Boxing Day, the retailer wishes to avoid packing up and storing the inventory until the next season. In these situations, the business thought it could sell 100 units however, consumers purchased only 20 units.

Clearing out excess or unwanted inventory.

Markdowns most commonly occur under four circumstances: While businesses use statistical techniques that predict future sales with a relative degree of accuracy, consumers are fickle and regularly change shopping habits. In order to stock products, a reseller must estimate the number of units that might sell in the near future for every product that it carries. Companies must always attempt to forecast the future. However, in most situations this is not true. Many people perceive markdowns as a sign of bad business management decisions. This lower price is called the sale price to distinguish it from the selling price. The Importance of MarkdownsĪ markdown is a reduction from the regular selling price of a product resulting in a lower price. If your business violates this law, it faces severe penalties. Businesses must always comply with the Competition Act of Canada, which specifically defines legal pricing practices. Clearly, it is important for you as a consumer and as a business operator to be able to calculate markdowns.īusinesses must also thoroughly understand markdowns so that customers are charged accurately for their purchases.

Under the code, when the scanned price of an item without a price tag is higher than the displayed price, the customer is entitled to receive the item free of charge when it is worth less than $10, or receive a $10 reduction if the correct price is worth more than $10.

The Scanner Price Accuracy Volunteer Code endorsed by Competition Bureau of Canada and managed by the Retail Council of Canada on behalf of participating Canadian retailers may result in even greater impacts to business finances. In addition to price inaccuracies having an impact on business finances and customers’ pocketbooks, scanner price inaccuracy may result in violations of Canada’s Competition Act. A computer system is only as accurate as the person keying in the data. The cashier apologizes for the mistake and corrects your total.Īlthough most retail stores use automated checkout systems, these systems are ultimately programmed by human beings. If they are 40% off, you should receive a $200 deduction and pay only $300. The regular total of all your items is $500.

You are about to hand over your credit card when something about the total makes you pause.

The cashier processing the transaction informs you that your total is $325. Flashy signs in a retail store announce, “40% off, today only!” Excitedly you purchase three tax-free products with regular price tags reading $100, $250, and $150.

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