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PRODUCT SELECTION AND PRICING IN RETAIL MARKETING

LEARNING OBJECTIVES
At the end of the chapter you will be able to:

To understand the importance of merchandising planning, its forms and processes. To understand that the merchandise budget for a retail store is a blueprint of all merchandise requirements. To understand that model stock is an everchanging, desired merchandise assortment chosen carefully to best serve the needs of target market.

Merchandise Planning
 Important:

Fundamental to the direction of the business Targeting the right people, with the right merchandise at the right time and in the right place Getting the right merchandise for the store’s image

What is Merchandising

Merchandising is concerned with the planning, sourcing, buying and arranging of these products and services. It is the coordination of these and other functions that make for a successful retail business Merchandising is necessary for most typ0es of products and services Used to describe many aspects of the planning and presenting of stock

Stages of Merchandising
1.

Planning
Planning retail ranges involves careful consideration of the customer, competitors and the type of retail business, that is, discount/upscale, high priced/low priced

2.

Sourcing
Sourcing is the locating and purchasing of merchandise to sell in the store. An apparel retailer will source catwalk fashions from low-cost sources to enable them to sell at high street prices

3. Buying

Buying involves negotiation

4. Arranging and Displays

Arranging and displays can have major affect on sales. Customers reasonably expect displays of merchandise to be exciting and enticing

5.

Space Management
Planning for space allocation and may require the use of computer-based planning models.

Estimating Demand
 Not

an easy task, but forecasting is essential if the right merchandise in the right amount is to be purchase at the right time

Tool Use in Estimating Demand
1.

Target market
Demographic information and/or profile are variables that influence the needs and desires of the target market

2.

Product Life Cycle
May also affect the retailer’s buying decision concerning a product or service A marketing model that illustrates the selling duration of a product or service Can be use effectively if retailer understand the characteristics of the target market

3.
 

Fashion Cycle
Also a model that illustrates how potential customers may react to a product Fashion cycle has 3 stages: 1. Distinctiveness Stage

Attracts a very few individuals who are drawn to something different Occurs when the fashion good is found in high-prestige stores Such stores serve a group who wish to emulate the “jet set” in order to be fashionable but do not wish to or cannot buy original designs Occurs when the item has reached the mass merchandising outlets and budget stores Items sold on the basis of price

2.

Emulation Stage
 

3.

Mass emulation Stage
 

4.

Want Slips/Books

Customer asks/looking for something that is not carried by the store – a note should be made of this request Several customers making such a request may indicate a demand for the item Also use to estimate demand for the length of time it would take to obtain the merchandise

5.
 

Trade Publications
Assist the retailer in determining what products are available and what may sell Will point out what type of consumer advertising is in use or is planned for a product

6.
  

Suppliers’ Information
Of assistance by revealing information about what is or is not selling in other parts of the country Suppliers’ own estimates of demand is of interest to the retailer Retailer is required to use good judgment when using this information source for estimating demand

7.

Comparison Shopping
 

To find out what is selling in other stores and the potential demand Best determined by making frequent comparison shopping trips on a regular basis to different stores Make note of changes in merchandise from trip to trip can result in information that may be of great interest to the store Trips to exclusive shops may indicate what may be carried next by the store

8.

Customer Opinion
 

another source of information Use panels and questionnaires – learning from the “horse’s mouth” of what is wanted by this group Care should be used – most people do not really know what they want or will want several months from now when the merchandise ordered may be on the retailer’s shelf Panel provides group interaction

9.

Noncompeting Store

Can be derived from swapping ideas with similar stores in competing areas that serve similar markets Retailer gets benefit of the advice and counsel of another retailer who is faced with a somewhat similar situation

10. Past Sales Performance

Additional information is available on the performance of the product in the past, customer’s reactions Generally serves many stores as they serve in their role of advisor to the retailer In the position to get the feel of the market Generally know what is coming out from the manufacturers and how much these products will be pushed by the manufacturers

11.Buying Office

 

12.

