Pricing In Retailing

1
Pricing In Retailing

• Chapter 17
• Dr. Pointers Notes

2
Overview

• 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_2

• 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.
• Robinson- Patman act bars price discrimination

8
Justifiable reasons to price discriminate

• 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 oz. or price
  per lb

10
Government issues

• Item price removal some states ban this
• Price advertising cannot advertising a price
  reduction unless it has actually been done
• Price matching- legal in many states
• Bait and switching illegal practice of
  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
Manuf, wholesalers and Other Suppliers

• May have conflicts between manuf, 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

13
Factors Affecting Retail Price Strategy

• Price objectives
• Broad price policy
• Price strategy
• Implementation of strategy
• Price adjustments

14
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 senstitive. Objective is recovery
  of cash quicker.

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Examples of Specific pricing Objectives (Fig.
17-5)

• Maintain a proper image
• Clear seasonal inventory
• Provide good customer service
• Encourage repeat business
• Match competitors prices
• Increase shopper traffic

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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

17
Price Strategy

• Demand Oriented price set based on consumers
  desire
• Cost Oriented costs are calculated and profits
  are added to set price
• Competition oriented prices set to match
  competition

18
Demand Oriented

• Use demand to estimate what consumers are willing
  to pay
• Price- quality association higher price the
  higher the quality
• Prestige pricing higher the price the better,
  consumers preferences

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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

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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

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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
• see examples in text page 426

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Markup

• Initial markup
• Maintained markups
• Variable markup policy
• Direct product profitability

23
Competition oriented pricing

• Use competitions prices ONLY as a guide
• can price above, below or at same level as
  competition

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Integrated approaches to pricing strategy

• Must consider many factors such as
• 1. if price reduces will revenues increase
  greatly
• 2. Will a given price, allow a traditional markup
  to be attained
• 3. Can above market prices lead to superior image

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Implementation of Price Strategy

• Customary and variable pricing
• Customary pricing sets price at one level and
  seek to keep them at these levels
• Everyday low pricing (EDLP) sell goods at
  consistently low prices
• Variable pricing change prices as costs vary
• Yield management pricing determines price that
  yields the greatest profits for a given period.

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Implementation of Price Strategy

• One price policy and flexible pricing
• One price policy charge all customers the same
  price
• Flexible pricing let consumers bargain over
  prices
• Contingency pricing -

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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.

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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.

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Price Adjustments

• Markdown percentage
• Dollar markdown/net sales
• Off-retail markdown percentage
• original price new price/original price

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Price Adjustments

• Markdown control
• Timing markdowns
• 1. Early markdowns may results in selling out
  quicker than late markdowns
• 2. Staggered markdown
• - automatic markdown plan
• 4. storewide clearance

31
Problem set

• Please prepare the following problems from your
  text page 439
• Questions
• 4,5,6,7 and 12