Retail Pricing

Price is a measure of value and the

only element of the marketing mix that
represents revenue
Price
 Is the most flexible marketing mix element
 Can be changed quickly unlike product features, channel
commitments and promotions
 Communicates the intended value positioning to the
market
 Decisions are complex and difficult
Consumer psychology and
pricing
 Economists don’t understand price
 Consumers don not accept prices as given
 Consumers interpret price according to prior knowledge and
experience and purchase decisions are based on perception
of price
 Consumers have lower and upper threshold prices – below
which the price signals inferior quality, above which it signals
inferior value
Consumer psychology and
pricing

 Price cues: consumers process prices left to right rather than

rounding

 Hence Rs 299 is closer to Rs 200 than to Rs 300

 Prices ending in odd numbers convey a deduction or discount.

Firms with high price images should avoid this

Consumer psychology and
pricing
 Price – Quality inference: many consumers use price as
an indicator of quality
 Image pricing is effective with ego-sensitive products
 Price and quality perceptions of cars correlate positively
 Only when information about true quality is available
does price become a less significant indicator of quality
 Consumers often use reference prices
Importance of price in retailing
Strategic pricing decisions
 What value are we providing for customers
 Customer perception of our product
 Perception relative to competitors
 Product costs
 Margin required
 Sales/marketing objectives
 Pricing objectives
 Main retailer pricing strategies
 Perceived value pricing: (can be Premium superior products, service and store interiors but at
a higher price eg Waitrose; can be “price buyer” or discount, low prices with minimal service
eg Aldi, Lidl; can be “loyal buyer,” based on relationship building and intimacy; can be
combination eg Tesco
 Value Pricing or Every Day Low Price (reliable prices with few or no promotions whilst
maintaining service levels eg IKEA, WalMart). Hi-Lo is higher prices on everyday basis but
reduced below edlp level by frequent promotions
 Going-Rate pricing: based largely on competitor prices, follow the leader
Price Strategy

 Demand-Oriented Pricing
 Cost-Oriented Pricing
 Competition-Oriented Pricing
Setting retail prices – cost
oriented pricing

 Apply necessary mark-up to cost price to achieve profit objectives

 Cost price to include purchase ,transport, storage, selling etc
 Must not exceed ceiling above which price is expensive relative to
competitors
 Weaknesses lie in price/demand/marketplace/competitor
considerations
Demand oriented retail pricing
 Based on demand rather than supply factors
 Use price tactically according to market demand
 Knowledge of consumers
 Respond to competitive pressure
 Stimulate demand for other/related items
 Achieve market presence
 Discrimination, backward, skimming, leader, competitive,
penetration, EDLP
Key elements
Promotion Mix