Sale Forecast
A subjective estimate Represents the sum total of the information gained from want slips, trade publications, suppliers, comparison shopping, customer opinion, noncompeting stores, past sales performance of products and buying offices combined with the good judgment of the retailer

 

THE MERCHANDISING MIX

Merchandise Mix – Model Stock

Determining the actual physical units the store needs to purchase is an important factor in merchandise planning Basic ingredient of this procedure is the model stock:  Defined as an ever-changing, desired assortment of merchandise carefully chosen by a store to best serve a target market Essential element in the definition is assortment:  Assortment is defined as the distribution of merchandise “in sight” (inventory on hand and merchandise on order) according to classification, subclassification, style, color, patter, size and price, with the quantities in each of these factor fitting customer demand. Assortment is concerned with the variety, width, depth, consistency, balance, and flexibility of the merchandise.

1. Width
 Width

or breadth is concerned with complementary items within a merchandise line:
 

A shoe store sells pantyhose A store selling Silverstone tires also sells Silverstone batteries

2. Depth

Depth stands for the number of sizes, colors, and other characteristics that are carried in a single line:
  

A store that sells Bonia shirts in seven sizes, five sleeve lengths, four collar designs and six colors is found to have great depth in the Bonia shirt line Such a store would have 7 x 5 x 4 x 6 or 840 SKUs (Stock-Keeping Units) in the Bonia line. Under most guidelines, the store would then carry three of each stockkeeping unit or a total shirt inventory of 2,520 units.

Stock-keeping Unit (SKU) stands for one, distinct, individual type of item carried by a store:
 

If store carries 12 shirts just alike in size, color, style and etc, then all 12 shirts represent only one SKU If, six are blue and six are white, two SKUs are present

SKUs are important to retailer since much merchandise arrives at the store are already coded as to size, color and etc using a Universal Vendor Marking (UVM) system UVM allows the retailer to keep track of merchandise by means of a common identifying system that can be read by optical scanner or manually.

3. Consistency

The degree to which products are related in the customer’s mind:

A particular assortment may appear to be just be unrelated merchandise to one person, the next customer may view it as a logical combination:  E.g. a gift department in a large department store. Merchandise of many types is drawn together for the benefit of the customer. Since the customer views the items as all having the same purpose – a gift, a gift department is thought to have a good breadth of merchandise from which to select.

How customers perceive the assortment is the only thing that counts – is considered as consistent.

4. Balance

An important factor is stock balance:
Amount of SKUs are needed in each line to attract a customer

As store has limited space, it must work to achieve a balance throughout the store for maximum customer satisfaction within the space provided Need to develop a balance that will be in keeping with the desired image of the store:

E.g. if the store wishes to remain a men’s clothing store in the minds of the consumers, it must watch its stock mix to guard against adding too many nonclothing items or in some cases too many clothes for women.

5. Flexibility
 Assortment

for a store is every changing:

E.g. during a special promotion, goods not normally purchased will be added to the store.

 Assortment

also changes due to fashion and technological obsolescence:
E.g. women’s shops that used to carry a large selection of hats, purses, and shoes to match no longer do so due to changes in fashion

 Assortment

varies with the seasons, weather, and customers of the area.

Some items such as staple goods, the change is very slow:

Amount, brands, sizes, and etc of bread needed by the store this month will be somewhat similar to those of last month

 

Some cases the model stock will almost be static in the short run Demand for shopping goods is dynamic:
 

What customer desires now may not be true next year or even next month For clothing store, the retailer may know how many SKUs are needed

Merchandise Resources
What is available and where to find it are the basic assignments facing a retailer when the question of merchandise resources is raised.

Available Resources

1. In-store Sales Calls
  

Sales representative will call upon a retail store brining samples of available merchandise In-store buying is done for reorders and late season purchases Advantage:  No travel expenses of either time and money incurred by retailer  Retailer has undivided attention of the seller  All store records are close by in case something needs to be double checked such as the sales of a particular item for last year  All appropriate store personnel may be included in the discussion if the store manager deems appropriate Disadvantage:  Number of available samples may be limited  Limit the ability of the retailer to know what other vendors will offer in terms of merchandise, prices, etc  Many of the “better” vendors will not make in-store calls on smaller stores or stores in less favorable geographic locations

2. Merchandise Centers

Take one or two forms:

Wholesale market centers  Concentration of many vendors in one area Manufacturing market centers  Concentration of various manufacturers in one area Merchandise centers develops where a great number of sales offices and/or display rooms are located to serve a concentration of potential customers. Generally located in a particular part of major cities or even in the same building in order to allow the retailer to shop and compare the available merchandise of many suppliers.

