Retailing knowhow

    
Mind-toMind-to-market Footprints SPE Mirza Khadim¶s

Retail Pricing

Objectives 
Retail Pricing and the factors affecting price  Elements of retail price  Developing the pricing strategy  Adjustments to retail price  Legal Issues in Retail Pricing

Retail pricing objectives
‡ Retail pricing objectives or goals provide direction to the whole pricing process ‡ Retailers determine their objectives as the first step in pricing ‡ Objectives
- profit

- market share - competitors-oriented competitors- buyer-oriented buyer- government-oriented government- product-oriented product-

Factors affecting the demand of goods & services 
   
Price elasticity of Demand Competitive factor Cost factor Product factor Legal factor

Factors affecting the retail price
Store Store Policies Policies

Target Target Market Market & Demand & Demand

Retail Retail Price Price

Competitor¶s Competitor¶s Price

Price

Economic Economic Conditions Conditions

Pricing Strategy « approaches 
        Price Lining Market Skimming Market Penetration Loss Leader Pricing Price Bundling Multi Unit Pricing ± 2 < 1+1 Discount EDLP ± Wal-Mart, Toys ³R´ Us WalOdd Pricing ± Psychological pricing

Price Lining 
Establishing a specific number of price points for each merchandize classification.  Kids shoes 150, 250, 350.  Reduces shopping confusion.  Sales person can engage customers in trading up.

Loss leader pricing 
Selling a product at substantially low prices than market to generate customer traffic.  Make it up by sales of complimentary products.  Loss word may not be true always.

Price bundling 
Distinct items form different product lines are clubbed together at a special price.  Slow moving items can piggyback on fast moving items.  Customer can also be tied up for a longer period.

Multiple-unit pricing Multiple Same products being offered together at a price less than the sum of their individual prices.  Normally used to clear out stocks or endendof-the season merchandize. of-

Odd pricing 
Psychological pricing which ends at less than a rounded rupee value.  Trying to make the customers feel that they are paying less ( Under Rs. X syndrome)

EDLP 
Retailers who follow EDLP try to µ keep costs low, sell more merchandise, lower prices further & sell more¶.  Large variety, smaller assortment, low service levels.  Little promotional activities.

HiHi-Lo pricing 
Normally prices higher than EDLP retailers  Occasional dip (promotional offers)  Advertise frequently  Convenient format  More services

Developing a Pricing Strategy 
Cost Oriented Pricing ± add a basic markmark-up to the cost of merchandize  Demand Oriented Pricing ± Focusing on quantities that customers would buy at various prices. Also consider perceived values.  Competition Oriented Pricing

Cost Plus Pricing .. An example 
Example of cost plus pricing for a shirt. The cost of fabric is Rs. 150 per meter. Fabric consumption is 1.30 meters.

Total fabric cost (cost x consumption) Manufacturing Cost

195 100

Basic Cost
Packaging Cost Cost Price Mark Up @ 60 %

295
50 345 207

Retail Price

550

Demand oriented pricing
Factors that affect customer¶s sensitivity to price  Awareness about substitutes  Volume of expenditure  Difficulty in comparison  Benefit/price relationship  Task definition

Pricing approaches and retail marketing mix
Retail marketing mix variable
Location

Price below market price

Price at market price

Price above market price
Monopoly, compatible location to target segment Personalized attention to customers, home delivery, exchange facility, customized offerings Extensive assortment Inviting, impressive store décor, visual merchandise attractive

No parking, poor layout, Central business inaccessible district, proximity to competition Self-service, limited offerings, no sales Support for sales people

Service attributes

Assortment Store environment

Limited variety Poor quality fixtures, limited space to move around, wall shelves, untidy

Medium Compatible store environment

Elements of Retail Price 
  
Cost of Goods Expenses ± Fixed & Variable Margins Mark Up

Elements«.
Retail Price = Cost + Mark Up or, Cost = Retail Price ± Mark Up and, Mark Up = Retail Price ± Cost Mark Up % (Based on Retail Price) = Mark Up in Rupees/ Retail Price  Mark Up % (Based on Cost) = Mark Up in Rupees/ Cost 

  

Adjustments to Retail Price 
Mark Downs ± Reduction in selling price. Reasons ± wrong forecasting, overbuying, faulty selling practices, odd sizes remaining, end of the season, competitive action.  Promotions ± To get additional sales during peak seasons.

Other reductions in Initial markmark-up 
Employee discounts Shrinkages ± expired stocks, damaged, theft, pilferage All of them reduce the profit margin and hence must be accounted for .

Timing of the markdown 
  
Tricky decision Early markdown in a season Late markdowns Both the timings have pros & cons.

Legal Issues 
   
Price discrimination Cartelization Comparative price advertising Predatory pricing Bait & switch tactics

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