AMITY GLOBAL BUSINESS SCHOOL

PRINCIPLES OF RETAILING

TOPIC:- PRICING

SUBMITTED TO SUBMITTED BY
Dr. RAJIV SAMUEL PAYAL PARIKH
VEDIKA MISHRA
PRIYANSHI PANDEY
 TOPIC

• Factors affecting pricing

• Developing a retail price strategy– retail objectives.
• Deciding a pricing policy
• Price adjustments
 PRICING

Pricing is a process of fixing the value that a manufacturer will receive in the exchange of services
and goods. Pricing method is exercised to adjust the cost of the producer’s offerings suitable to
both the manufacturer and the customer.
While fixing the cost of a product and services the following point should be considered:-
• The identity of the goods and services.
• The cost of similar goods and services in the market.
• The target audience for whom the goods and services are produces.
• The total cost of production.
• External elements like government rules and regulations, policies etc.
 FACTORS AFFECTING PRICING

The factor influencing the price can be divided into two heads-
• Internal factors:-factors that work within the organisation.
• External factors:-factors that are not under the control of the firm. These factors affect whole
industry group uniformaly.
INTERNAL FACTORS
1. Organizational Factor:-two management level decide the pricing policy, one is the price range
and policies are decided by the top-level managers while the distinct price is fixed by lower-
level staff.
2. Marketing Mix:-for implementing a price, the marketing mix need to be sync, without
matching the marketing mix, consumer will not be attracted to price. The marketing mix
should be decisive for the price range fixed, meaning the marketing mix needs to maintain the
standard of the price of the product.
3. Product Differentiation:- in today’s market, it is uncommon to find a unique product, hence the
differentiation lies in the nature, feature and characteristics of the product. The added features
like quality, size, colour, packaging, and its utility all these factors force the customer to pay
more price regarding other products.
4. Cost of the Product:- cost and price are closely related. With the cost of product, the firm
decides its price. The firm makes sure the price doesn’t fall below the cost lese they will run on
losses. . Cost of the price includes the input cost that a company
spends on raw material , wages for labourers, advertisement cost, promotion cost and salaries of the
employees.
EXTERNAL FACTORS-
1. Demand:- the market demand of a product has an impact on the price of the product, if the
demand is inelastic then a higher price can be fixed, if the demand is highly elastic then less
price is to be fixed. When the demand of the good is constant, the price of the good can be
increased and if the demand of the good decreases the price of the good is decreased to survive
in the market.

2. Competition:- the price are required to competitive without any compromise on the quality of
the product. While in monopolistic market, the price are fixed irrespective of the competition.
Thus, the manufacturer tries to estimate the price of his competitor. When the price of
supplementary good is high, the customer will buy the manufacturer’s product.
3. Supplies:- if the supplies condition, the easy availing option of the raw material are available,
then the price of the product can be moderate. Once, the raw materials supply price heightens then
the price also rises.
In the period of recession, the price is lowered so that easy purchase is guaranteed. While in boom
periods, the shoot up high as now they can earn profit.
 HOW TO DEVELOP RETAIL PRICING
These are the steps to develop retail pricing:-
1. Retail objectives and pricing:-A retailer’s pricing strategy has to reflect its overall goals and
be related to sales and profits. There must also be specific pricing goals to avoid such potential
problems as confusing people by having too many prices, spending too much time bargaining
with customers, offering frequent discounts to stimulate customer traffic, having low profit
margins, and placing too much focus on price.
2.  Broad Price Policy:-Through a broad price policy, a retailer generates an integrated price
plan with short- and long-run perspectives (balancing immediate and future goals) and a
consistent image (vital for chains and franchises). The retailer interrelates price policy with the
target market, the retail image, and the other elements of the retail mix.
3. Price Strategy:-In demand-oriented pricing, a retailer sets prices based on consumer desires. It
determines the range of prices acceptable to the target market. The top of this range is the demand
ceiling—the most that people will pay for a good or service. With cost-oriented pricing, a retailer
sets a price floor, the minimum price acceptable to the firm so it can reach a specified profit goal. A
retailer usually computes merchandise and operating costs and adds a profit margin to these
figures.
4. Implementation of Price Strategy:-Implementing a price strategy involves a variety of separate
but interrelated specific decisions, in addition to those broad concepts already discussed.
CUSTOMARY AND VARIABLE PRICING With customary pricing, a retailer sets prices for goods and
services and seeks to maintain them for an extended period.
5. Price Adjustments
Price adjustments enable retailers to use price as an adaptive mechanism.
A markdown from an item’s original price is used to meet the lower price of another retailer, adapt
to inventory overstocking, clear out shopworn merchandise, reduce assortments of odds and ends,
and increase customer traffic. An additional markup increases an item’s original price because
demand is unexpectedly high or costs are rising. In today’s competitive marketplace, markdowns
are applied much more frequently than additional markups.
 PRICING POLICY
A pricing policy is a standing answer to recurring question. A systematic approach to pricing
requires the decision that an individual pricing situation be generalized and codified into a policy
coverage of all the principle pricing problems. Policies can and should be tailored to various
competitive situation.
CONSIDERATION INVOLVED IN FORMULATING THE PRICING POLICY:
1. Competitive situation
2. Goal of profit and sales
3. Long range welfare of the firm
4. Flexibility
5. Government policy
6. Overall goals of business
7. Price sensitivity
8. Routinisation of pricing
 OBJECTIVE OF PRICING POLICY