3. Trade Shows

Usually occur once during each buying season. Purpose is to bring both the seller and buyer into contact with as many firms as possible. Usually held in large arenas such as PWTC (Putra World Trade Centre, KL) or civic centers or large hotels if space requirements are not too great. Vendors will set up booths where the buyer can get “hands-on” experience with the merchandise. Face-to-face contact is made and merchandise orders can be taken on the spot

Disadvantage:

Frequent buying mistakes are made at trade shows especially retailer who has not done his or her homework (preparation of the merchandise budget and determination of the model stock) Tend buy what is seen first Leads to inappropriate assortment of merchandise and very soon depleted open-to-buy Best not to buy anything during the first show visit.

4. Supplier Advertisements and Catalogs
A

very important resource for last-minute or fill-in merchandise  Serve additional function for small retailer who is located in a geographical isolated area in keeping them inform of what’s available  Disadvantage:
  

Knowledge of quality of merchandise is limited Accuracy in the description Timeframe in the arrival of merchandise might be longer or delayed

5. Resident Buying Offices
 Is

of great assistance to a store  Its entire reason for existence is to assist in the buying function  Provide information about market trends, develop and maintain supplier contacts, and provide assistance to the store when the retailer does come to the market.  Actual role is advisory in nature.

Resident Buying Offices
 Service

provided by a resident buying office are twofold:
Source of information

Will provide data on current and new sources of supply
 

Information on quality level of suppliers Does new supplier appear to be reliable?

 

Will provide information about the market Daily and weekly newsletters tell of new items, price deals, promotional items.

Resident Buying Offices

Buyer assistance

 

 

Can arrange private showings of merchandise just their member stores that may even include merchandise only shown to preferred customers Keep abreast of all new items made available for sale Enables them to have latest and most desirable items available for viewing during the client’s visit Can make reorder purchases for retailers Also give aid in the area of merchandise adjustments, misordered merchandise, and other similar problems

Resident Buying Offices

 

Resident buying office fall into 5 basic categories depending on type of ownership and method of compensation. Can either be store owned or independent Independent are divided further into salaried or broker:
 

Has no direct support other than that to performance More aggressive on behalf of its clients – do a better job than its store-owned competitors Individual store Associated store Chain store

Store-owned offices are placed in 3 categories:
  

Resident Buying Offices
a.
 

Independent Resident Buying Office – salaried
Gets its name from its method of compensation Usually sign an annual contract providing for the store to pay up to approximately 1 percent of annual sales to the resident buying office in payment of services rendered For small store, a flat fee will be charge  Does not benefit small store – outweigh the cost to the small store Serves as a negative inducement for a small firm to use a salaried resident buying office

Resident Buying Offices
b.

Independent Resident Buying Office – Merchandise Broker
  

Paid by the vendor or seller and not by the retailer Makes money buy selling merchandise – anxious to sell those items which vendors offer good commissions. Little or no commission being offered by a vendor usually means that the particular line of merchandise will never be mentioned by the merchandise broker:

Good and profitable item may be missed completely by the retailer

Resident Buying Offices
c. Store-Owned Resident Buying Office – Individual

Owned and operated for the benefit of an individual store Had become unfavorable competitive position where stores nowadays are spreading the costs of operation

Resident Buying Offices
d.

Store-Owned Resident Buying Office – Associated
   

A result of unfavorable position of individual buying office A buying office that is owned and operated by an association or group of stores Usually comprises of well-known group organisations Able to have more favorable arrangements with suppliers

Resident Buying Offices
e.

