MARKUP FOR PROFIT: A SIMULATED SELF-ADMINISTERED EXPERIENCE IN RETAIL PRICING Developments in Business Simulation & Experiential Exercises, Volume 8, 1981 234 MARKUP FOR PROFIT: A SIMULATED SELF-ADMINISTERED EXPERIENCE IN RETAIL PRICING Kathleen C. Brannen, Creighton University William H. Brannen, Creighton University ABSTRACT This paper describes a classroom game which has been used in the Principles of Marketing course for teaching concepts related to retail markup, its calculation, and profit implications. The game has been played in both computer and noncomputer versions. Plans are underway to attempt the relative effectiveness of these two teaching methods. Before playing the game, students are given an extensive lecture on markup. A description of the computer version of the game follows a discussion of learning objectives. LEARNING OBJECTIVES The general objective in designing the MARKUP game was to increase the overall level of student understanding of the markup concept. This objective arose because in spite of diligent efforts to explain markup and the computation of markup figures, many students were unable to correctly compute simple markup calculations on an exam. One measure of the achievement of this objective is improvement in student test scores over the subject matter. MARKUP simulates the fruit and vegetable department of a supermarket to provide a pricing game in a setting familiar to most students. Repetition of the markup calculation is used to reinforce the learning process. Many students conceptually view markup as something added to cost, even though a working knowledge of markup needed by a retailer or other marketer is markup based on selling price. At each pricing decision point in the MARKUP game, the cost is given and a selling price must be chosen. The game responds with the markup based on selling price given as a percentage. The general objective stated above may be thought of in terms of the following specific learning objectives: • To learn how markup percentages are calculated. • To become familiar with markup figures as a percentage of selling price. • To learn the effects of individual item sales and profitability on overall departmental sales and profitability (i.e., the effects of averaging). • To understand the relationships among cost, markup, selling price, sales volume, and total profits. • To provide student interaction with the computer via a relatively easy-to-play game. To gain some idea of how markups are used in practice to set selling prices. DESCRIPTION OF MARKUP This simulation of retailing reality is a self-administered game which can be played with or without the use of a computer.1 The purpose of the game is to provide the student with experience in using markups on cost and on selling price in order to determine what selling prices should be to 1 Brannen, Kathleen C., and William H. Brannen, “Markup,” in Brannen, William H. Successful Marketing For Your Small Business. Englewood Cliffs, New Jersey: Prentice- Hall, Inc., 1978, pp. 258-283. The noncomputer version of MARKUP appears as an appendix to Chapter 13 of this book. earn a desired gross profit. The game deals at both the per item level and at the total department level. Simply stated, the markup for the total department is the per item markup weighted by the sales of each item. Each player plays against himself/herself. The game is divided into ten weeks. Each week is independent of all other weeks. Per item costs are given for each week but do often vary from week to week. For purposes of the game, costs and selling prices do not vary within a given week. This is an assumption used for simplifying the structure of the game. Limiting the number of products to twenty is another simplifying assumption. One of the twenty items is featured each week as the "weekly advertised special" or (WAS). For this item (which is different each week), the sales at regular price will be zero for that week. Expected weekly sales of each item vary according to such factors as total store sales, product quality, competition, holidays, weather, prices, etc. For purposes of the game, all factors affecting sales (except price) will be incorporated into a figure called “expected weekly sales.” The rationale for expected weekly sales will be given in the “Weekly Planning Report” which is a nonquantitative merchandising tool given to the player for each week. For the computer players, “expected weekly volume” will vary inversely with the price, but the formula for variation will not be given since the computer player may test several selling prices before setting his/her price. Unit selling prices may be in pounds or by count and are given. This does not affect the computations. The selling price of the weekly advertised special must be at or near cost for demand to exist. The discussion prior to the actual beginning of the game gives some of the flavor of the business. The game Is a simulation of a produce department of a supermarket in a small midwestern community. Figures mentioned in the discussion are broad general guidelines. The Appendix contains a flowchart of the MARKUP program, and the beginning and ending portions of a one week game of MARKUP. Interested users may contact the authors for the complete program. Developments in Business Simulation & Experiential Exercises, Volume 8, 1981 235 The game was originally written in FORTRAN using an IBM computer. The game has subsequently been converted for use on a CDC Cyber 1714 using FORTRAN IV and on a Univac 1100/60. Future plans of the authors include a test under controlled conditions to determine the learning effectiveness of the computer versus the noncomputer versions of MARKUP. APPENDIX FLOWCHART FOR MARKUP TS = total sales DPMU = departmental percentage markup expressed as a decimal XDPMU = departmental percentage markup expressed as a percent TDMU = total dollar markup for the department XDMU = product dollar markup IWEEK = the week currently being used in the game SP = selling price DMU = dollar markup PMU = percentage markup S = r sales in dollars EWS = estimated weekly sales in units X = explanatory data (in flowchart only) Developments in Business Simulation & Experiential Exercises, Volume 