Study Material_Module VI_BBAD502M

Programme Name and Semester: BBA, 5th Semester
Course Name (Course Code): Retail Management, BBAD502M

Class
Academic Session : 2023-24
Study Material
(Retail Management - BBAD502M)
_____________________________________________________________________________________________
Table of Contents
Contents
Introduction ................................................................................................................................................................. 2
Factors Affecting Pricing Decision ................................................................................................................................ 2
Steps in Price Setting .................................................................................................................................................... 4
Pricing Methods ........................................................................................................................................................... 7
GST ............................................................................................................................................................................. 12
The Journey of GST in India ........................................................................................................................................ 13
Objectives Of GST ....................................................................................................................................................... 13
Components Of GST ................................................................................................................................................... 14
GST Calculation .......................................................................................................................................................... 16
MCQ ........................................................................................................................................................................... 16
Short answer questions.............................................................................................................................................. 17
Long answer questions............................................................................................................................................... 17
Additional Practice Exercises for advanced learners.................................................................................................. 18
References .................................................................................................................................................................. 18
Name of the Faculty : Anik Ghosh

Designation and Department : Assistant Professor, Department of Management
Brainware University, Kolkata 1
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Module VI: Pricing in Retailing

Pricing strategies: GST calculation I retail in India.
Introduction
Price is the amount which one pays for a good or service or any idea. This is the amount for which the
product is exchanged with potential customers.
Pricing the product or the service is the most essential for a business decision that is to be made by the
owner of the business.
Factors Affecting Pricing Decision
(A) Internal Factors:

1. Organisational Factors:
Pricing decisions occur on two levels in the organisation. Over-all price strategy is dealt with by top
executives. They determine the basic ranges that the product falls into in terms of market segments. The
actual mechanics of pricing are dealt with at lower levels in the firm and focus on individual product
strategies. Usually, some combination of production and marketing specialists are involved in choosing the
price.
2. Marketing Mix:

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Marketing experts view price as only one of the many important elements of the marketing mix. A shift in
any one of the elements has an immediate effect on the other three—Production, Promotion and
Distribution. In some industries, a firm may use price reduction as a marketing technique.
Other firms may raise prices as a deliberate strategy to build a high-prestige product line. In either case, the
effort will not succeed unless the price change is combined with a total marketing strategy that supports it.
A firm that raises its prices may add a more impressive looking package and may begin a new advertising
campaign.
3. Product Differentiation:
The price of the product also depends upon the characteristics of the product. In order to attract the
customers, different characteristics are added to the product, such as quality, size, colour, attractive package,
alternative uses etc. Generally, customers pay more prices for the product which is of the new style, fashion,
better package etc.
4. Cost of the Product:

Cost and price of a product are closely related. The most important factor is the cost of production. In
deciding to market a product, a firm may try to decide what prices are realistic, considering current demand
and competition in the market. The product ultimately goes to the public and their capacity to pay will fix
the cost, otherwise product would be flapped in the market.
5. Objectives of the Firm:

A firm may have various objectives and pricing contributes its share in achieving such goals. Firms may
pursue a variety of value-oriented objectives, such as maximizing sales revenue, maximizing market share,
maximizing customer volume, minimizing customer volume, maintaining an image, maintaining stable
price etc. Pricing policy should be established only after proper considerations of the objectives of the firm.
(B) External Factors:

1. Demand:
The market demand for a product or service obviously has a big impact on pricing. Since demand is affected
by factors like, number and size of competitors, the prospective buyers, their capacity and willingness to
pay, their preference etc. are taken into account while fixing the price.
A firm can determine the expected price in a few test-markets by trying different prices in different markets
and comparing the results with a controlled market in which price is not altered. If the demand of the product
is inelastic, high prices may be fixed. On the other hand, if demand is elastic, the firm should not fix high
prices, rather it should fix lower prices than that of the competitors.
2. Competition:
Competitive conditions affect the pricing decisions. Competition is a crucial factor in price determination.
A firm can fix the price equal to or lower than that of the competitors, provided the quality of product, in
no case, be lower than that of the competitors.

