Session 11, Retail Pricing

8/8/2019 Session 11, Retail Pricing

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Retailing knowhowRetailing knowhow

MindMind--toto--marketmarket

FootprintsFootprints

SPESPE

MirzaMirza

KhadimsKhadims


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Retail PricingRetail Pricing


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ObjectivesObjectives

Retail Pricing and the factors affectingRetail Pricing and the factors affecting

priceprice

Elements of retail priceElements of retail price

Developing the pricing strategyDeveloping the pricing strategy

Adjustments to retail priceAdjustments to retail price

Legal Issues in Retail PricingLegal Issues in Retail Pricing


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Retail pricing objectivesRetail pricing objectives

Retail pricing objectives or goals provideRetail pricing objectives or goals providedirection to the whole pricing processdirection to the whole pricing process

Retailers determine their objectives as the firstRetailers determine their objectives as the firststep in pricingstep in pricing

ObjectivesObjectives-- profitprofit

-- market sharemarket share

-- competitorscompetitors--orientedoriented

-- buyerbuyer--orientedoriented

-- governmentgovernment--orientedoriented

-- productproduct--orientedoriented


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Factors affecting theFactors affecting the

demand of goods & servicesdemand of goods & services Price elasticity of DemandPrice elasticity of Demand

Competitive factorCompetitive factor

Cost factorCost factor

Product factorProduct factor

Legal factorLegal factor


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Factors affecting theFactors affecting the

retail priceretail price

Retail

Price

Economic

Conditions

Competitors

Price

Target

Market &

Demand

Store

Policies

Retail

Price

Economic

Conditions

Competitors

Price

Target Market

& Demand

Store Policies


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Pricing Strategy Pricing Strategy

approachesapproaches Price LiningPrice Lining

Market SkimmingMarket Skimming

Market PenetrationMarket Penetration Loss Leader PricingLoss Leader Pricing

Price BundlingPrice Bundling

Multi Unit PricingMulti Unit Pricing 2 < 1+12 < 1+1

DiscountDiscount EDLPEDLP WalWal--Mart, Toys R UsMart, Toys R Us

Odd PricingOdd Pricing Psychological pricingPsychological pricing


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Price LiningPrice Lining

Establishing a specific number of priceEstablishing a specific number of price

points for each merchandizepoints for each merchandize

classification.classification.

Kids shoes 150, 250, 350.Kids shoes 150, 250, 350.

Reduces shopping confusion.Reduces shopping confusion.

Sales person can engage customers inSales person can engage customers in

trading up.trading up.


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Loss leader pricingLoss leader pricing

Selling a product at substantially lowSelling a product at substantially low

prices than market to generate customerprices than market to generate customer

traffic.traffic.

Make it up by sales of complimentaryMake it up by sales of complimentary

products.products.

Loss word may not be true always.Loss word may not be true always.


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Price bundlingPrice bundling

Distinct items form different product linesDistinct items form different product lines

are clubbed together at a special price.are clubbed together at a special price.

Slow moving items can piggyback on fastSlow moving items can piggyback on fast

moving items.moving items.

Customer can also be tied up for a longerCustomer can also be tied up for a longer

period.period.


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MultipleMultiple--unit pricingunit pricing

Same products being offered together atSame products being offered together at

a price less than the sum of theira price less than the sum of their

individual prices.individual prices.

Normally used to clear out stocks or endNormally used to clear out stocks or end--

ofof--the season merchandize.the season merchandize.


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Odd pricingOdd pricing

Psychological pricing which ends at lessPsychological pricing which ends at less

than a rounded rupee value.than a rounded rupee value.

Trying to make the customers feel thatTrying to make the customers feel that

they are paying less ( UnderRs. Xthey are paying less ( UnderRs. X

syndrome)syndrome)


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EDLPEDLP

Retailers who follow EDLP try to keepRetailers who follow EDLP try to keep

costs low, sell more merchandise, lowercosts low, sell more merchandise, lower

prices further & sell more.prices further & sell more.

Large variety, smaller assortment, lowLarge variety, smaller assortment, low

service levels.service levels.

Little promotional activities.Little promotional activities.