Store-Owned Resident Buying Office – Chain

Assists the buyers from each individual unit in selecting the best merchandise for each particular store Decision to buy would rest with the local buyer while the buying office would offer advice and information

6. Central Buying Offices

Has the responsibility for actually selecting and buying the merchandise for the individual stores

Central Buying Offices
Advantages: 1. Specialization of skills
  

Have personnel to concentrate they efforts in various smaller areas of merchandise Buyer become knowledgeable about their own products as well those sold by the competition Concentration of effort permits buyer to develop high level of expertise on the market for the product as well as on the possible resources for the item

Central Buying Offices
2.

Better Selection of Merchandise

As central buyer usually represents many stores causes this specialized buyer to receive preferred treatment from vendors End result – better choice of merchandise

3.

Lower Costs
 

Typical buying in large quantities Permit per unit cost to be lower due to quantity discount

Central Buying Offices
Disadvantages: 1. Market Variations

 

A central buying office will find difficulties in determining what will be sold in other parts of the geographical location Differences in culture, fashions, preferences and tastes Requires to serve the uniqueness of the individual location Can only be effective if central office is being provided with lots of information Buyers should visit stores as often as possible.

Central Buying Offices
2.

Separation of Buying and Selling

Accountability for merchandise performance of central buying office is rather difficult to justify:

When merchandise sells well, central office will get the credit When merchandise does not sell well, the store will be blamed for not providing them with accurate information, while store will blame them for making poor decisions

Central Buying Offices
3.

Specification Buying
Creates product exclusively by the particular group of stores Central buying will determine the desired characteristics for a product with assistance from the member stores and then contract for its manufacture under store name Provide improved quality, better product features and lower costs through volume purchases Customers might prefer manufacturer’s brand rather then private label Will have great difficulties in selling products of large volume

7. Full-Service Merchandising
 Assumes

the role of co-responsibility with the

retailer  Offers the retailer a source of merchandise plus promotional assistance, accounting systems, training programs and/or a host of other possible services  In return, the retailer makes a commitment to purchase a significant amount of merchandise from the vendor

Full-Service Merchandising
Various types of Full-Service Merchandising: 1. Voluntary Chains
   

Retail store voluntarily aligns itself with a particular wholesaler Store will take on the name of the voluntary chain The burden of supply is on the wholesaler Retailer receives cheaper price since the benefit of quantity purchasing is present Less amount of time spend on resource relations and more time spend with customers:  Provided the wholesaler is doing an excellent job

Full-Service Merchandising
2.

Rack Jobbers
Firms that provides all services for a particular type of merchandise not normally within the area of expertise of the retailer  E.g. health and beauty aids, or kitchen items in a clothing or food store, etc Jobbers may originate with a wholesaler Jobbers keep the merchandise up-to-date and well stocked in the store. Rotate merchandise from store to store giving the appearance of new merchandise Usually provide the store on consignment or sold with a guaranteed-return provision – retailer assumes no risk

   

Full-Service Merchandising
3.

Leased Departments
  

Merchandise carried by store with no knowledge would hire rack jobbers When item requires competent sales assistance, a lease department is the answer Not a popular choice as such operations prevent retail management from having absolute management control Must ensure that lease department do not cause customer dissatisfaction – require to terminate arrangement if store were to keep its image

Full-Service Merchandising
4. Programmed Merchandisers
  

Involves not only merchandise but also services such as assistance in promotion and training Retail management deals directly with major suppliers of resources Agreement involves a commitment to buy particular items from a vendor for a predetermined period of time in return for the services offered by the vendor. Relationship between retailer and vendor is successful, arrangement may be continued over along period of time

Which Resources to Use
 Its

at the disposal of the retailer  May use all of the possibilities for various merchandise and different situations found at different stores or at different times of the year  Optimum resource mix is a management decision  true test – end product of the buying process, the success or failure of the merchandise on the retailers shelf.

Questions??
Thank you

FACTORS AFFECTING PRICING POLICIES

Definition of Price
 Price

is the monetary value assigned by the seller to something purchased, sold or offered for sale, and on transaction by the buyer, as their willingness to pay for the benefits the product and channel service delivers.

