We noted in our last Category Management Glossary post that the industry is brimming with specialized jargon and acronyms. Let’s visit five more important acronyms that you’ll find in the practice.
1. MSRP = Manufacturer’s Suggested Retail Price
Manufacturer’s Suggested Retail Price is the price recommended by the manufacturer as the selling price for a product. Retailers often use the MSRP as a starting point for setting their own prices. While the actual selling price may vary due to market factors and competitive dynamics, the MSRP serves as a reference point for pricing strategies and provides transparency for customers.
2. TPR = Temporary Price Reduction
Temporary Price Reductions are a short-term decrease in the selling price of a product. Retailers may offer TPRs to drive sales, attract customers, or respond to competitive pressures. TPRs are typically employed for a limited time, such as during promotional campaigns or seasonal sales events. Understanding the impact of TPRs on customer behavior and profitability is crucial for effective pricing and promotional strategies.
3. COGS = Cost of Goods Sold
Cost of Goods Sold represents the direct expenses incurred in producing or purchasing the products that are sold to customers. COGS includes the cost of materials, labor, and overhead directly associated with the production or procurement of goods. Calculating COGS accurately is essential for determining gross profit and assessing the profitability of specific products or product categories.
4. GM = Gross Margin
Gross Margin is a key financial metric that indicates the profitability of a product or category. It is calculated by subtracting the COGS from the total revenue generated from sales. The GM reveals the proportion of revenue that remains after accounting for the direct costs of producing or procuring goods. Understanding and monitoring GM helps in assessing the profitability of different products, making pricing decisions, and optimizing product mix to maximize profits.
5. ROI = Return on Investment
Return on Investment, or ROI, is a financial metric used to evaluate the profitability of an investment. In retail, ROI measures the return generated from specific business initiatives, such as marketing campaigns, store renovations, or inventory management systems. It is calculated by dividing the net profit generated by the investment by the cost of the investment and expressing it as a percentage. ROI analysis helps in measuring the effectiveness of investments so that resources are allocated efficiently.
ROI is really important to understand. So much so that we’ve got two BONUS acronyms to share!
BONUS #1: GMROI – Gross Margin Return on Investment
Gross Margin Return on Investment measures how effectively inventory is managed to generate gross margin. It is calculated by dividing the gross margin by the average inventory investment. GMROI helps determine which products or categories yield the highest returns and guides inventory management decisions, such as product assortment, pricing, and replenishment. Armed with this information, category management professionals can make informed decisions regarding product assortment, pricing strategies, and inventory replenishment, ultimately maximizing profitability.
BONUS #2: GMROII – Gross Margin Return on Inventory Investment
Gross Margin Return on Inventory Investment is a variation of GMROI that considers the entire inventory investment throughout a specific period, including initial inventory and subsequent replenishment. It provides a comprehensive view of how effectively inventory investments generate gross margin. Effectively analyzing GMROII can optimize inventory levels, improve profitability, and ensure efficient utilization of capital.
Be a pricing, promotion and profit professional perfectionist!
Understanding jargon related to pricing, promotion and profit are essential to being successful in Category Management. Incorporating the concepts behind these terms will help you attract customers, optimize your organization’s investments, and drive higher profits.
Please stay tuned for upcoming additions to the glossary. Got questions? Contact us today.