pricing strategies

1. RETAIL PRICING

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

3. Challenges- Pricing decision
• For some customers- good value- paying lowest
price-other benefits are not important to them
• For some- ready to pay extra – if they are getting
their moneys worth –quality
• Prices are higher than benefits- sales and profit –
decrease
• Prices are low- sales increase , but profits may
decrease due to low profit margin
• Need to consider the value proposition offered
by competitor pricing and legal issues

4. Considerations in setting Retail Pricing
Retail
Price
Price
sensitivity
(demand)
Competiti
on
Economic
constraint
s
Cost

5. 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
• No of 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

6. Competition
• If product is unique with no competitors-
premium price
• If similar products in the market, competitors
price needs to be considered.
• Pricing policy must be consistent with retailers
overall strategy and its relative market position
• Walmart: low cost strategy for its merchandise
• Tiffany: premium pricing

7. Legal/Ethical pricing issues
• France- regulates pricing. Carrefour affected
by German brands- AIDL, Lidl- store brands
not affected by French rules- converted many
Carrefour shoppers .

8. Ethical pricing issues
• Price discrimination: occurs when retailer charges diff
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

9. Ethical pricing issues
• Bait and switch tactics: deceptive practice,
wherein the customers are lured into the
stores by advt 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.

10. PRICING STRATEGIES

11. • 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

12. • EDLP: Every day low pricing: 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

13. 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 whitebread,milk
eggs.Retailer hopes that consumer will
purchase their entire weekly grocery list while
shopping for loss leaders. Eg Toys R us and
disposable diapers

14. • 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