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3. Suppliers:
Suppliers of raw materials and other goods can have a significant effect on the price of a product. If the
price of cotton goes up, the increase is passed on by suppliers to manufacturers. Manufacturers, in turn,
pass it on to consumers.
Sometimes, however, when a manufacturer appears to be making large profits on a particular product,
suppliers will attempt to make profits by charging more for their supplies. In other words, the price of a
finished product is intimately linked up with the price of the raw materials. Scarcity or abundance of the
raw materials also determines pricing.
4. Economic Conditions:
The inflationary or deflationary tendency affects pricing. In recession period, the prices are reduced to a
sizeable extent to maintain the level of turnover. On the other hand, the prices are increased in boom period
to cover the increasing cost of production and distribution. To meet the changes in demand, price etc.
Steps in Price Setting
1. Pricing objectives
Selecting the pricing objective means deciding in advance what the company wants to achieve through
offering its product. The marketing mix strategy, including price, becomes easier if the company can select
its target market and correctly position it.
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A firm can easily set the price of its product if it can clearly set its objectives. Pricing objectives are overall
goals that describe the role of price in an organization’s long-range plans. Pricing objectives will influence
decisions in most functional areas.
The objectives must be consistent with the organization’s overall objectives. Because of the many areas
involved, a marketer often uses multiple pricing objectives. Here we shall look at some of the typical pricing
objectives pursued by the marketing executives.
One of the six major objectives can be pursued by a firm through its pricing, such as survival, maximum
current profit, maximum sales growth, product quality leadership, maximize current revenue, or maximum
market skimming.
2. Assessment of Target Market’s Evaluation of Price and Its Ability to Purchase

Although it is assumed that price is a significant issue for customers, the price depends on the type of
product and the type of market the company targets.
By assessing the target market’s price evaluation, a marketer is better positioned to know how much
emphasis to place on price. Information about the target market’s price evaluation may also help a marketer
determine how far above the competition a firm can set its prices.
Understanding buyers’ purchasing power and knowing how important a product is to them compared to
other products helps marketers assess the target market’s price evaluation accurately.
3. Determination of Demand
The level of demand for a product depends on the price set levels, thus having different impacts on the
concerned firm’s marketing objectives. We can understand the relationships between price and demand
through the demand schedule.
The demand schedule tells us how much a product will be demanded (sold) at various prices. It is known
that the price-quantity relationship is inverse except for a few exceptions. That is, less will be demanded if
the price is charged high, and more will be demanded if the price is charged less, which means that buyers
are price sensitive.
In the case of specialty or prestige goods, a price increase may increase demand because buyers draw a
price-quality relationship: they take the higher price to signify a better or more exclusive item. We shall
now discuss the factors affecting the price sensitivity of buyers.
4. Analysis of Cost
In setting prices, a company considers its production, distribution, and other costs as demand elasticity.

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To stay in business, a company has to set prices that cover all its costs.
5. Evaluation of Competitors’ Costs, Prices, and Offers

To set prices appropriately, a company should have a clear picture of competitors’ cost, prices, and reactions
against the possible range of prices determined by market demand and cost. It is also imperative to know
in detail about competitors’ offers regarding quality, price, and other variables.
If the company finds that its offer is more or less similar to competitors’ offers, it should price close not to
lose sales. If it finds that it is in a superior position, it can charge a high price and charge a lower price than
competitors if its offer is found inferior to competitors’ offers.
Becoming aware of competitors’ prices, particularly, is not always an easy task, especially in producer and
reseller markets. Competitors’ price lists are often closely guarded.
Even if a marketer has access to competitive price lists, these lists may not reflect the actual prices at which
competitive products are sold. The actual prices may be established through negotiation.
Therefore, marketers need to be cautious in utilizing competitive price information while reaching price
decisions.
6. Selection of a Pricing Method

When a company has three Cs in hand, it is ready to select a price. The three Cs are customers’ demand
schedule, cost function, and competitors’ prices.
In selecting a price, a company has to select a particular pricing method, including cost considerations,
competitors’ prices, prices of substitutes; and, customers’ assessment of unique product features. The
various pricing methods are discussed below.
7. Determination of a Specific Price

The final price may be selected easily based on the pricing methods discussed earlier. To select the final
price, a few additional factors to be taken into consideration by a company.
These are psychological pricing, influences of other marketing mix elements on price, company pricing
policies, and price impact on other parties.

