Retail Pricing Strategy.docx

7/30/2019 Retail Pricing Strategy.docx

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PRICING STRATEGIES


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Pricing Strategy: Objectives Maximum long-run profits

Maximum short-run profits

Growth

Stabilize market

Desensitize customers to price Maintain price-leadership arrangement

Enhance image of firm and its offerings

Be regarded as fair by customers (ultimate)

Help in the sale of weak items in the line Discourage others from cutting prices


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Pricing Factors: Problems Decline in sales.

Higher or lower prices than competitors.

Excessive pressure on middlemen to generate sales.

Imbalance in product line prices.

Distortion vis--vis the offering in the customers perceptions of

the firms price.

Frequent changes in price without any relationship to

environmental realities.


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Pricing Factors: Cost Fixed and variable costs are the major concerns of a pricer. In

addition, the pricer may sometimes need to consider other types of

costs, such as out-of-pocket costs, incremental costs, opportunity

costs, controllable costs, and replacement costs.

To study the impact of costs on pricing strategy, the followingthree relationships may be considered:

The ratio of fixed costs to variable costs

The economies of scale available to a firm.

The cost structure of a firm vis--vis competitors.


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Pricing Factors : Competition Published competitive price lists and advertising

Competitive reaction to price moves in the past

Timing of competitors price changes and initiating factors

Information on competitors special campaigns

Competitive product line comparison Assumptions about competitors pricing/marketing objectives

Competitors reported financial performance

Estimates of competitors costsfixed and variable

Expected pricing retaliation Analysis of competitors capacity to retaliate

Financial viability of engaging in price war

Strategic posture of competitors

Overall competitive aggressiveness


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Pricing Factors: Demand Ability of customers to buy. Willingness of customers to buy.

Place of the product in the customers lifestyle (whether a status

symbol or a product used daily).

Benefits that the product provides to customers.

Prices of substitute products.

Potential market for the product (is demand unfulfilled or is the

market saturated?).


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New Products: Skimming Strategy Definition: Setting a relatively high price during the initial stage of

a products life.

Objectives

To serve customers who are not price conscious while the marketis at the upper end of the demand curve and competition has not

yet entered the market.

To recover a significant portion of promotional and research and

development costs through a high margin.


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New Products: Penetration Strategy Definition: Setting a relatively low price during the initial stages of

a products life.

Objectives:To discourage competition from entering the market byquickly taking a large market share and by gaining a cost advantage

through realizing economies of scale


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Established Products: Maintain thePrice Definition: To maintain position in the marketplace (i.e., market

share, profitability, etc)

Objectives:Maintain the existing Status


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Established Products: Reduce thePrice Objectives:

To act defensively and cut price to meet the competition.

To act offensively and attempt to beat the competition.

To respond to a customer need created by a change in the

environment.


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Established Products: Increasing thePrice

Objectives:

To maintain profitability during an inflationary period.

To take advantage of product differences, real or perceived.

To segment the current served market.


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Price Flexibility Strategy: One Price Definition: Charging the same price to all customers under similar

conditions and for the same quantities.

Objectives:

To simplify pricing decisions. To maintain goodwill among customers.


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Price Flexibility Strategy: FlexiblePricing

Definition: Charging different prices to different customers for the same

product and quantity.

Objective: To maximize short-term profits and build traffic by allowing

upward and downward adjustments in price depending on competitiveconditions and how much the customer is willing to pay for the product.


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Bundling-Pricing Strategy Definition: Inclusion of an extra margin in the price to cover a variety

of support functions and services needed to sell and maintain the

product throughout its useful life.

This strategy is very common in the software business, in the cable

television industry (for example, basic cable generally offers many

channels at one price), and in the fast food industry in which multipleitems are combined into a complete meal.


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Price Leadership Strategy

Definition: This strategy is used by the leading firm in an industry inmaking major pricing moves, which are followed by other firms in

the industry.

Objectives: To gain control of pricing decisions within an industry

in order to support the leading firms own marketing strategy (i.e.,create barriers to entry, increase profit margin, etc.).


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Pricing Strategy to Build a Market

Definition: Setting the lowest price possible for a new product

Objectives: To seek such a cost advantage that it cannot ever be

profitably overcome by any competitor.


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PRICING STRATEGIES OF VARIOUS

RETAILERS

WALMART:

Wal-Mart's pricing strategy is "everyday low prices," which means

day in and day out, Wal-Mart's customers can rest assured knowing

the goods they are buying are offered at prices lower than theywould be at other stores that use a high-low pricing strategy. Using

an everyday low prices strategy, Wal-Mart positions itself as a

reliable destination for consumers who want to find products at

good value.


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THANK YOU

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