It includes Challenges in Pricing Strategy and Various Pricing strategies and Factors affecting price Sensitivity

1. RETAIL PRICING
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Prepared by :
Dr. Ankita Pathak

2. CHALLENGES- PRICING DECISION
Pricing decision is important
Customers are
better
informed
Have better
alternatives to
choose from
Want to seek
good value
Value =
Perceived benefits
Price
Value = what customers receive (the perceived benefits)
what they have to pay for it
Thus retailer can increase sale either by increasing perceived benefits or
by reducing price 2

3. CHALLENGES- PRICING DECISIONsomecustomers
good value
paying lowest price
other benefits are not
important to them
somecustomers
ready to pay
extra
if they are getting their
moneys worth quality
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4. CHALLENGES- PRICING DECISION
Prices are higher
than benefits
sales and profit
decreases
Prices are low
sales increase
profits may decrease
due to low profit margin
We should Need to consider the value proposition offered by
competitor pricing and legal issues 4

5. CONSIDERATIONS IN SETTING
RETAIL PRICING
Cost
Price
sensitivity
Economic
constraints
Competition
Retail
Price
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6. CUSTOMER PRICE SENSITIVITY
AND COST
Price sensitivity: how many units will be sold at different price
levels.
If customers are not price sensitive, sales will not decrease
significantly and vice versa
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7. FACTORS AFFECT PRICE SENSITIVITY
More substitutes for a
product, more likely it
will be price sensitive.
Eg McDonalds meals
and petrol
Necessities are inelastic
(insensitive),
Eg medicines
Products that are
expensive relative to
consumer income are
price elastic .
Eg cars
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8. ECONOMIC CONSTRAINTS
:
•prices are
lowered
to
generate
demand
Economic
slow
down
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9. COMPETITION
Premium Price
If product is unique with no competitors.
Tiffany: premium pricing
competitors price needs to be considered.
If similar products in the market
Walmart: low cost strategy for its
merchandise
Pricing policy must be consistent with retailers overall
strategy and its relative market position 9

10. LEGAL/ETHICAL PRICING ISSUES
 France- regulates pricing.
 Carrefour affected by German brands-
AIDL (The Android Interface Definition Language),
LIDL- store brands not affected by French rules
converted many Carrefour shoppers .
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11. ETHICAL PRICING ISSUES
Price discrimination: occurs when retailer charges
different prices for the identical products /services sold
to different consumers.
Eg: Restaurant meals, women haircuts.
Predatory pricing: arises when a dominant retailer sets
prices below its costs to drive competitors out of
business. Retailer hopes to raise prices in the near
future and regain lost profits.
Eg: Walmart vs small retailers
Horizontal price fixing: involves agreements between
retailers that are in direct competition with each other to
set the same prices 11

12. ETHICAL PRICING ISSUES
Bait and switch tactics: deceptive practice,
wherein the customers are lured into the stores by advertising
a product at lower than normal price (bait)
and once they are into the store, induce them to purchase a
higher price model (switch).
Can occur by having inadequate inventory of the advt
product/salesperson disparage the quality of advt model and
promote the superiority of higher priced model.
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13. RETAIL PRICE AND MARKUP
Retail price (RP) = Cost of merchandise (COM) + Markup (MKP)
Thus markup(MKP) = Retail price(RP) - cost of merchandise(COM)
Mark up covers all retailers operating expenses needed to sell the merchandise.
Mark up % age = Retail price(RP) - cost of merchandise(COM)
Retail price(RP)
Eg :
Cost of item A= Rs 75 , RP: Rs 125, Mark up % age: 125-75/125= 40%
RP= COM+RP* MKP %age
RP= COM /1- MKP%age
Eg if a item A is purchased at Rs14 and retailer needs 30% markup to meet financial
goals, then, RP= 14/1-0.30=20
Assumption : that all merchandise at all initially set price 13