8, 1981 236 Table of Contents Volume 8, 1981 The Promotion: Human Sexuality in Organization The Simulation of Chaos Leadership Development in a Simulated Urban/Suburban (U/S) Environment Tomed: A Computer Game Emphasizing Social Responsibility/or/why the Pop-Top Can? Integrated Brain Activity and the Manager's Job: Utilizing the Troika Model What does R2 Have to do with a Product Management Course? An Analysis of the Effects of Jungian Problem-Solving Style Dimensions on Marketing Decisions Bargaining Behavior in Personal Selling and Buying Exchanges Extending the Simulation Product Life Cycle A Generalized Algorithm for Designing and Developing Business Simulations Operationalizing a Test of a Model of the Use of Simulation Games and Experiential Exercises Pygmalion and Perception: An Experiential Exercise Behavioral Consequences of Reward Regarding Employee Absenteeism in an Industrial Setting: An Operant Conditioning Approach The Simlab Program: The Use of Experimental Simulation and Process Analysis for the Development of Management and Organizations Designs for Research on Simulation-Games, Cases, and Other Experiential Exercises The Role of Students in The Case Method Weaknesses in Research Design Critical Variables in Research on the Educational Value of Management Games Research Questions for Cases Research on the Learning Effectiveness of Business Simulation Games - A Review of the State of the Science The Effects of Valuation Techniques on Holding Cost During Inflationary Periods: A Simulation Exercise The Operations Simulation - A Study in Game Development Applying Guided Design to the Production/Operations Management Course: A Progress Report and Evaluation Terminal Data Entry and Retrieval Systems Simulations and Microprocessors Microcomputers and Related Technology for Simulation Gaming Microcomputers - A New Technology for Innovations in Business Simulations Microprocessor Controlled Interactive Video Simulation Business Game Design: From Theory to Practice The Success of a Computerized Simulation in Microeconomic Pedagogy The Test Preview Game: Applying the Game Show Format Providing a Real World View of the Personal Function: A Simulation Finding an Effective Means of Teaching Managerial Behavioral Skills: Two Different Experiential Teaching Methods Compared A Management Development Program Based on the Experiential Learning Model Participant Type Differences in Response to Experiential Methods: An Informal Look Preparing Student Groups to Participate in Experiential Group Projects: An Organizational Development Approach An Instrument for the Assessment of Learning Dimensions: A Progress Report of the Learning Dimension Scale (LDS) An Empirical Analysis Relating the Learning Style Inventory to Memory and Logical Ability Teaching Styles in Simulation Experiential Learning Versus Traditional Teaching Styles Student Perceptions of Effective Teaching Behaviors Problems in Evaluation of Experiential Learning in Management Education Students' Perceptions of Learning by Simulation A Relative Evaluation of Experiential and Simulation Learning in Terms of Perceptions of Effected Changes in Students Overview of Computer Based Business Games in Business Policy Classes Behavioral Decision Theory and Business Policy Giving Accounting Students Writing Experience as Job Preparation Getting to First Base with MBO: An exercise for Writing and Evaluating Objectives Dimensions of Conflict in Experiential Learning Consumer Alienation and Perceived Relevance of the Business Simulation Using the Self-Reference Criterion to Simulate Culture in Internationalized Business Course Experiential Learning in a Cross Cultural Setting- The Practice of Simulation Approach to Business Education in Japanese Universities Student' Perceptions of the Use of a Computerized Simulation in Teaching Management Information Systems Using the Case Study Approach to Develop a Microcomputer Bases, Fully Integrated, Data Base Driven, Management Information System The Case Study as a Tool for Organizational Change: Applying the Steel Ax to the Designers of Management Information Systems Toward a Theory of Teaching Business Policy A Case Study in the Use of Experiential Learning (A Management Game Simulation) to Enhance Student Understanding of Strategy Evaluation and Policy Formulation Suggestions for Integration of the Business Administration Core Publishing Opportunities and Requirements for Business Simulation and Experiential Learning Materials How do we Apply Experiential Learning Intercollegiate Case Competitions for M.B.A. Students: Initiation and Implementation Teaching Business Policy and Strategy Using the Incident Process The Learning Co-Op Approach to the Core Policy Course Meeting the Managerial Skill Shortage - Is Academia Up to It? An Empirical Analysis of Experiential Learning Reinforcement International Experiential Learning: Experience is the Best Teacher Encouraging Student Participation During International Academic Programs European Summer Study Program: Can you, Should you, What Does it Take? Travel Seminars in Europe: How can I Direct One? International Experiential Learning: Student Evaluation ABSEL: Empirical Findings on the State of the Association Sensitivity of Performance Scores in Business Simulations Improving the Learning of a Business Simulation Game by Increasing the Process Content Student Participation in Deciding Performance Criteria for Grading in an OB Course: An Exercise and a Case Study Markup for Profit: A Simulated Self-Administered Experience in Retail Pricing The Investment Decision Game: An Experiential Learning Approach to Stock Market Decisions Through Gaming CHIPS: A Marketing Channels management Game External Validation: An Experimental Approach to Determining the Worth of Simulation Games Teaching Performance Appraisal Skills: An Experiential Approach In Support of Experiential learning: Results of a Follow-Up Survey The Introductory Management Course: Taking Theory Application One Step Further Decision Efficiency and Effectiveness in a Business Simulation The Implications of Cognitive Processing Variables and the Complex Decision Simulating the Simulation for Enhanced Player Rationality Simulation/Experiential Learning Audit