Specialty items Unsought items 20 EVALUATING PRODUCTS 24 SELF ASSESSMENT

Specialty items unsought items 20 evaluating products

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Specialty items. Unsought items. 20
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EVALUATING PRODUCTS 2.4 SELF ASSESSMENT QUESTIONS 1. Define a 'core product', a 'functional product', and an 'augmented product’? 2. What can be the different types of consumer products? 3. How does an Industrial product differ from a consumer product? 4. How does margin differ from markup? 5. What is the most common measure of profitability? 21
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EVALUATING PRODUCTS REFERENCE MATERIAL Click on the links below to view additional reference material for this chapter Summary PPT MCQ Video Lecture 22
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PROFIT CENTER EVALUATION Chapter 3 PROFIT CENTER EVALUATION Learning Objectives After going through this chapter you should be able to understand: The concept of return on investment, along with the constituent elements. Dupont control chart and its applicability in the marketing context. Structure: 3.1 Dupont Control Chart 3.2 Summary 3.3 Self Assessment Questions Let us take an example of a very small business set up. A vendor of packaged milk sets up shop at a road crossing. He buys liquid milk in plastic pouches @ in Rs.14.50 per litre from a dairy. He sells the milk to customers @ in Rs.15.00 per litre. He sells on an average 2 litres per customer per day, to 100 customers. What is his daily Sales? It is calculated as under: 100 customers X 2 litres per customer X Rs.5.00 per litre = Rs.3000.00 per day This amount is his daily revenue … … … … … … (1) His purchase spending is Rs.14.50 per litre So what is his daily purchase? It is calculated as: 100 X 2 = 200 litres X Rs.14.50 per litre = Rs.2900.00 per day. This amount is his daily purchase 23
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PROFIT CENTER EVALUATION Since there is no cost addition to this amount, to make the milk saleable, we shall call this the cost of goods sold … … … (2) The vendor’s gross profit is Rs.100 per day (1 – 2) … … … (3) This has been derived as the difference between his Revenue and Cost of Sales i.e., Rs.3000 minus Rs.2900. This amount of Rs.100 can be described Either as a margin percentage of 3.33 percent i.e., 100/3000 Or as a markup percentage of 3.45 percent i.e., 100 /2900. Margin is denoted as a percentage of sales whereas markup is denoted as a percentage of cost. Let us assume the vendor incurs a cost of 25 paise per litre as delivery cost, viz., he has to keep a helper to deliver milk to customers, and he may also have to spend some amount on tea and miscellaneous expenses. This amount of Rs.50 i.e., 25p X 200 litres is his selling distribution expenses … (4) Now we can see the overall profitability of the vendor’s business as under: Do you think the business is worthwhile? Getting up at 4.00 a.m. in the morning, facing all the elements of weather and other ground conditions, taking care of all the transactions, and at the end of it all making a mere 1.67 percent net margin. Rs. Annual sales 1095000 Rs. 3000 X 365 days Annual Cost of Sales 1058500 Rs. 2900 X 365 days Annual Gross Profit 36500 3.33 percent of Sales Annual Selling/Distribution exps 18250 Rs.50 X 365 days Annual Net profit 18250 1.67percent of Sales (5) 24
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PROFIT CENTER EVALUATION You will definitely come out with a big NO !!!
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