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Pricing Methods
Demand-Oriented Approaches
Demand-oriented pricing focuses on the customer side such as expected customer tastes and preferences
more heavily than other factors. Demand represents customers’ willingness to pay, which comes from
customers' tastes, evaluations of the product, interests, preferences, etc.
Demand orientation involves the following pricing methods:
• Skimming pricing
• Penetration pricing
• Prestige pricing
• Price lining pricing
• Odd-even pricing
• Target pricing
• Bundle pricing
• Yield management pricing
Skimming Pricing

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Price is set to the highest initial price level that customers who really desire the product/service are willing
to pay. Especially new or innovative products attract early buyers who believe that trying the
product/service before the majority of the market is a privilege. The idea with skimming pricing is to take
advantage of these price-insensitive buyers with the high price. As these customers' demand is satisfied, the
firm might lower the price to attract another, perhaps more price-sensitive segment.
Example: Space tourism is attracting early buyers. Some agencies are selling tickets priced at $200,000 -
$250,000 per person.
Skimming pricing is an effective strategy when the following are true:
• There are enough early buyers who are willing to buy the product immediately at the high initial
price.
• The high initial price will not attract competitors. High price signals to the potential competitors
that there is the possibility of profit in this market. It acts like an invitation to potential rivals.
• Lowering the price has only a minor effect on increasing the sales volume and reducing the unit
costs.
• Customers interpret the high price as signifying high quality. The relationship between price and
quality might help increase sales.
Penetration Pricing
Penetration pricing is the opposite of skimming pricing. The firm sets the price low initially to appeal to
the mass market.
Penetration pricing is an effective strategy when the following are true:
• Many segments of the market are price sensitive. This means that high price would significantly
lower sales and revenue. It is better to go in with a lower price.
• A low initial price discourages entry by competitors. High price might attract competition as it
signals profitability.
• Unit total costs fall dramatically as sales volume increases. Economies of scale allow firms to lower
their costs as they produce and sell large amounts of goods.
A firm applying penetration pricing may maintain the initial low price, or lower the price even further
hoping that higher sales volume would generate higher profit. Of course, the firm pays attention to
controlling the costs, as cost matters when calculating profit. In some cases penetration pricing follows
skimming pricing. The initial high price helps attract price-insensitive consumers, which allows for
covering initial research and development costs. After that, penetration pricing is used to capture broader
segments of the population.
Example: Amazon applied penetration pricing when they introduced the Amazon Fire tablet computer. The
price was $199 while substitute products were priced at $499.
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Prestige Pricing
Businesses set a high price so that quality- or status-conscious consumers will be attracted to the product
and buy it. For products/services with prestige attachment, lower price would reduce their sales since
consumers signal their status with using or consuming such products/services.
Example: A car by Rolls-Royce, or perfume by Chanel are attractive to status-conscious consumers.
Price Lining Pricing

Some firms sell not a single product but a line of products. It is called a price lining strategy when the firm
prices the products at a number of different specific pricing points. Even though the cost of all of the items
in the same product line might be the same, they are priced differently based on demand and preferences of
consumers.
Odd-Even Pricing
The price is set a few dollars or cents under an even number. It creates the illusion that the price is less than
what it really is.
Target Pricing
Seller deliberately adjusts the composition and features of a product to achieve its target price to consumers.
Target price is determined by marketers based on their research on the willingness to pay by the consumers.
That is the price the consumers should see on the price tag on the retailers. Marketers work backward
through mark-ups taken by retailers and wholesalers to determine what price the manufacturer can charge
the wholesalers for the product. This practice is called target pricing.
Bundle Pricing

