Chapter 17 Pricing in Retailing RETAIL MANAGEMENT A

Chapter 17 Pricing in Retailing RETAIL MANAGEMENT: A STRATEGIC APPROACH, 10 th Edition BERMAN EVANS

Chapter Objectives ¯ To describe the role of pricing in a retail strategy and to show that pricing decisions must be made in an integrated and adaptive manner ¯ To examine the impact of consumers; government; manufacturers, wholesalers, and other suppliers; and current and potential competitors on pricing decisions ¯ To present a framework for developing a retail price strategy: objectives, broad policy, basic strategy, implementation, and adjustments 17 -2

Pricing Options for Retailers ¯ Discount orientation : Low price and low cost ¯ At-the-market orientation: Average price , Middle class average to above average products ¯ Upscale orientation: prestigious image store 17 -3

Figure 17 -3: Factors Affecting Retail Price Strategy 17 -4

Consumer: Price Elasticity of Demand ¯ The sensitivity of customers to price changes in terms of the quantities they will buy * Elastic – small percentage changes in price lead to substantial percentage changes in the number of units bought * Inelastic – large percentage changes in price lead to small percentage changes in the number of units bought 17 -5

Market Segments by Price Sensitivity ¯ Economic consumers: Looking for lowest price all stores same ¯ Status-oriented consumers: Different looking for prestige brands ¯ Assortment-oriented consumers: looking for a strong selections and fair price ¯ Personalizing consumers: the buy where they feel a bond with employees ¯ Convenience-oriented consumers: nearby store 17 -6

The Government and Retail Pricing ¯ Horizontal Price Fixing: Illegal agreement in fixing price among manufacturer , wholesaler and retailer ¯ Vertical Pricing Fixing: controlling price vertically between manufacturers , wholesaler and retailer ¯ Price Discrimination (Robinson-Patman Act) ¯ Minimum Price Laws: prevent retailer to sell blow cost for specific product ¯ Unit Pricing: ¯ Item Price Removal : To advocate price removal , pproduct code pricing ¯ Price Advertising 17 -7

Competition and Retail Pricing ¯ Market pricing – retailers often price similarly to each other and have less control over price because consumers can easily shop around ¯ Administered pricing – firms seek to attract consumers on the basis of distinctive retailing mixes , image prices 17 -8

Figure 17 -4: A Framework for Developing a Retail Price Strategy 17 -9

Objectives and Pricing Market Skimming Market Penetration 17 -10

Price Policy Choices ¯ No competitors will have lower prices; no competitors will have higher prices; or prices will be consistent with competitors ¯ All items will be priced independently or the prices for all items will be interrelated to maintain image and ensure proper markups ¯ Prices will be constant over a year or season; or prices will change if costs change 17 -11

Price Strategy ¯ Demand-Oriented Pricing : based on consumer desired ¯ Cost-Oriented Pricing based on consumer costs ¯ Competition-Oriented Pricing based on consumer competitors prices 17 -12

Demand-Oriented Pricing ¯ Psychological pricing * Price-quality association * Prestige pricing 17 -13

Price Strategy Concepts ¯ Customary Pricing * Fixing price ¯ Variable Pricing * Matching demand ¯ One-Price Policy 17 -14 ¯ Flexible Pricing * Due to bargaining ¯ Odd Pricing ¯ Leader Pricing ¯ Multiple-Unit Pricing (Quantity) ¯ Price Lining (Floor and ceiling level of products)

Reasons to Use Multiple-Unit Pricing ¯ A firm could seek to have shoppers increase their total purchases of an item ¯ This approach can help sell slow-moving and end-of-season merchandise ¯ Price bundling may increase sales of related items 17 -15

Price Adjustments ¯ Adaptive mechanism * Markdown * Additional markup * Employee discount 17 -16

Timing Markdowns ¯ Early markdown policy: early lower even demand is fairly ¯ Late markdown policy: Taking maximum opportunities to sell in original price ¯ Staggered markdown policy: In ascertain period ¯ Automatic markdown plan: Automatically controlled depends on stock ¯ Storewide clearance : In special events 17 -17