Pricing in Retailing : For MBA Marketing Specialization. Retail Pricing with Dr. Gopal Thapa, Tribhuvan University

1. Pricing in Retailing
Dr. Gopal Thapa
Tribhuvan University

2. Pricing
 Pricing is the value that is placed on something.
 That something is usually goods and service
 Products must be priced in a way that both
achieves profits and satisfies customers

3. Basic pricing Options
 Discount orientation – low prices as competitive
advantages
 At the market orientation – uses average prices to
offer solid value
 Upscale orientation – using a prestigious image as
competitive advantage

4. External Factors Affecting
Retail Pricing
 Consumers
 Governmental issues
 Manufacturers/wholesalers/suppliers
 Current and potential competitors

5. Consumer Factors
 Price elasticity of demand – Measures sensitivity of
consumers to price changes.
 A small change in prices results in a big change is quantity
– very elastic
 Change in prices does not result in significant change in
quantity it is inelastic.
 Elasticity = ∆ Q/ ∆P

6. Consumer
 Price sensitivity varies by market segment based on market
orientation
1. Economic Consumers
2. Status-oriented consumers
3. Assortment oriented consumers
4. Personalizing consumers
5. Convenience oriented consumers

7. Government Issues
 Horizontal pricing fixing – parties within the same level in
channel agree to set prices
 Vertical price fixing – when manufacturers or wholesalers
seek to control the retail prices of their products
 Price discrimination –occurs when retailers sell same
product at different prices to different consumers under
same conditions.

8. Justifiable reasons
to price discrimination
 Products are physically different
 Retailers paying different prices are not competitors
 Competition is not injured
 Price differences are due to differences in costs
 Market conditions change

9. Government issues
 Minimum price laws- can not sell certain items for
less than costs
 Predatory pricing- seeks to reduce competition by
pricing products very low
 Loss leaders - price products below costs to attract
more store traffic
 Unit pricing- must provide total price and price
per a certain unit such as price per dozen. or price
per unit

10. Government issues
 Item price removal – prices are marked only on shelves
and not on individual items. Scanning equipment reads
pre-marked code at the checkout counter
 Price advertising – cannot advertising a price reduction
unless it has actually been done
 Price matching- lowest price guaranteed
 Bait and switching – advertising a low price but then try
to switch customers to another product when they enter the
store or say the product is not available.

11. Manufacturers, wholesalers and
Other Suppliers
 May have conflicts between manufacturers, wholesalers
regarding the pricing of merchandise
 Private label is increasing – selling against the brand
 Gray market goods are sold by retailers and not liked by
manufacturers

12. Competition and retail Pricing
 Market pricing- many retailers are in market and
consumers have many to chose from which makes prices
of products very similar
 Administered pricing- seeks to attract consumers based
on uniqueness of offering rather than price (Different price
for image, service or assortment)

13. Developing a Retail Price
Strategies

14. Factors Affecting Retail
Price Strategy
 Price objectives
 Broad price policy
 Price strategy
 Implementation of strategy
 Price adjustments

15. Pricing objectives
 Sales or market share – market penetration strategy – seek
big revenues by reducing prices
 Profit objectives – market skimming strategy.
 Sets premium prices and attracts customers who are less
price sensitive.
 Objective is recovery of cash quicker.

16. Examples of Specific pricing
Objectives
 Maintain a proper image
 Clear seasonal inventory
 Provide good customer service
 Encourage repeat business
 Match competitors prices
 Increase shopper traffic

17. Broad Price Policy
 Broad price policy a retailer generates an integrated price
plan with short and long run perspective
 Price policy is integrated with target market, retail image,
and other elements of retail mix
 Example of policy:
 No competitors will have lower prices
 No competitors will have higher prices
 Price will be consistent with competitors
 All items will be priced independently
 Price will be constant over a year or season
 Price will change if costs change

18. Price Strategy
 Demand Oriented –price set based on consumers desire
(Ceiling price)
 Cost Oriented – costs are calculated and profits are added
to set price (Floor price)
 Competition oriented – prices set to match competition

19. Demand Oriented
 Use demand to estimate what consumers are willing to pay
 Price- quality association –the higher price the higher the
quality
 Prestige pricing – higher the price the better, consumers
preferences

20. Cost Oriented
 Adding a $ amount to costs to set price
 Markup pricing
 Markup – difference between merchandise costs and selling price
Example: retailer cost for a shirt is $25
He sells shirt for $45
Markup - $45-25 = $20

21. Markup examples Continued
 Markup percentage = price-cost/price
(30%) markup desired
$12.00 retailers costs
What will the selling price be?
.30 = X - $12.00/ X
12/1-.30= 12/.70 = $17.14
Retail selling price is $17.14

22. Markup examples Continued
 Desire a 40% markup , if the candy retails for .79, what
costs should a retailer pay for the candy
 .79 (1-.40)= .79 (.60) = .474

23. Markup
 Initial markup
 Maintained markups
 Variable markup policy
 Direct product profitability

24. Competition oriented pricing
 Use competitions prices only as a guide
 Can price above, below or at same level as competition

25. Integrated approaches to pricing
strategy
 Must consider many factors such as
i. If price reduces will revenues increase greatly
ii. Will a given price, allow a traditional markup to be
attained
iii. Can above market prices lead to superior image

26. Implementation of Price Strategy
 Customary and variable pricing
1. Customary pricing –sets price at one level and
seek to keep them at these levels
2. Everyday low pricing (EDLP) sell goods at
consistently low prices
3. Variable pricing – change prices as costs vary
4. Yield management pricing – determines price
that yields the greatest profits for a given period.

27. Implementation of Price Strategy
 One price policy and flexible pricing
1. One price policy – charge all customers the same price
2. Flexible pricing – let consumers bargain over prices
3. Contingency pricing -

28. Implementation of Price Strategy
 Odd pricing- set prices below even dollar amt, .49
.99. 1.99, 99.99
 Leader pricing
selling selected items at reduced price to build store
traffic
 Multiple –unit – 2 for .79
bundled pricing combines several products
 Price lining- sell products at a limited price range.

29. Price Adjustments
 Price adjustments let retailer use price as an adaptive
mechanism
1. markdowns
2. additional markups
3. employee discount
 Markdowns are taken because of competition, seasonality,
demand patterns, merchandise costs and pilferage.

30. Price Adjustments
 Markdown percentage =
Dollar markdown/net sales
 Off-retail markdown percentage =
original price – new price/original price

31. Price Adjustments
 Markdown control
 Timing markdowns
1. Early markdowns – may results in selling out
quicker than late markdowns
2. Staggered markdown – discounted throughout
selling period
- automatic markdown plan
4. storewide clearance – conducted once or twice a
year

32. Any Queries?
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