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Bundle pricing means that two or more products are sold in a single "package" price. It helps the seller
lower its marketing costs since marketing two products together as a single package costs less than
marketing two products separately. These cost savings are often reflected to the buyers in the form of lower
prices. It also helps consumers save time since they do not have to search for and book two products
separately.
Yield Management Pricing

Yield management pricing is the practice of charging different prices to maximize revenue for a set amount
of capacity at any given time. The price of the same product differs based on time, day, week, month, or
season. As you have found in the previous lessons, capacity management is especially important for service
organizations.
Cost-Oriented Approaches
In cost orientation, the attention moves away from the demand side and focuses on the supply side with
cost considerations. As you have seen in the earlier lessons, profit will not be positive unless the revenues
from the sale of the product/service exceed all costs including the production and marketing costs.
There are three approaches in cost-oriented pricing:
• Standard mark-up pricing

• Cost-plus pricing
• Experience curve pricing
Standard Markup Pricing

The seller adds a fixed percentage to the cost of all items in a specific product class. The added percentage
depends on the product's sales volume. High-volume products usually have smaller markups than do low-
volume products.
Cost-Plus Pricing
The goal is to make sure that the cost is fully covered. The seller takes the total unit cost of providing a
product or service, and adds a specific amount to the cost to set the price. It is very commonly used in
setting prices for business products.
Experience Curve Pricing

As firms produce the same product/service on a larger scale, a learning effect takes place. Over time, the
producer is able to lower the unit variable cost as management figures out the most cost-effective production
method. The unit cost of many products/services declines by 10 to 30% each time a firm's experience at
producing/selling them doubles. This lower cost is often reflected in lower prices for the consumer.
Profit-Oriented Approaches

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Profit orientation requires setting the price to achieve targeted profits, return on sales, or return on
investment.
There are three profit-orientated pricing strategies:
• Target profit pricing

• Target return-on-sales pricing
• Target return-on-investment pricing
Target Profit Pricing

Managers might have an annual target of a specific dollar amount of profit. They set the price in order to
meet the targeted profit.
Target Return-on-Sales Pricing

Target profit pricing assumes a sales volume based on sensitivity of demand. The method of target return-
on-sales connects the sales volume to profit with a specific percentage. Many firms such as supermarket
chains often use target return-on-sales pricing that will give the firm a profit that is a specified percentage
of sales volume.
Example: The price is set to achieve a profit that is equal to 5% of the sales volume.
Target Return-on-Investment Pricing

Some firms require large amounts of fixed costs when setting up their businesses. Examples are firms such
as GM, and many public utilities. Due to the high fixed costs and investment requirements, managers set
annual return-on-investment (ROI) targets in pricing.
Example: The price is set to achieve a ROI of 20%.
Competition-Oriented Approaches
This orientation focuses on the behaviour of competitive firms in the market.
There are three competition-oriented strategies:
• Customary pricing
• Above-, at-, or below–market pricing
• Loss-leader pricing
Customary Pricing
For some products, tradition or standardized channels of distribution might dictate the price. Customary
pricing is applied in such cases. A difference in price might lead to loss of the distribution channel and
market share.

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Above-, At-, or Below-Market Pricing

Some companies charge above-market prices while others charge at-market or below-market prices. Their
decision is related to brand recognition.
Examples: Rolex makes and sells one of the most expensive watches you can ever buy. Rolex’s pricing
strategy is an example of above-market pricing. Bed Bath & Beyond and Hudson's Bay generally use at-
market pricing. Walmart follows a below-market pricing strategy.
Loss-Leader Pricing
Retail stores apply special promotions by deliberately selling products below their market prices to attract
attention to them. The idea is to increase traffic to the store. Even though the retailer might incur a loss
from the particular items priced below market price, profits increase as a result of higher traffic. Customers
buy other products as well, particularly discretionary items carrying large markups.
GST
• GST is known as the Goods and Services Tax.
• It is an indirect tax which has replaced many indirect taxes in India such as the excise duty, VAT,
services tax, etc.
• The Goods and Service Tax Act was passed in the Parliament on 29th March 2017 and came into
effect on 1st July 2017.