 Retailer’s

view:

Treats pricing as a cash flow or income generating function

 Customer’s
 

view:

Sees price as more than money Includes the complexity of emotional and functional benefits derived from the product and the brand Means that value for the customer is a complex set of perceptions

Factors Influencing Retail Price

Target Market

Merchandise Cost

Competition

Role of Price in Retail Mix

Merchandise Characteristics

Legal Considerations l
e

PRICE

1. Target Market – Price Sensitivity

Consumer view price as a communication of quality and related product attributes from the pricemaker. Price elasticity of demand is a concept that determines the effect of a given price change on demand. If price is elastic, a change in price will influence consumer demand. An inelastic situation would find a change in price having little or no influence in demand.

 Amount

of the price shift can also influence consumer reaction:
A slight change in price may have little influence of the target market A price that represents a significant change from the market price will result in some change in consumer demand if the item’s price adjustment is though to be significant when measured against the consumer’s purchasing power

Factors Influencing Price Sensitivity
a.

Perceived Substitutes effect

Buyers are more sensitive the higher the product’s price is in relation to another product or substitute they could purchase Consumer will choose a substitute or forgo the purchase if they believe the overall value is unacceptable E.g. local residents may avoid an area with higher priced shops frequented by tourists who are unaware of the alternatives

b.

Unique Value Effect

Buyers are less sensitive to a product’s price the more they value any of its attributes that differentiate it from competing products E.g. many customers are loyal to Nestle products because they perceive them to offer superior benefits

c.

Importance of Purchase Effect

If the risk of the purchase increases then the price will be the most important aspect of the purchase Occurs when the item is an important present or when there is the need to purchase medicine. The greater the importance of the product, the less price sensitive (more inelastic) the purchase will be

d.

Difficult Comparison Effect

Buyers are less sensitive to price when they find it more difficult to compare alternatives. Lead to a demand for the more established brands, or greater store loyalty, in order to reduce the perception of risk.

e.

Price Quality Effect

 

A higher price may signal that the product is of superior quality – less sensitive to price Only applicable to some products E.g. Whisky at a higher price may signal improved quality but very few people would think higher priced petrol offered any quality advantage.

f.

Expenditure Effect

Buyers become more price sensitive when the expenditure is larger, either in absolute money amounts or as a percentage of their income Most prevalent in low income households in which all expenditure is carefully controlled Effect is also stronger and more likely to occur in times of recession

f.

Fairness and Transparency Effect
If buyers believes the price falls beyond reasonable and fairness level then they become more price sensitive Some types of products it is relatively easy to judge the offer of alternative brands and products and therefore easy to switch demand to cheaper alternatives Some alternatives are difficult to find and consumer will perceive retailers or the brand they stock as ‘ripping-off’ customers E.g. street vendors are often seen to be selling drinks or ice creams at highly inflated prices when the temperature is extremely high.

2. Competition
 Consumers

tend to compare stores

 Price

is a popular measure of comparison

 Store

may choose to price above the going price or below

a.
 

Pricing Above the Competition
Must offer the customer something in return for the higher price Something extra must be clear in the customer’s mind even if such a store differential does not actually exist:

a. b. c. d.

E.g. if a customer feels that service is better at the more expensive store, that is what counts Prestige Image Location Services Merchandise Assortment

b.

Pricing Below the Competition
2 reasons:  Market Penetration
 

Dropping price or entering a market with lower price Draws attention and high degree of interest in the product and/or store


By default
Results when others raise prices and the retailer in question retains the status quo Little attention is generated for this retailer In some situation, its better to raise the price along with competitors and then after a period of time retreat to the prices of the good old days. The impact will generally be more positive than achieving the same position by default

 

c.

Pricing with the Competition
  

Implies selling a the going price Should not imply followership The retailer is making the decision to remove the price from the list of variables that gives the store its uniqueness when compared with the competition.

