RETAIL PRICING

CONCEPT OF RETAIL PRICING

 Integral part of retail marketing mix

 Source of revenue for the retailer
 Communicate the image of the retail store

FACTORS THAT NEED TO BE TAKEN INTO CONSIDERATION

Demand for the product and the target market

Store policies and the image to be created
Competition for the product and the competitor’s price
Economic conditions prevailing at that time

PRICING OBJECTIVE

In agreement with the mission statement

In agreement with the merchandising policies
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ELEMENTS OF RETAIL PRICE

1. Cost of goods : Cost of Merchandise

Expenses incurred towards transportation
Taxes, duties levies etc.

2. Expenses Incurred : Fixed expenses

Variable expenses

3. Fixed Expenses : Expenses that do not vary with quantum of

business
eg. Shop rent, Head Office costs etc

4. Variable expenses : Level of sales directly effects variable expenses.

eg. Merchandise margins, product mix costs
Their Management either enhances or destroy
profitability
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FIXING THE RETAIL PRICE

Consideration : Profit to be earned

Profit from Merchandise planed before price fixation
Profit to be arrived at is expressed as a mark up percentage

Retail Price = Cost + Mark Up

Or Cost = Retail Price - Mark Up
Or Mark Up = Retail Price - Cost

Components of the formula can be expressed in

 Rupee Term or as a percentage
 RETAIL PRICING

THE FOLLOWING FORMULA WOULD APPLY

Mark Up percentage can be expressed as

 Percentage of retail price or as a percentage of cost price

Mark Up percent (based on Retail Price) = Mark Up in Rupees / Retail Price

Mark Up percent (based on Cost) = Mark Up in Rupees / Cost

 RETAIL PRICING
ILLUSTRATION

Assume the cost of merchandise = Rs.200.00

The Mark Up is = Rs.150.00

Retail Price = 200 + 150 = 350

Mark Up % on Retail = 150 / 350 = 42.86%
Mark Up % on Cost = 150 / 200 = 75 %

Mark Up fixed is termed as Initial Mark Up

Rarely are all products sold completely at fixed prices

 Reduction in price are often made and could be due to Markdowns, Employee
discounts, Customer Discounts or Shrinkage
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ILLUSTRATION OF COST PLUS PRICING
Cost of fabric = Rs.150.00 per meter
Fabric consumption = 1.30 meters

Total Fabric Cost = Rs.195.00

Manufacturing Cost = Rs.100.00
Basic Cost = Rs.295.00
Packaging Cost = Rs. 50.00

Cost Price = Rs.345.00

Mark Up @ 60% = Rs.207.00

Retail Price = Rs. 552.00 Rounded Off Rs.550.00

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DEVELOPING A PRICING STRATEGY
1. Cost Oriented
2. Demand Oriented
3. Competition Oriented

COST ORIENTED PRICING

 Basic mark up is added to the cost of merchandise
 Retail price is considered to be a function of the cost and the mark up

Thus Retail Price = Cost + mark Up

Or Cost = Retail Price – Mark Up
Or Mark Up = Retail Price - Cost

Difference between the selling price and cost is Mark Up

Mark up should cover for operating expenses and transportation etc
 RETAIL PRICING

DEMAND ORIENTED PRICING

 Focuses on quantities the customers would buy at various prices

 Largely depends on perceived value attached to the product by customers
 Sometimes a high priced product is perceived to be of high quality
 Sometimes a low priced product is perceived to be of inferior quality

Key to demand oriented pricing

 Understanding of the target market

 Value based proposition that they would look for

 RETAIL PRICING

COMPETITION – ORIENTED PRICING

 Competition is the criteria of fixing the price

 Competitors play a key role in determining price

 Retailer fixes price on par with the competitors

 Retailer fixes price above the competitor’s price

 Retailer fixes price below the competitor’s price

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IMPORTANT TERMS USED BY RETAILERS IN PRICING

Price Lining : When retailers sell merchandise only at a given price

Price Zone or Price Range : Range of prices for a particular merchandise line

Price Point : A specific price in that price range

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APPROACHES TO PRICING STRATEGY

 Market Skimming
 Market Penetration
 Leader Pricing
 Price Bundling
 Multi-Unit Pricing
 Discount Pricing
 Everyday Low Pricing
 Odd Pricing
 RETAIL PRICING

MARKET SKIMMING

 Strategy to charge a high price initially

 Gradually reduce it if necessary
 Policy is a form of price discrimination over time
 To be effective several conditions are to be considered

MARKET PENETRATION

 Opposite of Market Skimming

 Aim to capture a large market share by charging low price
 Low prices stimulate purchases
 Low prices discourages competitors from entering the market
 Economies of scale is required in manufacturing or retail to be effective
 RETAIL PRICING
LEADER PRICING
 Retailer sells few items at deep discounts
 This increases traffic and sales on complementary items.
 The product must appeal to a large number of people
 The concept should appear as a bargain
 Items best suited for this type of pricing are those that are bought frequently
 Example : bread, eggs, biscuit, milk etc.

PRICE BUNDLING
 Retailer bundles a few products and offers them at a particular price
 Price bundling helps sale of related items
 Example: A PC at a fixed price including a printer and a web camera
Value Meal offered by McDonalds
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MULTI UNIT PRICING

 Retailer offers discounts to customers who buy in large quantities or who buy a
product in bundle
 This involves value pricing for more than one of the same item
 Multi unit pricing helps move products that are slow moving
 Example: Offer price of one T-shirt for Rs.255.99 and two T-shirts for
Rs.355.99

DISCOUNT PRICING
 Used as a strategy by outlet stores who offer merchandise at the lowest market
prices
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EVERY DAY LOW PRICING

 Popularly known as EDLP
 Strategy adopted by retailers who continually price their products lower than
the other retailers in the area
 Example: Food Bazaar, Wal-Mart and Toys “R” U’s regularly use this strategy

ODD PRICING
 Strategy is to set retail prices in such a manner that the price ends in odd
numbers
 Example: Rs.99.99, Rs.199.99 or Rs.299.99
 Followed by: ??????