Section 2.2: Merchandising Methods & Pricing

Merchandising Methods & Pricing

Successful funeral home management requires balancing ethical consumer service with financial sustainability. Merchandising is the purchase, display, and sale of goods and services, while pricing is the method of assigning monetary value. Funeral professionals must understand pricing systems, selection room setups, and the Federal Trade Commission (FTC) Funeral Rule.

Historical and Modern Pricing Methods

Pricing systems have evolved due to consumer preferences and federal regulations.

• Unit Pricing: A historical method where one package price covers the casket, services, facilities, and transportation, without itemization.
• Bi-Unit Pricing: A system separating charges into two parts: professional services/facilities, and the casket/merchandise.
• Functional Pricing: A method breaking charges down into several categories (e.g., professional services, body preparation, facilities, transportation, merchandise).
• Itemized Pricing (FTC Mandated): The modern standard. Each service and merchandise item is priced individually, allowing consumers to select only what they want.
• Package Pricing: Grouping specific services and merchandise for a single price. Under the FTC Funeral Rule, this is allowed only if the components are also available individually on the General Price List (GPL).

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Price Determination Policies (Markup Systems)

The markup is the difference between the wholesale cost of merchandise and its retail price.

The Consumer Value Index (CVI)

The Consumer Value Index (CVI) evaluates the value of merchandise:

$\text{CVI} = \frac{\text{Wholesale Cost}}{\text{Retail Price}}$

• A higher CVI means a greater percentage of the consumer's money goes toward the physical product, indicating better value.
• A lower CVI means a smaller percentage goes toward the product, and more goes toward the profit margin.

Gross Thrust (Margin)

Gross Thrust (or Gross Margin) is the actual dollar amount of profit remaining to the funeral home:

$\text{Gross Margin} = \text{Retail Price} - \text{Wholesale Cost}$

This covers overhead expenses (salaries, utilities) and provides net profit.

For example, if Casket A has a wholesale cost of $400 and retails for $1,200, the CVI is 0.33 (33%) and the gross margin is $800. If Casket B costs $1,000 wholesale and retails for $2,000, the CVI is 0.50 (50%) and the gross margin is $1,000. Under a declining balance method, Casket B is presented as a much higher value option to the family, as half of their payment goes directly toward the physical merchandise compared to only a third for Casket A.

Pricing Systems Comparison

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The Casket Selection Room

The selection room environment significantly influences the family's experience and choices.

Location and Space Requirements

• Location: The preferred location is on the main floor, adjacent to the arrangement office. Basements and second floors must be accessible by elevator and well-maintained.
• Space: The recommended space is 40 to 60 square feet per full-size casket displayed.
• Number of Caskets: The recommended range is 12 to 30 caskets. Fewer than 12 limits choices; more than 30 causes decision paralysis (casket confusion).

Display Types

1. Full-Size Display: Traditional method showing the complete casket. High space and inventory cost.
2. Fractional Display (Space Saver): Displays quarter or half sections of caskets hung on wall racks. Reduces space needs by 75% and lowers inventory cost.
3. Digital/Kiosk Display: Uses computer screens or tablets to show caskets, eliminating showroom space and inventory costs.
4. Catalog Display: High-quality printed catalogs showing photographs of available merchandise.

Room Layout and Traffic Flow

• Consecutive Path: Caskets are arranged in a logical sequence (e.g., ascending price or grouped by material). The family is guided along this path.
• Demonstration Group (Educational Group): A cluster of 3 or 4 caskets positioned near the entrance (typically entry-level, mid-range, and premium). The director uses them to explain construction, materials, and pricing before the family browses.

Environmental Standards

• Lighting: Incandescent lighting is preferred over fluorescent lighting because it provides a warm, natural light that highlights finishes. Fluorescent light is cold and distorts fabric colors.
• Light Intensity: The recommended light intensity is 90 to 100 foot-candles at the casket level.
• Direct vs. Indirect: Direct spotlights highlight specific features; indirect lighting provides soft, glare-free overall illumination.