Professional Documents
Culture Documents
Product Selection and Pricing in Retail Marketing
Product Selection and Pricing in Retail Marketing
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
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
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
11.Buying Office
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
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
Purpose is to bring both the seller and buyer into contact with as
many firms as possible.
Vendors will set up booths where the buyer can get “hands-on”
experience with the merchandise.
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
Role of Price in
Competition Retail Mix
Merchandise Legal
l Considerations
Characteristics 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
Quality + IMAGE
Value = Price
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