Retail Pricing Pricing is a crucial strategic variable due to its direct relationship with a firm’s goals and its interaction with other retailing elements. A pricing strategy must be consistent with the retailer’s overall image , sales, profit, and return on investment goals.
The Price Elasticity of Demand relates to the sensitivity of customers to Price Changes in terms of the quantities they will buy.
If relatively small percentage changes in price result in substantial percentage changes in the number of units bought, price elasticity is high.
This occurs when the urgency to purchase is low, or acceptable substitutes exist.
Price Elasticity Of Demand 2. If large percentage changes in price have small percentage changes in the number of units bought, demand is considered inelastic. This occurs when purchase urgency is high or there are no acceptable substitutes.
Price Elasticity Of Demand 3. Unitary elasticity occurs in cases where percentage changes in price are directly offset by percentage changes in quantity.
Price Elasticity Of Demand Price elasticity is computed by dividing the percentage change in the quantity demanded by the percentage change in the price charged . Because the quantities bought generally decline as the price go up, elasticity tends to be a negative number.
Price Sensitivity Price sensitivity varies by market segment, based on shopping orientation. Here are several segments. 1. Economic Consumers : they perceive competing retailers as similar to one another and shop around for the lowest possible prices.
Price Sensitivity 2. Status – Oriented Consumers : They perceive competing retailers as quite different form one another. They are more interested in prestige brands and customer services than in price.
Price Sensitivity 3. Assortment – oriented Consumers : They seek retailers with strong assortments in the product categories being considered. They look for fair prices.
Price Sensitivity 4. Personalizing Consumers : They shop where they are known. 5. Convenience Oriented Consumers : They shop only because they must. They want nearby locations and long hours, and may shop by catalog or the web.
Horizontal Pricing It involves agreements among manufacturers, among wholesalers, or among retailers to set certain prices.
Vertical Pricing It occurs when manufacturers or wholesalers seek to control the retail prices of their goods and services. Minimum Retail Price Maximum Retail Price
Price Discrimination The Robinson Patman Act bars manufacturers and wholesalers from discriminating in price or purchase terms in selling to individual retailers if these retailers are purchasing products of “like quality” and the effect of such discrimination is to injure competition.
Minimum- Price Laws It prevents retailers from selling certain items for less than their cost plus a fixed percentage to cover overhead.
Unit Pricing The aim of such legislation is to let consumers compare the prices of products available in many sizes.
Item Price Removal Under such system, the prices are marked only on shelves or signs and not on individual items.
Price Advertising Bait –and –Switch Advertising: It is an illegal practice in which a retailer lures a customer by advertising goods and services at exceptionally low prices, then once the customer contacts the retailer, he or she is told the good or service of interest is out of stock or of inferior quality.
Price Strategy A Price Strategy can be Demand, Cost and / or Competitive in Orientation.
Psychological Implications in demand oriented pricing are:
Price Quality Association
Cost - Oriented Pricing Markup Pricing: A Retailer sets prices by adding per unit merchandise costs, retail operating expenses, and desired profit. The difference between the merchandise costs and the selling price is the markup .
Multiple Unit Pricing : A retailer offers discounts to customers who buy in quantity.
Price Adjustments 1. Markdown: A markdown from the original retail price of an item can meet the lower price of another retailer, adapt to inventory overstocking, clear out shopworn merchandise, reduce assortments of odds and ends, and increase customer traffic.