14. RETAIL PRICE AND MARKUP
Retailers frequently reduce the price of items forspecial promotions or
to sell excess stock at the end of season. Also discounts are given
for employees, accounting done for theft,errors etc.
Factors that reduce the actual selling price from initial sales price are called as
reductions
Thus there is a diff between initial markup and maintained markup.
Initial markup = RP initially set – COM
Maintained markup = Actual realized sale - cost of product
Maintained markup = Gross margin for the product.
For eg: Item A costs= Rs 0.60, initial RP= Rs1, initial MKP=0.40,
MKP % age = 40%, actual SP = 0.90, the reductions are 0.10Rs,
so maintained markup = 0.30 and maintained MKP % age: 0.30/0.90 = 33%
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15. PRICE ADJUSTMENTS
Markdowns: Price reductions or discounts from initial retail price. Take
markdowns either for clearance or for promotion.
Clearance markdowns: when merchandise is selling at slower rate than
planned, will become obsolete at end of season. Slow selling merchandise
decreases inventory turnover, prevents buyer from acquiring new/better
selling merchandise and can mar a retailers image.
Cost of doing business, and buyers plan for them.
Eg order more of fashion merchandise – concerned about underordering and
stockout. Stockout can have detrimental effect on image but whereas
markdown just reduces mainatined markup
Promotional markdown: to promote merchandise and increase sales. Some
complemenatry products are marked down to promote the sale of other items
in the store and to generate traffic
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16. MARKDOW NS
Work closely with vendors to coordinate deliveries and share
financial burden of taking markdowns.
SCM systems reduce the lead time for receiving merchandise so that
retailers can monitor change in trends and demand.
Liquidating merchgandise:
unsold goods
Sell to other
retailer
Consolidate
the unsold
merchandise
to other
outlets
place on
internet
auction
website
Charity
Carryover to
next season
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17. Variable pricing and Price discrimination
Individualised
variable pricing:
charging each
individual
customer a
different price
based on their
willingness to pay
self selected
variable pricing:
offer the same
price schedule to
all customers but
require that
customers do
something to get
the lower price.
Eg early bird
specials.
Coupons: offer a
discount on price
of items when
they are
purchased.Issued
by mfgs and
retailers in
newspapers, on
products, on shelf
at cash register,
through internet
and mail.
Price bundling:
practice of
offering two or
more different
products for sale
at one price
Multiple unit
pricing: Quantity
disocunts for same
product to
increase sales
volume
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18. VARIABLE PRICING AND PRICE
DISCRIMINATION
Individualised variable pricing: charging each individual customer a different price
based on their willingness to pay
self selected variable pricing: offer the same price schedule to all customers but
require that customers do something to get the lower price. Eg early bird specials.
Coupons: offer a discount on price of items when they are purchased.
Issued by mfgs and retailers in newspapers, on products, on shelf at cash register,
through internet and mail.
 Used to induce people to try out product for first time, convert first time users
to regular users, encourage large purchases.
 Increase usage and protect market share.
 Price sensitive customers spend extra effort in collecting coupons
For eg coupon on sugar,stockpile and reduce future sale
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19. VARIABLE PRICING AND PRICE
DISCRIMINATION
Price bundling: practice of offering two or more different
products for sale at one price.
Eg Mc value meal. Increase both unit and volume sale
by increasing the amount of merchandise bought on a
store visit
Multiple unit pricing: Quantity disocunts for same
product to increase sales volume
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20. 20
PRICING STRATEGIES
High/low pricing:
Discount the initial prices
for merchandise through
frequent sales promotion.
Every day low pricing
(EDLP) : Followed by
supermarkets, home
improvement stores.

21. PRICING STRATEGIES
High/low pricing: Discount the initial prices for merchandise through
frequent sales promotion. Increased frequency of sales to target
competition and the value conscious customer.
Adv: Increase profits through price discrimination, sales create
excitement and sell merchandise
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22. PRICING STRATEGIES
Every day low pricing (EDLP) : Followed by supermarkets, home improvement
stores.
 Emphasizes the continuity of retail prices at a level between the regular non
sale price and the deep discount prices of high/low retailers.
 Term is misleading because they may not be lowest in the market.
 Follow a low price guarantee policy: offer lowest price for the products they
sell.
Eg Big bazaar
Adv: Assures customers of low prices, reduces advt and operating expenses,
reduce stock out and improves inventory management
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23. Pricing techniques for
increasing sales
Leader pricing:
involves a retailer
pricing certain items
lower than normal to
increase customer
traffic flow or to
boost the sales of
complementary
products.
Price lining:
offer a limited no of
pre determined price
points within a
merchandise
category.
Odd pricing:
refers to the practice
of using a price that
ends in an odd
number, typically a 9
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24. PRICING TECHNIQUES FOR INCREASING
SALES
Leader pricing: involves a retailer pricing certain items
lower than normal to increase customer traffic flow or to
boost the sales of complementary products.
These products are called as “loss leaders”.
Eg: frequently purchased products like white bread,milk
eggs.
Retailer hopes that consumer will purchase their entire
weekly grocery list while shopping for loss leaders.
Eg Toys and disposable diapers
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25. PRICING TECHNIQUES FOR INCREASING
SALES
Price lining: offer a limited no of pre determined price points within
a merchandise category.
For Eg: tyre stores may offer tyres at
69.99Rs, 89.99Rs, 129.99Rs
reflect good, better and best quality. This price is referred to as price
lining.
Odd pricing: refers to the practice of using a price that ends in an
odd number, typically a 9
 Used in early days to reduce losses due to employee theft
 Assumption that shoppers don’t notice the last digits of the price .
 9 endings signifies low prices would create a positive price
image.
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26. GMROI (GROSS MARGIN RETURN ON
INVESTMENT
• A decision making tool that assists the buyer in identifying and
evaluating whether an adequate gross margin is being earned by products
purchased ,compared to the investment in inventory required to generate the
gross margin
• The focus is on return on investment rather than on sales
• The focus is on SKU’s of each individual product
• Helps in identifying product winners and core products
• Product winners : products which perform well, which boost
profitability and are the best ROI product.
• Core products: Buyers list of existing winners that should never be
out of stock. Give high profitability and ROI.
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