1. Price-profit satisfaction
2. Sales maximization and growth
3. Making money
4. Preventing competition
5. Market share
6. Survival
7. Market penetration
8. Market skimming
9. Early cash recovery
10. Satisfactory rate of return
 FACTORS INVOLVED IN PRICING POLICY
The pricing of the products involves consideration of the following factors:-
1. Cost data:- cost data occupy an important place in the price setting processes. There are
different types of cost incurred in the production and marketing of the product. There are
production cost, promotional expenses like advertising or personal selling as well as taxation,
etc. Cost are of two types:-
a). Fixed cost and variable cost
b).Relevant cost
2. Demand factor in pricing:- demand is more important for effective sale. Demand is to be
recognized in the determining the price of the product. If the demand for the product id
inelastic, the firm can fix a high price. On the other hand, if the demand is elastic, it has to fix
a lower price.
3. Consumer psychology in pricing:- demand for the product depend upon the psychology of the
consumer. In a particular situation, the behavior of one individual may not be same as other.
4. Profit factor in pricing:- In fixing the price for product, the producer consider mainly the profit
aspects. Each producer has his aim of profit maximization.
5. Competition factor in pricing:- pricing policy has some managerial discretion where there is a
considerable degree of imperfection in competition. In perfect competition, the individual
producers have to discretion in pricing.
6. Government policy of pricing:- In marketing economy, the government generally does not
interfere in the economic decisions of the economy. It is only in planned economics, the
government’s interference is very much.
 PRICE ADJUSTMENT

Price adjustment is an adjustment made by the State Agency, in accordance with the vendor
agreement, to the purchase price on a food instrument after it has been submitted by a vendor for
redemption to ensure that the payment to the vendor for the food instrument complies with the
State Agency’s price limitation.
PRICE ADJUSTMENT STRATEGIES
1. Discount and Allowance Pricing –The first one of the price adjustment strategies is applied in
a large share of businesses. Especially in B2B, this price adjustment strategy is rather common.
Most companies adjust their basic price to reward customers for certain responses, such as the
early payment of bills, volume purchases and off-season buying.
2. Segmented Pricing –Often, companies adjust their basic prices to allow for differences in
customers, products and locations. In short: adjusting prices to account for different segments.
In segmented pricing, the company thus sells a product or service at different prices in
different segments, even though the price-difference is not based on differences in costs.
3. Psychological Pricing – Another one of the price adjustment strategies is psychological
pricing. It refers to pricing that considers the psychology of prices, not simply the economics.
Indeed, the price says something about the product.
4. Promotional Pricing – Promotion pricing calls for temporarily pricing products below the list price, and
sometimes even below cost, to increase short-run sales. Thus, companies try to create buying excitement
and urgency. Promotional pricing could take the form of discounts from normal prices to increase sales
and reduce inventories. Also, special-event pricing in certain seasons to draw more customers could be
used. Even low-interest financing, longer warranties or free maintenance are parts of promotional pricing.
5. Geographical Pricing – The next one of the price adjustment strategies is geographical pricing. In
geographical pricing, the company sets prices for customers located in different parts of the country or
world. There are five geographical pricing strategies:
• FOB-origin pricing: goods are placed free on board a carrier, the customer thus pays the freight from the factory to
the destination. Price differences are the consequence.
• Uniform-delivered pricing: the company charges the same price plus freight to all customers, regardless of their
location. Thus, there are no geographical price differences.
• Zone pricing: the company sets up two or more zones. All customer within a zone pay the same total price, the
more distant the zone, the higher the price.
• Base-point pricing: the seller designates some city as a base point and charges all customers the freight cost from
that city to the customer. This can level the geographical price differences if a central base-point is selected.
• Freight-absorption pricing: the seller absorbs all or part of the freight charges to get the desired business. Price
differences are thus eliminated.
6. Dynamic Pricing – Dynamic pricing refers to adjusting prices continually to meet the
characteristics and needs of individual customers and situations.
7. International Pricing –The last one of the major price adjustment strategies is international pricing.
Companies that market their products internationally must decide what prices to charge in the different
countries in which they operate. The price that a company should charge in a country can depend on
many factors, involving economic conditions, competitive situations, laws and regulations, and the
development of the wholesaling and retailing system.