3. Cost of Merchandise
Cost is important in determining price, but does not alone determine price  Retailer should be concern with what an item is worth is what it sells for, not its cost  Danger against too cost conscious – refuse to sell below cost since he or she desires to recover such costs on a per product basis.  Also caution not to price a particular item too high, since a going price may be three time the cost

 Retailer

should base the retail price partially on how good a negotiator the retailer is with suppliers  No direct relationship between what the customer perceives as retail value and the cost of the item.  Cost should be considered:

Trade, quantity, cash and other discounts, as well as workroom (alterations, carpet installation, etc) and transportation charges are all involved

4. Role of Price in Retailing Mix

Retailing mix consist of five ‘P’s:
    

Product Place Promotion Personality Price Influence of place on price, such as having a store near a campus provides conveniences Personality of the store is also influenced through price, since customer equates higher prices with a higher-class or prestige store Product and promotion work hand-in-hand with price in many ways

Price should be coordinated with the other variables
 

5. Merchandise Characteristics
Merchandise itself can affect the method of pricing an item  Seasonal Merchandise must be price according to season and reduced in price in order to sell before the end of the season unless storage of the merchandise is planned  Fashion and fad merchandise and items calls for premium price, when fashion is out, pricing should change to relieve retailer of the merchandise

Physical Characteristics

The perishable nature of some products like durians, water melon can hold for a certain period of time:  Initial pricing is keep to a reasonable level to avoid customer running away and leaving unsaleable products  A regular price reduction schedule is also planned to maximize the sales of the products Uniqueness and Scarcity of Products  Water-melon sold in New York City fetch a premium price when it first came.  Subsequent arrival of the next melon will not bring a premium price

6. Legal Considerations
 Many

laws and regulations affecting retailing either directly or indirectly influence price  Unit Pricing

Regulations where in effect, require a price to be quoted in particular ways that are felt to hinder the merchandising of the product. For example:
 

4 for RM1.00 must also show 25 cent for each can 49 cent for a ½ bag must also show a price of 98 cent per kg.

 Price
 

reduction sales

Of great concern to many governmental agencies Price reductions that are fictitious are now scrutinized by the Ministry of Trade and Consumer Associations Prepriced merchandise with sale tags already attached when received at the store are also now prohibited unless the original retail on the item is a legitimate price for the item

Approaches to Pricing the Retail Product
Various types of Pricing Available for Different Situation or Store Type

1. Price Lines

Is a particular price level or price point that is set for merchandise that would normally sell around that price (price zone). Will eliminate the infinite number of prices in the store or department and replace them with a series of prices set at certain intervals:

E.g. instead of having shoes that sell at RM22.95, RM23.05, RM23.69, RM24.16, RM24.77, RM25.15 etc all shoes in this price zone may sell at RM23.95. The next higher price zone may be a price line of RM29.95


a.

Advantages:
The decision-making process for customers is simplified

Keeps customers from being confused and losing the sales because they cannot make up their mind More confident when working with price lines. More sure of the price and use it in suggesting merchandise to customers

b.

Sales person work well with price lines

c.

Advertising and sales promotion is more effective

Impact of placing all shoes in a price line “on sale” is greater than featuring one particular item

d.

e.

Greater depth and better assortment are possible  By having 3 price lines as opposed to 300 different prices – greater concentration on the optimum assortment of merchandise is possible.  Elimination of items no longer a problem due to price lining will permit greater depth in the popular items Trading-up of the customer is made easier  Price lines of good – better – best may serve as an encouragement for the customer to trade up if the price differential is not too great  Retailer run an advertisement featuring the lowest price line. When customer comes to the store, efforts are made to move the customer up to the middle price line.

f.

Merchandise buying is simplified

By knowing the selling price of the merchandise will be, the merchandise buyer can concentrate on those sources of supply that sell products in the appropriate cost range. Also the buyer can use the established price point as an initial negotiating point with buyers


a.

Disadvantages:
Price reduction are made difficult

Unless all lines of a merchandise group are simultaneously reduced

b.

Too few price lines may give the impression of limited offerings

A store with the image of offering a wide and varied selection may confuse this image by going too heavily into limited price lines.

2. Psychological Pricing

Psychological pricing techniques take many forms:
a.

