2. Pricing
Pricing is the value that is placed on something.
That something is usually goods and service
Products must be priced in a way that both
achieves profits and satisfies customers
3. Basic pricing Options
Discount orientation – low prices as competitive
advantages
At the market orientation – uses average prices to
offer solid value
Upscale orientation – using a prestigious image as
competitive advantage
4. External Factors Affecting
Retail Pricing
Consumers
Governmental issues
Manufacturers/wholesalers/suppliers
Current and potential competitors
5. Consumer Factors
Price elasticity of demand – Measures sensitivity of
consumers to price changes.
A small change in prices results in a big change is quantity
– very elastic
Change in prices does not result in significant change in
quantity it is inelastic.
Elasticity = ∆ Q/ ∆P
6. Consumer
Price sensitivity varies by market segment based on market
orientation
1. Economic Consumers
2. Status-oriented consumers
3. Assortment oriented consumers
4. Personalizing consumers
5. Convenience oriented consumers
7. Government Issues
Horizontal pricing fixing – parties within the same level in
channel agree to set prices
Vertical price fixing – when manufacturers or wholesalers
seek to control the retail prices of their products
Price discrimination –occurs when retailers sell same
product at different prices to different consumers under
same conditions.
8. Justifiable reasons
to price discrimination
Products are physically different
Retailers paying different prices are not competitors
Competition is not injured
Price differences are due to differences in costs
Market conditions change
9. Government issues
Minimum price laws- can not sell certain items for
less than costs
Predatory pricing- seeks to reduce competition by
pricing products very low
Loss leaders - price products below costs to attract
more store traffic
Unit pricing- must provide total price and price
per a certain unit such as price per dozen. or price
per unit
10. Government issues
Item price removal – prices are marked only on shelves
and not on individual items. Scanning equipment reads
pre-marked code at the checkout counter
Price advertising – cannot advertising a price reduction
unless it has actually been done
Price matching- lowest price guaranteed
Bait and switching – advertising a low price but then try
to switch customers to another product when they enter the
store or say the product is not available.
11. Manufacturers, wholesalers and
Other Suppliers
May have conflicts between manufacturers, wholesalers
regarding the pricing of merchandise
Private label is increasing – selling against the brand
Gray market goods are sold by retailers and not liked by
manufacturers
12. Competition and retail Pricing
Market pricing- many retailers are in market and
consumers have many to chose from which makes prices
of products very similar
Administered pricing- seeks to attract consumers based
on uniqueness of offering rather than price (Different price
for image, service or assortment)
15. Pricing objectives
Sales or market share – market penetration strategy – seek
big revenues by reducing prices
Profit objectives – market skimming strategy.
Sets premium prices and attracts customers who are less
price sensitive.
Objective is recovery of cash quicker.
16. Examples of Specific pricing
Objectives
Maintain a proper image
Clear seasonal inventory
Provide good customer service
Encourage repeat business
Match competitors prices
Increase shopper traffic
17. Broad Price Policy
Broad price policy a retailer generates an integrated price
plan with short and long run perspective
Price policy is integrated with target market, retail image,
and other elements of retail mix
Example of policy:
No competitors will have lower prices
No competitors will have higher prices
Price will be consistent with competitors
All items will be priced independently
Price will be constant over a year or season
Price will change if costs change
18. Price Strategy
Demand Oriented –price set based on consumers desire
(Ceiling price)
Cost Oriented – costs are calculated and profits are added
to set price (Floor price)
Competition oriented – prices set to match competition
19. Demand Oriented
Use demand to estimate what consumers are willing to pay
Price- quality association –the higher price the higher the
quality
Prestige pricing – higher the price the better, consumers
preferences
20. Cost Oriented
Adding a $ amount to costs to set price
Markup pricing
Markup – difference between merchandise costs and selling price
Example: retailer cost for a shirt is $25
He sells shirt for $45
Markup - $45-25 = $20
21. Markup examples Continued
Markup percentage = price-cost/price
(30%) markup desired
$12.00 retailers costs
What will the selling price be?
.30 = X - $12.00/ X
12/1-.30= 12/.70 = $17.14
Retail selling price is $17.14
22. Markup examples Continued
Desire a 40% markup , if the candy retails for .79, what
costs should a retailer pay for the candy
.79 (1-.40)= .79 (.60) = .474
24. Competition oriented pricing
Use competitions prices only as a guide
Can price above, below or at same level as competition
25. Integrated approaches to pricing
strategy
Must consider many factors such as
i. If price reduces will revenues increase greatly
ii. Will a given price, allow a traditional markup to be
attained
iii. Can above market prices lead to superior image
26. Implementation of Price Strategy
Customary and variable pricing
1. Customary pricing –sets price at one level and
seek to keep them at these levels
2. Everyday low pricing (EDLP) sell goods at
consistently low prices
3. Variable pricing – change prices as costs vary
4. Yield management pricing – determines price
that yields the greatest profits for a given period.
27. Implementation of Price Strategy
One price policy and flexible pricing
1. One price policy – charge all customers the same price
2. Flexible pricing – let consumers bargain over prices
3. Contingency pricing -
28. Implementation of Price Strategy
Odd pricing- set prices below even dollar amt, .49
.99. 1.99, 99.99
Leader pricing
selling selected items at reduced price to build store
traffic
Multiple –unit – 2 for .79
bundled pricing combines several products
Price lining- sell products at a limited price range.
29. Price Adjustments
Price adjustments let retailer use price as an adaptive
mechanism
1. markdowns
2. additional markups
3. employee discount
Markdowns are taken because of competition, seasonality,
demand patterns, merchandise costs and pilferage.
30. Price Adjustments
Markdown percentage =
Dollar markdown/net sales
Off-retail markdown percentage =
original price – new price/original price
31. Price Adjustments
Markdown control
Timing markdowns
1. Early markdowns – may results in selling out
quicker than late markdowns
2. Staggered markdown – discounted throughout
selling period
- automatic markdown plan
4. storewide clearance – conducted once or twice a
year