Retail: Theory and Practice<br />Retail pricing policies and practice<br />
Learning outcomes<br />At the end of this session students should be able to:<br />Describe the various methods of determi...
Some influences on retail pricing decisions Environment influences<br />Political forces<br />Economic forces<br />Competi...
Some influences on retail pricing decisionsOrganisational influences<br />Target market selection – (strategy)<br />Brand ...
Possible pricing objectives (not mutually exclusive!)<br />Long term profit maximisation<br />Short term profit maximisati...
Retail pricing policies<br />Three main categories:<br />Demand oriented pricing - price determined by what the customer w...
Pricing strategies and tactics <br />Strategic<br />Pricing above competitors<br />EDLP-eg Comet, ASDA, Primark<br />High-...
Pricing strategies and tactics<br />Tactical<br />Loyalty points/bonuses (&/or strategic?)<br />Loss leader pricing (and s...
Pricing strategies in food retailing<br />ASDA: different approach from category to category with longer-term promotional ...
Are shoppers insensitive to pricing changes?<br />They can be desensitised<br />Product differentiation<br />Multiple dime...
Dimensions of retail pricing<br />McGoldrick’s multi-dimensional framework <br />The comparative dimension of retail prici...
Dimensions of retail pricing<br />The retail price affects:<br />Sales (short term)<br />Price image development (long ter...
Dimensions of retail pricing<br />Comparative dimensions - price audits, subjective comparisons, multi-segment pricing<br ...
Retail Positioning<br />COMPARATIVE DIMENSION<br />Comparisons with rival companies<br />Price auditing<br />Subjective co...
Consider the difficulties<br />Comparative  dimension<br />Information may be difficult to obtain<br />Price audits – (e.g...
Sales/clearance<br />Needed because of:<br />Fashion cycles<br />Seasonal changes<br />Competitor actions<br />Changing co...
Sales/clearance<br />Should sale be:<br />Seasonal clearance?<br />Long/short duration? Eg 24 hour, 3 day spectacular?<br ...
Are shoppers insensitive to pricing changes?<br />They can be desensitised<br />Product differentiation<br />Multiple dime...
Price audits-eg Which?, trade audits (AC Nielsen), retailers own comparison audits<br />But which goods?<br />Which stores...
Seminar 1<br />Read the article ‘Is the price right’ Retail Week (03.12.10) and add your views to the comments in the disc...
Seminar 2 – not for 2011<br />Case study: ‘Supermarkets put 160% premiums on ‘green’ groceries’<br />Express your opinion ...
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Week 18 retail pricing policies and practice

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Week 18 retail pricing policies and practice

  1. 1. Retail: Theory and Practice<br />Retail pricing policies and practice<br />
  2. 2. Learning outcomes<br />At the end of this session students should be able to:<br />Describe the various methods of determining retail pricing<br />Understand the theories and concepts relating to retail pricing<br />Discuss the relationships between pricing policies, positioning and customer demand<br />Apply pricing strategies and tactics<br />2<br />
  3. 3. Some influences on retail pricing decisions Environment influences<br />Political forces<br />Economic forces<br />Competitive forces<br />Supplier power<br />Cultural forces<br />Legal forces <br />Technological forces<br />3<br />
  4. 4. Some influences on retail pricing decisionsOrganisational influences<br />Target market selection – (strategy)<br />Brand proposition<br />Differential advantage<br />Competitive edge<br />Retail (selling) costs<br />Merchandise costs<br />4<br />
  5. 5. Possible pricing objectives (not mutually exclusive!)<br />Long term profit maximisation<br />Short term profit maximisation<br />Market penetration<br />Market defence<br />Market stabilisation/disruption<br />Market image (Quality/value/societal?)<br />Pricing integrity<br />Clearance pricing<br />(adapted from McGoldrick, 2002, p370)<br />5<br />
  6. 6. Retail pricing policies<br />Three main categories:<br />Demand oriented pricing - price determined by what the customer will pay. <br />Cost oriented pricing - identify the cost of the product and add a mark-up to cover selling costs<br />Competitive pricing (but who are the competition –supermarkets for electronics? E-retailers?)<br />6<br />
  7. 7. Pricing strategies and tactics <br />Strategic<br />Pricing above competitors<br />EDLP-eg Comet, ASDA, Primark<br />High-low (Hi-Lo) pricing<br />One-price policy <br />Variable pricing <br />Own brand pricing<br />Price lining <br />Odd pricing <br />7<br />
  8. 8. Pricing strategies and tactics<br />Tactical<br />Loyalty points/bonuses (&/or strategic?)<br />Loss leader pricing (and strategic?)<br />Multibuy and linked purchases (and strategic?)<br />Seasonal sales (tactical &/or strategic?)<br />Note: these strategies and tactics must be consistent with other elements of the marketing mix<br />8<br />
