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Pricing In Retailing

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Pricing In Retailing Chapter 17 Dr. Pointer s Notes – PowerPoint PPT presentation

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Title: Pricing In Retailing


1
Pricing In Retailing
  • Chapter 17
  • Dr. Pointers Notes

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.
  • Robinson- Patman act bars price discrimination

8
Justifiable reasons to price discriminate
  • 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 oz. or price
    per lb

10
Government issues
  • Item price removal some states ban this
  • Price advertising cannot advertising a price
    reduction unless it has actually been done
  • Price matching- legal in many states
  • Bait and switching illegal practice of
    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
Manuf, wholesalers and Other Suppliers
  • May have conflicts between manuf, 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

13
Factors Affecting Retail Price Strategy
  • Price objectives
  • Broad price policy
  • Price strategy
  • Implementation of strategy
  • Price adjustments

14
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 senstitive. Objective is recovery
    of cash quicker.

15
Examples of Specific pricing Objectives (Fig.
17-5)
  • Maintain a proper image
  • Clear seasonal inventory
  • Provide good customer service
  • Encourage repeat business
  • Match competitors prices
  • Increase shopper traffic

16
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

17
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

18
Demand Oriented
  • Use demand to estimate what consumers are willing
    to pay
  • Price- quality association higher price the
    higher the quality
  • Prestige pricing higher the price the better,
    consumers preferences

19
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

20
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

21
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
  • see examples in text page 426

22
Markup
  • Initial markup
  • Maintained markups
  • Variable markup policy
  • Direct product profitability

23
Competition oriented pricing
  • Use competitions prices ONLY as a guide
  • can price above, below or at same level as
    competition

24
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

25
Implementation of Price Strategy
  • Customary and variable pricing
  • Customary pricing sets price at one level and
    seek to keep them at these levels
  • Everyday low pricing (EDLP) sell goods at
    consistently low prices
  • Variable pricing change prices as costs vary
  • Yield management pricing determines price that
    yields the greatest profits for a given period.

26
Implementation of Price Strategy
  • One price policy and flexible pricing
  • One price policy charge all customers the same
    price
  • Flexible pricing let consumers bargain over
    prices
  • Contingency pricing -

27
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.

28
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.

29
Price Adjustments
  • Markdown percentage
  • Dollar markdown/net sales
  • Off-retail markdown percentage
  • original price new price/original price

30
Price Adjustments
  • Markdown control
  • Timing markdowns
  • 1. Early markdowns may results in selling out
    quicker than late markdowns
  • 2. Staggered markdown
  • - automatic markdown plan
  • 4. storewide clearance

31
Problem set
  • Please prepare the following problems from your
    text page 439
  • Questions
  • 4,5,6,7 and 12
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