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The Journey of GST in India
Objectives Of GST
❖ To achieve the ideology of ‘One Nation, One Tax’
❖ To subsume a majority of the indirect taxes in India
❖ To eliminate the cascading effect of taxes
❖ To curb tax evasion

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❖ To increase the taxpayer base
❖ Online procedures for ease of doing business
❖ An improved logistics and distribution system
❖ To promote competitive pricing and increase consumption
Components Of GST
There are three taxes applicable under this system: CGST, SGST & IGST.
❖ CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction
happening within Maharashtra)
❖ SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction
happening within Maharashtra)
❖ IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra to
Tamil Nadu)
5% Tax Slab

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12% Tax Slab
18% Tax Slab
28% Tax Slab

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GST Calculation
GST calculation can be explained by a simple illustration : If a goods or services is sold at Rs. 1,000 and
the GST rate applicable is 18%, then the net price calculated will be = 1,000+ (1,000X(18/100)) =
1,000+180 = Rs. 1,180.
MCQ
Question Option A Option B Option C Option D Answer
1. Pricing is the
amount for which the b) Potential
a) Competitors c) Suppliers d) Retailers b
product is exchanged customers
with:
2. Pricing decisions
occur on two levels in
a) Individual c) Production
an organization. What b) Market d) None of
product and marketing b
is the overall price segments the above
strategies specialists
strategy dealt with by
top executives?
3. Which of the
following is NOT a a) Cost of the b) Objectives of c) Suppliers of d) Employee
d
factor affecting product the firm raw materials salaries
pricing decision?
4. Which pricing
d) Product
objective aims to b) Maximum c) Maximum
a) Survival quality c
maximize market current profit sales growth
leadership
share?
5. What does a
d) They are
demand schedule tell a) They are b) They are
c) They are dependent
us about the directly inversely b
not related on external
relationship between proportional proportional
factors
price and demand?

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Question Option A Option B Option C Option D Answer
6. What does a a) Production c) Customers'

b) Competitors' d) All of the
company consider in and distribution demand d
costs and prices above
setting prices? costs schedule
7. Which of the
d) Target
following is a a) Markup b) Cost-plus c) Prestige
return c
demand-oriented pricing pricing pricing
pricing
pricing method?
b) To set the c) To attract d) To

a) To attract
8. What is the purpose price equal to early buyers maximize
price-sensitive c
of skimming pricing? that of willing to pay current
buyers
competitors a high price revenue
9. A company using
odd-even pricing
a) $10 b) $9.99 c) $9.95 d) $9.97 b
would price a product
at:
10. What additional

b) Influences of
factors does a a) c) Company
other marketing d) All of the
company consider in Psychological pricing d
mix elements on above
determining a specific pricing policies
price
price?
Short answer questions
1. What is pricing in business?