  9. 9. Pricing strategies in food retailing<br />ASDA: different approach from category to category with longer-term promotional prices (relying on supplier relationships). Promotes EDLP (McGoldrick argues that supermarket retailers really don’t do EDLP!)<br />Tesco: takes the high ground on price cuts, uses a mix of short term price promotions and flashes competitive pricing stance on shelf. For example- offers extra loyalty points as promotion<br />Sainsbury: focuses on quality, uses multibuy promotions<br />(but note success of “bundling” at M and S now copied by<br />Tesco, Waitrose)<br />(from The Grocer, 2000, Kent and Omar P357)<br />9<br />
  10. 10. Are shoppers insensitive to pricing changes?<br />They can be desensitised<br />Product differentiation<br />Multiple dimensions of quality, preferences<br />Loyalty to products, brands, stores<br />Local competitive situation and actions<br />Reduced levels of price awareness<br />But problems of measuring customer sensitivity!<br />10<br />
  11. 11. Dimensions of retail pricing<br />McGoldrick’s multi-dimensional framework <br />The comparative dimension of retail pricing represents<br />the many differences in price between those of the<br />retailer and those of direct and indirect, local and<br />national competitors using price, cost and mark-up<br />11<br />
  12. 12. Dimensions of retail pricing<br />The retail price affects:<br />Sales (short term)<br />Price image development (long term)<br />Positioning (long term)<br />12<br />
  13. 13. Dimensions of retail pricing<br />Comparative dimensions - price audits, subjective comparisons, multi-segment pricing<br />Geographic dimensions - differences between stores in same chain, local differences<br />Assortment dimensions - leader lines, key value items<br />Time dimensions - adjustments over time (eg EDLP v Hi-Low, Seasonal sales, mega days, temporary offers <br />13<br />
  14. 14. Retail Positioning<br />COMPARATIVE DIMENSION<br />Comparisons with rival companies<br />Price auditing<br />Subjective comparisons<br />Multi-segment pricing<br />GEOGRAPHICAL DIMENSIONS<br />Differences between stores in same chain<br />Area price differences<br />Local pricing<br />PRICE<br />COST<br />MARK-UP<br />ASSORTMENT DIMENSION<br />Mark-up differences within the range<br />Leader line and KVI’s<br />Price awareness<br />Unit pricing<br />Price endings<br />Price lining<br />TIME DIMENSION<br />Price adjustments over time<br />Price images<br />Hi-Los vs EDLP<br />Temporary offers<br />Seasonal sales<br />Price Image Development<br />14<br />
  15. 15. Consider the difficulties<br />Comparative dimension<br />Information may be difficult to obtain<br />Price audits – (e.g. Which?, trade audits (AC Nielsen),<br />retailers own comparison audits) But which goods? Which stores? Which regions? When monitored? Effect of own brand? Weightings? Objective or subjective?<br />Geographical <br />Assortment <br />Time <br />15<br />
  16. 16. Sales/clearance<br />Needed because of:<br />Fashion cycles<br />Seasonal changes<br />Competitor actions<br />Changing consumer confidence<br />Need for clearance of excess stock<br />BUT –have become a strategy for some retailers<br />16<br />
  17. 17. Sales/clearance<br />Should sale be:<br />Seasonal clearance?<br />Long/short duration? Eg 24 hour, 3 day spectacular?<br />Perpetual?<br />Limited to specific items/departments?<br />Limited in depth (fashion norm in Europe is 30-40% impact on margin but Zara 15-20%)<br />17<br />
  18. 18. Are shoppers insensitive to pricing changes?<br />They can be desensitised<br />Product differentiation<br />Multiple dimensions of quality, preferences<br />Loyalty to products, brands, stores<br />Local competitive situation and actions<br />Reduced levels of price awareness<br />But problems of measuring customer sensitivity!<br />18<br />
  19. 19. Price audits-eg Which?, trade audits (AC Nielsen), retailers own comparison audits<br />But which goods?<br />Which stores?<br />Which regions?<br />When monitored?<br />Effect of own brand?<br />Weightings?<br />Objective or subjective?<br />19<br />
  20. 20. Seminar 1<br />Read the article ‘Is the price right’ Retail Week (03.12.10) and add your views to the comments in the discussion forum. http://www.lexisnexis.com:80/uk/nexis/search/homesubmitForm.do<br />2. Search retail texts for information about ‘seasonal sales’ in readiness for next week.<br />20<br />
  21. 21. Seminar 2 – not for 2011<br />Case study: ‘Supermarkets put 160% premiums on ‘green’ groceries’<br />Express your opinion on whether or not a premium price on organic food is justified<br />Suggest ways of applying the multidimensional framework of retail pricing to supermarket organic foods at a supermarket of your choice<br />21<br />
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