Page 609 - Business Principles and Management

Unit 6

RETURNED MERCHANDISE
If customers are not satisfied with their purchases, they may return the products
for a refund. This adds to expenses in two ways. If the business can resell the
merchandise, it will have to sell it at a reduced price. Also, many expenses are
involved in handling and reselling the returned merchandise, which increases
operating expenses. Some returned merchandise cannot be resold.
To make a profit, businesses must consider their record of returned mer-
chandise when buying and pricing merchandise. They must try to buy just the
type and quality of merchandise that customers prefer in order to help reduce
returns. Salespeople should be trained to sell products that customers need
rather than attempting to convince customers to buy things they do not need.
Offering customer service and support to help customers use the products
properly and resolve their problems also reduces the amount of merchandise
returned.
When managers give close attention to the three problem areas of markdowns,
damaged or stolen merchandise, and returns, they can keep operating expenses to
a minimum. As a result, they can maintain profits while lowering the markup per-
centage. In that way, both the businesses and their customers benefit.

CHECKPOINT

List three purchasing and operating areas in which a business
can control costs.

22.2 Assessment

UNDERSTAND MANAGEMENT CONCEPTS
Circle the best answer for each of the following questions.
1. A purchase that is net 60 days with a 3 percent discount for payment
within 30 days would be indicated by
a. 3/60, n/30
b. 30/60, n/3
c. 30/3, n/60
d. 3/30, n/60
2. What is it called when a business sells a product at a price lower than
planned?
a. markup
b. markup on price
c. markdown
d. price discount

THINK CRITICALLY
Answer the following questions as completely as possible.
3. Explain how competition influences pricing strategy.
4. Explain why stolen merchandise can have a
strong impact on a company’s profits.

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