2. Overview
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_2
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)
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
18. Price Strategy
Demand Oriented –price set based on consumers desire
Cost Oriented – costs are calculated and profits are added to set
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
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
1. if price reduces will revenues increase greatly
2. Will a given price, allow a traditional markup to be attained
3. 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
