Pricing In Retailing

Dr. Gopal Thapa

Tribhuvan University
Email:thapazee@gmail.com
 Overview

 Pricing is the value that is placed on something. That

something is usually goods and service
 Products must be priced in a way that both achieves profits and
satisfies customers
Basic pricing Options

 Discount orientation – low prices as competitive advantages

 At the market orientation – uses average prices to offer solid
value
 Upscale orientation – using a prestigious image as competitive
advantage
 External Factors Affecting
Retail Pricing
 Consumers
 Governmental issues
 Manufacturers/wholesalers/suppliers
 Current and potential competitors
 Consumer Factors

 Price elasticity of demand – Measures sensitivity of consumers

to price changes.
 A small change in prices results in a big change is quantity –
very elastic
 Change in prices does not result in significant change in
quantity it is inelastic. Elasticity = ∆ Q/ ∆P
 Consumer_2

 Price sensitivity varies by market segment based on market

orientation
1. Economic Consumers
2. Status-oriented consumers
3. Assortment oriented consumers
4. Personalizing consumers
5. Convenience oriented consumers
 Government Issues

 Horizontal pricing fixing – parties

within the same level in channel agree to
set prices
 Vertical price fixing – when
manufacturers or wholesalers seek to
control the retail prices of their products
 Price discrimination –occurs when
retailers sell same product at different
prices to different consumers under
same conditions.
 Justifiable reasons
to price discrimination
 Products are physically different
 Retailers paying different prices are not competitors
 Competition is not injured
 Price differences are due to differences in costs
 Market conditions change
Government issues

 Minimum price laws- can not sell certain

items for less than costs
 Predatory pricing- seeks to reduce
competition by pricing products very low
 Loss leaders - price products below costs to
attract more store traffic
 Unit pricing- must provide total price and
price per a certain unit such as price per
dozen. or price per unit
Government issues

 Item price removal – prices are marked

only on shelves and not on individual
items. Scanning equipment reads pre-
marked code at the checkout counter
 Price advertising – cannot advertising a
price reduction unless it has actually been
done
 Price matching- lowest price guaranteed
 Bait and switching – advertising a low
price but then try to switch customers to
another product when they enter the store
or say the product is not available.
Manufacturers, wholesalers and
Other Suppliers
 May have conflicts between manufacturers, wholesalers
regarding the pricing of merchandise
 Private label is increasing – selling against the brand
 Gray market goods are sold by retailers and not liked by
manufacturers
 Competition and retail Pricing

 Market pricing- many retailers are in market and consumers

have many to chose from which makes prices of products very
similar
 Administered pricing- seeks to attract consumers based on
uniqueness of offering rather than price (Different price for
image, service or assortment)
Developing a Retail Price
Strategies
 Factors Affecting Retail
Price Strategy
 Price objectives
 Broad price policy
 Price strategy
 Implementation of strategy
 Price adjustments
 Pricing objectives

 Sales or market share – market penetration strategy – seek big

revenues by reducing prices
 Profit objectives – market skimming strategy. Sets premium
prices and attracts customers who are less price sensitive.
Objective is recovery of cash quicker.
Examples of Specific pricing
Objectives
 Maintain a proper image
 Clear seasonal inventory
 Provide good customer service
 Encourage repeat business
 Match competitors prices
 Increase shopper traffic
Broad Price Policy

 Broad price policy a retailer generates an integrated price plan

with short and long run perspective
 Price policy is integrated with target market, retail image, and
other elements of retail mix
 Example of policy: no competitors will have lower prices
Price Strategy

 Demand Oriented –price set based on consumers desire

 Cost Oriented – costs are calculated and profits are added to
set price
 Competition oriented – prices set to match competition
Demand Oriented

 Use demand to estimate what consumers are willing to pay

 Price- quality association –the higher price the higher the
quality
 Prestige pricing – higher the price the better, consumers
preferences
 Cost Oriented

 Adding a $ amount to costs to set price

 Markup pricing
 Markup – difference between merchandise costs and selling
price
Example: retailer cost for a shirt is $25
He sells shirt for $45
Markup - $45-25 = $20
Markup examples Continued

 Markup percentage = price-cost/price

(30%) markup desired
$12.00 retailers costs
What will the selling price be?
.30 = X - $12.00/ X
12/1-.30= 12/.70 = $17.14
Retail selling price is $17.14
Markup examples Continued

 Desire a 40% markup , if the candy retails for .79, what costs
should a retailer pay for the candy

 .79 (1-.40)= .79 (.60) = .474

Markup

 Initial markup
 Maintained markups
 Variable markup policy
 Direct product profitability
Competition oriented pricing

 Use competitions prices ONLY as a guide

can price above, below or at same level as competition
Integrated approaches to pricing
strategy
 Must consider many factors such as
1. if price reduces will revenues increase greatly
2. Will a given price, allow a traditional markup to be attained
3. Can above market prices lead to superior image
Implementation of Price
Strategy
 Customary and variable pricing
1. Customary pricing –sets price at one
level and seek to keep them at these
levels
2. Everyday low pricing (EDLP) sell goods
at consistently low prices
3. Variable pricing – change prices as costs
vary
4. Yield management pricing – determines
price that yields the greatest profits for a
given period.
Implementation of Price
Strategy
 One price policy and flexible pricing
1. One price policy – charge all customers the same
price
2. Flexible pricing – let consumers bargain over prices
3. Contingency pricing -
Implementation of Price
Strategy
 Odd pricing- set prices below even dollar
amt, .49 .99. 1.99, 99.99

 Leader pricing
selling selected items at reduced price to
build store traffic
 Multiple –unit – 2 for .79
bundled pricing combines several products
 Price lining- sell products at a limited price
range.
 Price Adjustments

 Price adjustments let retailer use price as an adaptive

mechanism
1. markdowns 2. additional markups
3. employee discount
 Markdowns are taken because of competition, seasonality,
demand patterns, merchandise costs and pilferage.
Price Adjustments

 Markdown percentage =
Dollar markdown/net sales

 Off-retail markdown percentage =

original price – new price/original price
Price Adjustments

 Markdown control

Timing markdowns
1. Early markdowns – may results in selling
out quicker than late markdowns
2. Staggered markdown – discounted
throughout selling period
- automatic markdown plan
4. storewide clearance – conducted once or
twice a year
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Thank your for

your
patience!