retailpricing-

7/28/2019 retailpricing-

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Retail Pricing

Pricing is a crucial strategic

variable due to its direct

relationship with a firms goals

and its interaction with otherretailing elements. A pricing

strategy must be consistent withthe retailers overall image ,

sales, profit, and return on

investment goals.


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Retail PricingOne of the Keys to Successful Retailing

is providing a good VALUE in theconsumers mind for the particular

price orientation chosen.

There are three kinds of price

orientation a Retailer can opt :

1. Discount Orientation

2. Atthemarket Orientation

3. Upscale Orientation.


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Price Elasticity Of DemandThe Price Elasticity of Demand relates to the

sensitivity of customers to Price Changes interms of the quantities they will buy.

1. If relatively small percentage

changes in price result in substantialpercentage changes in the number of

units bought, price elasticity is high.

This occurs when the urgency to

purchase is low, or acceptable

substitutes exist.


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Price Elasticity Of Demand

2. If large percentage changes in pricehave small percentage changes in the

number of units bought, demand is

considered inelastic.

This occurs when purchase urgency is

high or there are no acceptablesubstitutes.


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3. Unitary elasticity occurs in caseswhere percentage changes in price

are directly offset by percentage

changes in quantity.


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Price elasticity is computed by dividingthe percentage change in the

quantity demanded by the

percentage change in the pricecharged .

Because the quantities boughtgenerally decline as the price go up,

elasticity tends to be a negative

number.


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Price Sensitivity

Price sensitivity varies by marketsegment, based on shopping

orientation. Here are several

segments.

1. Economic Consumers : they perceive

competing retailers as similar to oneanother and shop around for the

lowest possible prices.


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Price Sensitivity

2. StatusOriented Consumers :

They perceive competing retailers as

quite different form one another.They are more interested in prestige

brands and customer services than in

price.


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Price Sensitivity

3. Assortmentoriented Consumers :

They seek retailers with strong

assortments in the product categoriesbeing considered.

They look for fair prices.


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Price Sensitivity

4. Personalizing Consumers :

They shop where they are known.

5. Convenience Oriented Consumers :

They shop only because they must.

They want nearby locations and longhours, and may shop by catalog or

the web.


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The Government and Retail

Pricing

Government activity entails seven main areas:

1. Horizontal Price Fixing

2. Vertical Price Fixing

3. Price Discrimination

4. Minimum Price Levels

5. Unit Pricing

6. Item Price Removal

7. Price Advertising


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Horizontal Pricing

It involves agreements among

manufacturers, among wholesalers,

or among retailers to set certainprices.


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Vertical Pricing

It occurs when manufacturers or

wholesalers seek to control the retail

prices of their goods and services.

Minimum Retail Price

Maximum Retail Price


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Price Discrimination

The Robinson Patman Act bars

manufacturers and wholesalers from

discriminating in price or purchaseterms in selling to individual

retailers if these retailers are

purchasing products of likequality and the effect of such

discrimination is to injure

competition.


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Minimum- Price Laws

It prevents retailers from selling

certain items for less than their cost

plus a fixed percentage to coveroverhead.


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Unit Pricing

The aim of such legislation is to let

consumers compare the prices of

products available in many sizes.


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Item Price Removal

Under such system, the prices are

marked only on shelves or signs and

not on individual items.


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Price Advertising

BaitandSwitch Advertising:

It is an illegal practice in which a

retailer lures a customer by

advertising goods and services at

exceptionally low prices, then once

the customer contacts the retailer, he

or she is told the good or service of

interest is out of stock or of inferior

quality.


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Price Strategy

A Price Strategy can be

Demand, Cost and / orCompetitive in Orientation.


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Demand Oriented Pricing

A retailer sets prices based onconsumer desires.

Psychological Implications in demand

oriented pricing are:

Price Quality Association

Prestige Pricing


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Cost - Oriented Pricing

Markup Pricing: A Retailer sets pricesby adding per unit merchandise

costs, retail operating expenses, and

desired profit.

The difference between the

merchandise costs and the selling

price is the markup.


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Markup Pricing

1. Markup Percentage = Retail Selling PriceMerchandise Cost

(at retail) Retail Selling Price

2. Markup Percentage = Retail Selling Price

Merchandise Cost

(at cost) Merchandise cost


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Markup Pricing

Initial Markup: It is based onoriginal retail value assigned to

merchandise less the costs of the

merchandise.

Maintained Markup: It is based on

the actual prices received for

merchandise sold during a time

period less merchandise cost.


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CompetitionOriented Pricing

A Retailer uses competitors prices as

guide, rather than demand or cost

considerations.


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Implementation of Price

Strategy

Customary Pricing: It is used when

a retailer sets prices for goods and

services and seeks to maintain themfor an extended period.

Everyday Low Pricing: In this the

retailer strives to sell its goods and

services at consistently low prices

throughout the selling season.


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Strategy

Variable Pricing: In this a retailer

alters its prices to coincide with

fluctuations with costs or consumerdemand.

One Price Policy: In this a retailer

charges the same price to all

customers buying an item under

similar conditions.


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Strategy

Flexible Pricing: It lets consumers

bargain over selling prices.

Odd Pricing : The assumption is that

people will feel these prices

represent discounts or that the

amounts are beneath consumer price

ceilings.


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Strategy

Multiple Unit Pricing: A retaileroffers discounts to customers who

buy in quantity.


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Price Adjustments

1. Markdown: A markdown from the

original retail price of an item can

meet the lower price of anotherretailer, adapt to inventory

overstocking, clear out shopworn

merchandise, reduce assortments ofodds and ends, and increase

customer traffic.


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Price Adjustments

2. Additional Markup: It is an

increase in the retail price above the

original markup when demand isunexpectedly high or costs are

rising.

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