Retail pricing is an integral part of retail marketing that is the source of retailer revenue and communicates store image. Pricing considers demand, competition, policies and economic conditions. The objective is to agree with mission and policies. Retail price consists of cost of goods, expenses and mark-up percentage. Various pricing strategies can be used including cost-based, demand-based, competition-based, everyday low pricing, and odd pricing. Proper retail pricing is key to business profitability.

1. RETAIL PRICINGRETAIL PRICING
CONCEPT OF RETAIL PRICINGCONCEPT OF RETAIL PRICING
 Integral part of retail marketing mixIntegral part of retail marketing mix
 Source of revenue for the retailerSource of revenue for the retailer
 Communicate the image of the retail storeCommunicate the image of the retail store
FACTORS THAT NEED TO BE TAKEN INTO CONSIDERATIONFACTORS THAT NEED TO BE TAKEN INTO CONSIDERATION
Demand for the product and the target marketDemand for the product and the target market
Store policies and the image to be createdStore policies and the image to be created
Competition for the product and the competitor’s priceCompetition for the product and the competitor’s price
Economic conditions prevailing at that timeEconomic conditions prevailing at that time
PRICING OBJECTIVEPRICING OBJECTIVE
In agreement with the mission statementIn agreement with the mission statement
In agreement with the merchandising policiesIn agreement with the merchandising policies

2. RETAIL PRICINGRETAIL PRICING
ELEMENTS OF RETAIL PRICEELEMENTS OF RETAIL PRICE
1.1. Cost of goods : Cost of MerchandiseCost of goods : Cost of Merchandise
Expenses incurred towards transportationExpenses incurred towards transportation
Taxes, duties levies etc.Taxes, duties levies etc.
2.2. Expenses Incurred : Fixed expensesExpenses Incurred : Fixed expenses
Variable expensesVariable expenses
3.3. Fixed Expenses : Expenses that do not vary with quantum ofFixed Expenses : Expenses that do not vary with quantum of
businessbusiness
eg. Shop rent, Head Office costs etceg. Shop rent, Head Office costs etc
4.4. Variable expenses : Level of sales directly effects variable expenses.Variable expenses : Level of sales directly effects variable expenses.
eg. Merchandise margins, product mix costseg. Merchandise margins, product mix costs
Their Management either enhances or destroyTheir Management either enhances or destroy
profitabilityprofitability

3. RETAIL PRICINGRETAIL PRICING
FIXING THE RETAIL PRICEFIXING THE RETAIL PRICE
Consideration : Profit to be earnedConsideration : Profit to be earned
Profit from Merchandise planed before price fixationProfit from Merchandise planed before price fixation
Profit to be arrived at is expressed as a mark up percentageProfit to be arrived at is expressed as a mark up percentage
Retail Price = Cost + Mark UpRetail Price = Cost + Mark Up
Or Cost = Retail Price - Mark UpOr Cost = Retail Price - Mark Up
Or Mark Up = Retail Price - CostOr Mark Up = Retail Price - Cost
Components of the formula can be expressed inComponents of the formula can be expressed in
 Rupee Term or as a percentageRupee Term or as a percentage

4. RETAIL PRICINGRETAIL PRICING
THE FOLLOWING FORMULA WOULD APPLYTHE FOLLOWING FORMULA WOULD APPLY
Mark Up percentage can be expressed asMark Up percentage can be expressed as
 Percentage of retail price or as a percentage of cost pricePercentage of retail price or as a percentage of cost price
Mark Up percent (based on Retail Price) = Mark Up in Rupees / Retail PriceMark Up percent (based on Retail Price) = Mark Up in Rupees / Retail Price
Mark Up percent (based on Cost) = Mark Up in Rupees / CostMark Up percent (based on Cost) = Mark Up in Rupees / Cost