Multiple Pricing

Most consumers are conditioned to think that a multiple-product price means a cheaper price although this may not always be the case. E.g. four cans of anything for a ringgit sounds better than 25 cents each. Does not imply a bargain to many customers

b.

Odd Pricing
    

Price level that gives the impression of a cheaper price E.g. for 50 cents or 49 cents; RM2.00 or RM1.98; RM80 or RM78? Based on studies made, consumers do not universally distort odd price ending downward to lower perceived prices Odd pricing may not always give the impression of lower prices to a given market. Most stores do not use odd pricing:
E.g. a high-fashion image store would not wish to sell a dress for RM229.95 when RM230.00 would be more desirable in terms of image.

For the store that chooses to use odd pricing, several rules of thumb may be applied:

Under 50cent: drop 1 cent (49cent, 39cent, etc) Greater than 50 cent but less than RM1: drop 2 cent (98cent, 88 cent, etc) Greater than RM1 but less that RM50: drop 5 cent (RM1.95, RM24.95, RM39.95, etc) Greater than RM50: drop RM2 (RM98, RM148, RM163, etc)

3. Loss Leader Pricing
 Is

pricing an item below the market price, or even below cost, for purposes of generating store traffic  Use for well-known branded merchandise that have a high level of demand among the store’s target customers

Food store that features bread, soft drinks, coffee and sugar as loss leader items hopes to use such items to draw people to the store so that they buy other items

 Loss

leader items should be placed strategically throughout the store so that customers are exposed to many other items while taking advantage of the bargains.  Disadvantage:

Tendency for the leader items not generating sales of additional items.

To solve this problem, retailers offer leaders to customers with minimum purchases which create another disadvantage – customer irritation of having to meet the minimum purchases.

4. Bait-and-Switch Pricing
 Identical

to loss leader advertisements:

Both emphasize great savings to customers

 The

difference would be:

Retailer had no intention to sell the featured items

 The

purpose of Bait-and-Switch Pricing is to get the customer to the store so that the customer can be traded up to a more expensive item.  Consider as deceptive pricing

5. Flexible versus Rigid Pricing

Flexible Pricing
 

Entails selling an item for different prices under different circumstances ‘Negotiate’ with customers and offering of ‘good deals’ to customers are some examples of flexible pricing Is what its name implies – fixed. A prestige store may have such a policy for image purposes. Follow the practice of rigid prices due to its simplicity:  No haggling over the price  Sales personnel are required to make pricing decisions  Self-service is also possible along with its accompanying possible reduction in needed sales personnel.

Rigid Pricing
  

Pricing and The Relationship to Value

Whatever pricing policy is adopted, a company has to take into consideration the potential consumer’s perceptual assessment In deciding to buy a product a consumer has to be willing to give up something in order to enjoy the satisfactions of the benefits the product will deliver. Majority of consumers are looking for value when they buy a product and value is derived from the functions of quality and price, as well as the added value of the image or brand.

 This

may be expressed as:
Quality Value = Price

+ IMAGE

If a consumer believes the image and quality of a product is good they will be Willing to make greater sacrifice in order to purchase that product.

Value can be grouped into 4 categories
1.

Value as low price Value as whatever is wanted from a product Value as the quality one gets for the price paid Value as what one gets for what one gives

2.

3.

4.

Markdowns
In the use of price to increase demand markdown reduction of the original price may be necessary due to a number of reasons

1. 2. 3. 4. 5. 6.

Competitor activity affecting demand Inadequate original pricing policy Merchandise did not meet consumer needs or preferences Economic or seasonal problems Overstocking of merchandise or poor stock keeping Quality of merchandise inferior due to manufacture or damage

7. 8. 9. 10.

Problems of seasonality and poor timing of offer Merchandise became shop-soiled or damaged on the shop floor Need to release the display space for other merchandise The selling space or display of the merchandise had been inadequate or in the wrong location

11.

12.

13.

14.

A policy decision taken to develop improved customer goodwill through markdowns An error by the buyer with regard to style, fashions, research of markets, etc An initial markdown being too small to achieve desired sales results Sales staff not being briefed properly or encouraged to sell old as well as new lines

Questions?
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