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HiHi--Lo pricingLo pricing

Normally prices higher than EDLPNormally prices higher than EDLP

retailersretailers

Occasional dip (promotional offers)Occasional dip (promotional offers)

Advertise frequentlyAdvertise frequently

Convenient formatConvenient format

More servicesMore services


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Developing a PricingDeveloping a Pricing

StrategyStrategy Cost Oriented PricingCost Oriented Pricing add a basicadd a basic

markmark--up to the cost of merchandizeup to the cost of merchandize

Demand Oriented PricingDemand Oriented Pricing Focusing onFocusing on

quantities that customers would buy atquantities that customers would buy at

various prices. Also consider perceivedvarious prices. Also consider perceived

values.values. Competition Oriented PricingCompetition Oriented Pricing


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Cost Plus Pricing .. AnCost Plus Pricing .. An

exampleexample Example of cost plus pricing for a shirt.Example of cost plus pricing for a shirt.

The cost of fabric is Rs. 150 per meter.The cost of fabric is Rs. 150 per meter.

Fabric consumption is 1.30 meters.Fabric consumption is 1.30 meters.


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Total fabric cost (cost xTotal fabric cost (cost xconsumption)consumption)

195195

Manufacturing CostManufacturing Cost 100100

Basic CostBasic Cost 295295Packaging CostPackaging Cost 5050

Cost PriceCost Price 345345

Mark Up @ 60 %Mark Up @ 60 % 207207

Retail PriceRetail Price 550550


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Demand oriented pricingDemand oriented pricing

Factors that affect customers sensitivity toFactors that affect customers sensitivity to

priceprice

Awareness about substitutesAwareness about substitutes

Volume of expenditureVolume of expenditure

Difficulty in comparisonDifficulty in comparison

Benefit/price relationshipBenefit/price relationship

Task definitionTask definition


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Pricing approaches and retailPricing approaches and retailmarketing mixmarketing mix

Retail

marketing mix

variable

Price below market

price

Price at market

price

Price above

market price

Location No parking, poor layout,

inaccessible

Central business

district, proximity to

competition

Monopoly,

compatible location

to target segment

Service attributes Self-service, limited

offerings, no sales

Support for sales

people

Personalized

attention to

customers, home

delivery, exchange

facility, customizedofferings

Assortment Limited variety Medium Extensive assortment

Store

environment

Poor quality fixtures,

limited space to move

around, wall shelves,untidy

Compatible store

environment

Inviting, impressive

store dcor, visual

merchandiseattractive


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Elements of Retail PriceElements of Retail Price

Cost of GoodsCost of Goods

ExpensesExpenses Fixed & VariableFixed & Variable

MarginsMargins

Mark UpMark Up


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Elements.Elements.

Retail Price = Cost + Mark Up or,Retail Price = Cost + Mark Up or,

Cost = Retail PriceCost = Retail Price Mark Up and,Mark Up and,

Mark Up = Retail PriceMark Up = Retail Price CostCost

Mark Up % (Based on Retail Price) =Mark Up % (Based on Retail Price) =

Mark Up in Rupees/ Retail PriceMark Up in Rupees/ Retail Price

Mark Up % (Based on Cost) = Mark Up inMark Up % (Based on Cost) = Mark Up in

Rupees/ CostRupees/ Cost


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Adjustments to RetailAdjustments to Retail

PricePrice Mark DownsMark Downs Reduction in selling price.Reduction in selling price.

ReasonsReasons wrong forecasting, overbuying,wrong forecasting, overbuying,

faulty selling practices, odd sizesfaulty selling practices, odd sizes

remaining, end of the season,remaining, end of the season,

competitive action.competitive action.

PromotionsPromotions To get additional salesTo get additional salesduring peak seasons.during peak seasons.


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Other reductions in InitialOther reductions in Initial

markmark--upup Employee discountsEmployee discounts

ShrinkagesShrinkages expired stocks, damaged,expired stocks, damaged,

theft, pilferagetheft, pilferage

All of them reduce the profit margin andAll of them reduce the profit margin and

hence must be accounted forhence must be accounted for..


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Timing of the markdownTiming of the markdown

Tricky decisionTricky decision

Early markdown in a seasonEarly markdown in a season

Late markdownsLate markdowns

Both the timings have pros & cons.Both the timings have pros & cons.


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Legal IssuesLegal Issues

Price discriminationPrice discrimination

CartelizationCartelization

Comparative price advertisingComparative price advertising

Predatory pricingPredatory pricing

Bait & switch tacticsBait & switch tactics

Session 11, Retail Pricing

Documents

Transcript of Session 11, Retail Pricing