5. RETAIL PRICINGRETAIL PRICING
ILLUSTRATIONILLUSTRATION
Assume the cost of merchandise = Rs.200.00Assume the cost of merchandise = Rs.200.00
The Mark Up is = Rs.150.00The Mark Up is = Rs.150.00
Retail Price = 200 + 150 = 350Retail Price = 200 + 150 = 350
Mark Up % on Retail = 150 / 350 = 42.86%Mark Up % on Retail = 150 / 350 = 42.86%
Mark Up % on Cost = 150 / 200 = 75 %Mark Up % on Cost = 150 / 200 = 75 %
Mark Up fixed is termed as Initial Mark UpMark Up fixed is termed as Initial Mark Up
Rarely are all products sold completely at fixed pricesRarely are all products sold completely at fixed prices
 Reduction in price are often made and could be due to Markdowns, EmployeeReduction in price are often made and could be due to Markdowns, Employee
discounts, Customer Discounts or Shrinkagediscounts, Customer Discounts or Shrinkage

6. RETAIL PRICINGRETAIL PRICING
ILLUSTRATION OF COST PLUS PRICINGILLUSTRATION OF COST PLUS PRICING
Cost of fabric = Rs.150.00 per meterCost of fabric = Rs.150.00 per meter
Fabric consumption = 1.30 metersFabric consumption = 1.30 meters
Total Fabric Cost = Rs.195.00Total Fabric Cost = Rs.195.00
Manufacturing Cost = Rs.100.00Manufacturing Cost = Rs.100.00
Basic Cost = Rs.295.00Basic Cost = Rs.295.00
Packaging Cost = Rs. 50.00Packaging Cost = Rs. 50.00
Cost Price = Rs.345.00Cost Price = Rs.345.00
Mark Up @ 60% = Rs.207.00Mark Up @ 60% = Rs.207.00
Retail Price = Rs. 552.00 Rounded Off Rs.550.00Retail Price = Rs. 552.00 Rounded Off Rs.550.00

7. RETAIL PRICINGRETAIL PRICING
DEVELOPING A PRICING STRATEGYDEVELOPING A PRICING STRATEGY
1.1. Cost OrientedCost Oriented
2.2. Demand OrientedDemand Oriented
3.3. Competition OrientedCompetition Oriented
COST ORIENTED PRICINGCOST ORIENTED PRICING
 Basic mark up is added to the cost of merchandiseBasic mark up is added to the cost of merchandise
 Retail price is considered to be a function of the cost and the mark upRetail price is considered to be a function of the cost and the mark up
Thus Retail Price = Cost + mark UpThus Retail Price = Cost + mark Up
Or Cost = Retail Price – Mark UpOr Cost = Retail Price – Mark Up
Or Mark Up = Retail Price - CostOr Mark Up = Retail Price - Cost
Difference between the selling price and cost is Mark UpDifference between the selling price and cost is Mark Up
Mark up should cover for operating expenses and transportation etcMark up should cover for operating expenses and transportation etc

8. RETAIL PRICINGRETAIL PRICING
DEMAND ORIENTED PRICINGDEMAND ORIENTED PRICING
 Focuses on quantities the customers would buy at various pricesFocuses on quantities the customers would buy at various prices
 Largely depends on perceived value attached to the product by customersLargely depends on perceived value attached to the product by customers
 Sometimes a high priced product is perceived to be of high qualitySometimes a high priced product is perceived to be of high quality
 Sometimes a low priced product is perceived to be of inferior qualitySometimes a low priced product is perceived to be of inferior quality
Key to demand oriented pricingKey to demand oriented pricing
 Understanding of the target marketUnderstanding of the target market
 Value based proposition that they would look forValue based proposition that they would look for

9. RETAIL PRICINGRETAIL PRICING
COMPETITION – ORIENTED PRICINGCOMPETITION – ORIENTED PRICING
 Competition is the criteria of fixing the priceCompetition is the criteria of fixing the price
 Competitors play a key role in determining priceCompetitors play a key role in determining price
 Retailer fixes price on par with the competitorsRetailer fixes price on par with the competitors
 Retailer fixes price above the competitor’s priceRetailer fixes price above the competitor’s price
 Retailer fixes price below the competitor’s priceRetailer fixes price below the competitor’s price

10. RETAIL PRICINGRETAIL PRICING
IMPORTANT TERMS USED BY RETAILERS IN PRICINGIMPORTANT TERMS USED BY RETAILERS IN PRICING
Price Lining : When retailers sell merchandise only at a given pricePrice Lining : When retailers sell merchandise only at a given price
Price Zone or Price Range : Range of prices for a particular merchandise linePrice Zone or Price Range : Range of prices for a particular merchandise line
Price Point : A specific price in that price rangePrice Point : A specific price in that price range