2. What are the two levels at which pricing decisions occur in an organization?
3. Name one internal factor that affects pricing decisions.
4. What is the most important factor that determines the cost and price of a product?
5. Name one value-oriented pricing objective.
6. What is a demand schedule and how does it affect pricing decisions?
7. Name one demand-oriented pricing method.
8. What is skimming pricing and what is its purpose?
9. What is odd-even pricing?
10. What other factors do companies consider when determining a specific price for their product?
Long answer questions
1. What are the factors affecting pricing decision in business? Explain each of them in detail.
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2. Describe the steps involved in price setting. How does a company determine the price of its
product or service?
3. What are the different pricing methods that a company can use? Explain each of them in detail.
4. What is GST and how does it affect pricing in retailing in India? Explain with examples.
5. What are the advantages and disadvantages of value-based pricing? How does it differ from cost-
based pricing and competition-based pricing? Provide examples to illustrate your answers.
Additional Practice Exercises for advanced learners
Case 1:
Company X is launching a new luxury product in a highly competitive market. How should the company determine
the pricing strategy to maximize profits and maintain a premium brand image?
Case 2:
Company Y has been experiencing a decline in sales for its flagship product. As a marketing consultant, what
pricing strategies would you recommend to revitalize the product's demand and regain market share?
Case 3:
Company Z operates in a market with intense price competition. How can the company differentiate its product
from competitors while maintaining a reasonable price point?
Case 4:
Company A is planning to introduce a new product with innovative features and superior quality. How should the
company set the initial price to effectively communicate the product's value proposition and capture early
adopters?
Case 5:
Company B is considering implementing a dynamic pricing strategy for its e-commerce platform. What factors
should the company consider when determining dynamic pricing, and how can it optimize pricing decisions to
maximize revenue and customer satisfaction?
References
Text Books
1. Pradhan, Swapna, Retailing Management Text and cases 3rd Edition, The McGraw Hill, New Delhi
2. Bajaj, Chetan; Tuli, Rajnish and Srivastava, Nidhiv, Retail Management 2nd Edition, Oxford University Press, New
Delhi
Reference Books
1. Bhalla Swati, S. Anuraag. Visual Merchandizing, the McGraw Hill, New Delhi

Class
Other Learning Resources (Name and/or URL of Journals/MOOCs/Online Resources, if

Applicable)
1. International Journal of Retail & Distribution Management
(https://www.emerald.com/insight/publication/issn/0959-0552):
2. Journal of Retailing (https://www.sciencedirect.com/journal/journal-of-retailing)


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Programme Name and Semester: BBA, 5th Semester

Course Name (Course Code): Retail Management, BBAD502M

Name of the Faculty : Anik Ghosh

Module VI: Pricing in Retailing

Factors Affecting Pricing Decision

(A) Internal Factors:

Name of the Faculty : Anik Ghosh

4. Cost of the Product:

5. Objectives of the Firm:

(B) External Factors:

Name of the Faculty : Anik Ghosh

Steps in Price Setting

2. Assessment of Target Market’s Evaluation of Price and Its Ability to Purchase

Name of the Faculty : Anik Ghosh

5. Evaluation of Competitors’ Costs, Prices, and Offers

6. Selection of a Pricing Method

7. Determination of a Specific Price

Name of the Faculty : Anik Ghosh

Name of the Faculty : Anik Ghosh

Skimming pricing is an effective strategy when the following are true:

Penetration pricing is an effective strategy when the following are true:

Example: A car by Rolls-Royce, or perfume by Chanel are attractive to status-conscious consumers.

Price Lining Pricing

Name of the Faculty : Anik Ghosh

Yield Management Pricing

There are three approaches in cost-oriented pricing:

• Standard mark-up pricing

Standard Markup Pricing

Experience Curve Pricing

Name of the Faculty : Anik Ghosh

There are three profit-orientated pricing strategies:

• Target profit pricing

Target Profit Pricing

Target Return-on-Sales Pricing

Target Return-on-Investment Pricing

Example: The price is set to achieve a ROI of 20%.

There are three competition-oriented strategies:

Name of the Faculty : Anik Ghosh

Above-, At-, or Below-Market Pricing

• GST is known as the Goods and Services Tax.

Name of the Faculty : Anik Ghosh

The Journey of GST in India

❖ To achieve the ideology of ‘One Nation, One Tax’

❖ To subsume a majority of the indirect taxes in India

❖ To eliminate the cascading effect of taxes

❖ To curb tax evasion

❖ To increase the taxpayer base

❖ Online procedures for ease of doing business

❖ An improved logistics and distribution system

❖ To promote competitive pricing and increase consumption

Name of the Faculty : Anik Ghosh

12% Tax Slab

18% Tax Slab

28% Tax Slab

Name of the Faculty : Anik Ghosh

Question Option A Option B Option C Option D Answer

Name of the Faculty : Anik Ghosh

Question Option A Option B Option C Option D Answer

6. What does a a) Production c) Customers'

b) To set the c) To attract d) To

10. What additional

Short answer questions

1. What is pricing in business?

Long answer questions