Pricing strategies Customary pricing – retailer sets price & seeks to maintain those prices over an extended period. Prices that customers can take for granted & stable. Variable pricing – when differences in demand & cost necessitate a change, with a view to increase demand, off season discount. Flexible pricing – offering same products & quantities to different customers at different prices. Price lining – retailers establish specified number of price points for each merchandise type & retailers purchase goods to fit the price points – makes price comparisons easier – can help store to upgrade / down grade customer s preference.
Pricing Strategies (contd…) Multiple unit pricing
Price of each unit in a multiple pack is less than the price of each unit if it were sold individually.
Suitable for products with high consumption rates.
Retailers combine several elements in one basic price, invariably closely related items.
Leader pricing When a high demand item is priced low & is heavily advertised to attract customers into the store. Loss leader pricing – Where an item is sold below cost to build traffic & encourage purchase of other items. EDLP – When a retailer charges the same low price everyday for long periods and seldom offers the item on sale – stablebut lower than prevailing prices but not the lowest.
Skimming Pricing It is a pricing strategy wherein firms change premium prices and attract customers less sensitive to price than to service , assortment and status.
Penetration Pricing It is a pricing strategy in which the retailer seeks to achieve large revenues by setting low prices and selling high unit volume.
Psychological pricing Pychologicalpricing is used when prices are set to a certain level where the consumer perceives the price to be fair. The most common method is odd-pricing using figures that end in 5, 7 or 9. It is believed that consumers tend to round down a price of Rs. 99.95 to Rs. 99, rather than Rs.10.
Cost oriented pricing Markup pricing….a retailer sets prices by adding per unit merchandise costs, retail operating expenses & desired profit. The difference between the merchandise cost and selling price is the markup.
Item cost Rs.20 ; it sells for Rs.25
Markup is Rs.5 or 25% of the cost or 20% on selling price
Margin is Rs.5 or 20% of the selling price
Markdown pricing…. Downward adjustments in the original selling price or Reduction in the initial retail price. # Markdown % = (original price – reduced price) / reduced price Ex. You bought 100 sweaters and 80% sell at $50 each while the remainder sell at $30 each Ans.: Markdown amount – 20 sweaters were marked down $20 each so $20 X 20 = $400 Net Sales Revenue is (80 X $50) + (20 X $30) = $4600 Markdown % = $400 $4600 X 100 = 8.69% Remember: Retail Reductions = Markdowns + shortages + employee discounts + customer discounts