11. RETAIL PRICINGRETAIL PRICING
APPROACHES TO PRICING STRATEGYAPPROACHES TO PRICING STRATEGY
 Market SkimmingMarket Skimming
 Market PenetrationMarket Penetration
 Leader PricingLeader Pricing
 Price BundlingPrice Bundling
 Multi-Unit PricingMulti-Unit Pricing
 Discount PricingDiscount Pricing
 Everyday Low PricingEveryday Low Pricing
 Odd PricingOdd Pricing

12. RETAIL PRICINGRETAIL PRICING
MARKET SKIMMINGMARKET SKIMMING
 Strategy to charge a high price initiallyStrategy to charge a high price initially
 Gradually reduce it if necessaryGradually reduce it if necessary
 Policy is a form of price discrimination over timePolicy is a form of price discrimination over time
 To be effective several conditions are to be consideredTo be effective several conditions are to be considered
MARKET PENETRATIONMARKET PENETRATION
 Opposite of Market SkimmingOpposite of Market Skimming
 Aim to capture a large market share by charging low priceAim to capture a large market share by charging low price
 Low prices stimulate purchasesLow prices stimulate purchases
 Low prices discourages competitors from entering the marketLow prices discourages competitors from entering the market
 Economies of scale is required in manufacturing or retail to be effectiveEconomies of scale is required in manufacturing or retail to be effective

13. RETAIL PRICINGRETAIL PRICING
LEADER PRICINGLEADER PRICING
 Retailer sells few items at deep discountsRetailer sells few items at deep discounts
 This increases traffic and sales on complementary items.This increases traffic and sales on complementary items.
 The product must appeal to a large number of peopleThe product must appeal to a large number of people
 The concept should appear as a bargainThe concept should appear as a bargain
 Items best suited for this type of pricing are those that are bought frequentlyItems best suited for this type of pricing are those that are bought frequently
 Example : bread, eggs, biscuit, milk etc.Example : bread, eggs, biscuit, milk etc.
PRICE BUNDLINGPRICE BUNDLING
 Retailer bundles a few products and offers them at a particular priceRetailer bundles a few products and offers them at a particular price
 Price bundling helps sale of related itemsPrice bundling helps sale of related items
 Example: A PC at a fixed price including a printer and a web cameraExample: A PC at a fixed price including a printer and a web camera
Value Meal offered by McDonaldsValue Meal offered by McDonalds

14. RETAIL PRICINGRETAIL PRICING
MULTI UNIT PRICINGMULTI UNIT PRICING
 Retailer offers discounts to customers who buy in large quantities or who buy aRetailer offers discounts to customers who buy in large quantities or who buy a
product in bundleproduct in bundle
 This involves value pricing for more than one of the same itemThis involves value pricing for more than one of the same item
 Multi unit pricing helps move products that are slow movingMulti unit pricing helps move products that are slow moving
 Example: Offer price of one T-shirt for Rs.255.99 and two T-shirts forExample: Offer price of one T-shirt for Rs.255.99 and two T-shirts for
Rs.355.99Rs.355.99
DISCOUNT PRICINGDISCOUNT PRICING
 Used as a strategy by outlet stores who offer merchandise at the lowest marketUsed as a strategy by outlet stores who offer merchandise at the lowest market
pricesprices

15. RETAIL PRICINGRETAIL PRICING
EVERY DAY LOW PRICINGEVERY DAY LOW PRICING
 Popularly known as EDLPPopularly known as EDLP
 Strategy adopted by retailers who continually price their products lower thanStrategy adopted by retailers who continually price their products lower than
the other retailers in the areathe other retailers in the area
 Example: Food Bazaar, Wal-Mart and Toys “R” U’s regularly use this strategyExample: Food Bazaar, Wal-Mart and Toys “R” U’s regularly use this strategy
ODD PRICINGODD PRICING
 Strategy is to set retail prices in such a manner that the price ends in oddStrategy is to set retail prices in such a manner that the price ends in odd
numbersnumbers
 Example: Rs.99.99, Rs.199.99 or Rs.299.99Example: Rs.99.99, Rs.199.99 or Rs.299.99
 Followed by: ??????Followed by: ??????