Markup chain

Definition (1):

Markup chain is the sequence of markups used by firms at each level in a channel.

Definition (2):

A markup chain can set the price structure on a whole channel. The selling price of the producer becomes the cost of the wholesalers; the selling price of the wholesaler becomes the cost of the retailer, and this cost is added to a retail markup which becomes the retail selling price.

To determine the price Connect Phone will charge wholesalers, we must first subtract the retailer’s margin from the retail price to determine the retailer’s cost ($600-($600*0.30=$420). The retailer’s cost is the wholesaler’s price, so Connect Phone next subtracts the wholesaler’s margin ($420-($4200.20) =$336). Thus, the markup chain representing the sequence of markups used by firms at each level in a channel for Connect Phone’s new product is:

                  Suggest retail price:                                        $600

                  Minus retail margin (30%):                            -$180

                        Retailers cost/wholesaler’s price                   $420

                        Minus wholesalers margin (20%):                  -$ 84

                        Wholesaler’s cost/Connect Phone’s price      $336

By deducting the markups for each level in the markup chain, Connect Phone arrives at a price for the product to wholesalers of $336.

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