Merchandise Management:

Retail Pricing
Chapter 10
Goals for Chapter 10
 Goals for Chapter 10
 Discuss Pricing
Decisions
 Goals for Chapter 10
 Discuss Pricing
Decisions
 Discuss Pricing
Objectives
 Goals for Chapter 10
 Discuss Pricing
Decisions
 Discuss Pricing
Objectives
 Introduce Pricing
Policies
 Goals for Chapter 10
 Discuss Pricing
Decisions
 Discuss Pricing
Objectives
 Introduce Pricing
Policies
 Discuss Specific Pricing
Strategies
 Goals for Chapter 10
 Discuss Pricing
Decisions
 Discuss Pricing
Objectives
 Introduce Pricing
Policies
 Discuss Specific Pricing
Strategies
 Discuss Markup Formula
 Goals for Chapter 10
 Discuss Pricing Decisions
 Discuss Pricing
Objectives
 Introduce Pricing Policies
 Discuss Specific Pricing
Strategies
 Discuss Markup Formula
 Discuss Retail Price
Adjustments
Pricing Decisions
Pricing Decisions

 Pricing Decisions
Interact with other
Retail Decisions
Pricing Decisions

 Pricing Decisions
Interact with other
Retail Decisions
• Merchandise
Pricing Decisions

 Pricing Decisions
Interact with other
Retail Decisions
• Merchandise
• Location
Pricing Decisions

 Pricing Decisions
Interact with other
Retail Decisions
• Merchandise
• Location
• Promotion
Pricing Decisions

 Pricing Decisions
Interact with other
Retail Decisions
• Merchandise
• Location
• Promotion
• Credit
Pricing Decisions

 Pricing Decisions
Interact with other
Retail Decisions
• Merchandise
• Location
• Promotion
• Credit
• Customer Services
Pricing Decisions

 Pricing Decisions
Interact with other
Retail Decisions
• Merchandise
• Location
• Promotion
• Credit
• Customer Services
• Store image
Pricing Decisions

 Pricing Decisions
Interact with other
Retail Decisions
• Merchandise
• Location
• Promotion
• Credit
• Customer Services
• Store image
• Legal Constraints
Exhibit 10.1

Interaction Between a Retailer’s Pricing

Objectives and Other Retail Decisions

Merchandise
Legal Location
Constraints
A Retailer’s Pricing
Objectives Must
Store Interact with These Promotion
Image Other Decisions

Customer
Credit
Service
Retailing, 3rd Edition, Dunne and Lusch Copyright © 1999 by Harcourt Brace & Company
All rights reserved.
Pricing Objectives
 Pricing Objectives
 Pricing does not equal Value
 Pricing Objectives
 Pricing does not equal Value
 Value is an interaction of
price, quality, service,
functionality, convenience,
consumer intangibles
 Pricing Objectives
 Pricing does not equal Value
 Value is an interaction of
price, quality, service,
functionality, convenience,
consumer intangibles
 Ultimately, pricing must be
based on profit
 Pricing Objectives
 Pricing does not equal Value
 Value is an interaction of
price, quality, service,
functionality, convenience,
consumer intangibles
 Ultimately, pricing must be
based on profit
 Other objectives can be sales
- volume or market share
 Pricing Objectives
 Pricing does not equal Value
 Value is an interaction of
price, quality, service,
functionality, convenience,
consumer intangibles
 Ultimately, pricing must be
based on profit
 Other objectives can be sales
- volume or market share
 Objective related to
competition
 PRICING OBJECTIVES

Pricing Objectives

Profit-Oriented Sales Oriented Status Quo

Profit
Target Return
Maximization

Skimming Penetration

Retailing, 3rd Edition, Dunne and Lusch Copyright © 1999 by Harcourt Brace & Company
All rights reserved.
Pricing Policies
Pricing Policies

 Above the Market

Pricing Policies

 Above the Market

• Exclusive Merchandising
Pricing Policies

 Above the Market

• Exclusive Merchandising
• Services provided
Pricing Policies

 Above the Market

• Exclusive Merchandising
• Services provided
• Convenient Locations
Pricing Policies

 Above the Market

• Exclusive Merchandising
• Services provided
• Convenient Locations
• Convenient Hours
Pricing Policies

 Above the Market

• Exclusive Merchandising
• Services provided
• Convenient Locations
• Convenient Hours
 Market Level
Pricing Policies

 Above the Market

• Exclusive Merchandising
• Services provided
• Convenient Locations
• Convenient Hours
 Market Level
• Prices that meet target
markets expectations
Pricing Policies

 Above the Market

• Exclusive Merchandising
• Services provided
• Convenient Locations
• Convenient Hours
 Market Level
• Prices that meet target
markets expectations
 Below the Market
Pricing Policies

 Above the Market

• Exclusive Merchandising
• Services provided
• Convenient Locations
• Convenient Hours
 Market Level
• Prices that meet target
markets expectations
 Below the Market
• discount pricing
Pricing Strategies (1 of 3)
 Pricing Strategies (1 of 3)

 Customary pricing
 Pricing Strategies (1 of 3)

 Customary pricing
• Consistent price
over a period of time
 Pricing Strategies (1 of 3)

 Customary pricing
• Consistent price
over a period of time
 Variable Pricing
 Pricing Strategies (1 of 3)

 Customary pricing
• Consistent price
over a period of time
 Variable Pricing
• Prices rise and fall
predictably related
to demand
 Pricing Strategies (1 of 3)

 Customary pricing
• Consistent price
over a period of time
 Variable Pricing
• Prices rise and fall
predictably related
to demand
 Flexible Pricing
 Pricing Strategies (1 of 3)

 Customary pricing
• Consistent price
over a period of time
 Variable Pricing
• Prices rise and fall
predictably related
to demand
 Flexible Pricing
• Discounts given to
specific customers
 Pricing Strategies (1 of 3)

 Customary pricing
• Consistent price
over a period of time
 Variable Pricing
• Prices rise and fall
predictably related
to demand
 Flexible Pricing
• Discounts given to
specific customers
 Pricing Strategies (1 of 3)

 Customary pricing
• Consistent price
over a period of time
 Variable Pricing
• Prices rise and fall
predictably related
to demand
 Flexible Pricing
• Discounts given to
specific customers
 One-Price Policy
 Pricing Strategies (1 of 3)

 Customary pricing
• Consistent price over a
period of time
 Variable Pricing
• Prices rise and fall
predictably related to
demand
 Flexible Pricing
• Discounts given to
specific customers
 One-Price Policy
• No Discounting
 Pricing Strategies (1 of 3)

 Customary pricing
• Consistent price over a
period of time
 Variable Pricing
• Prices rise and fall
predictably related to
demand
 Flexible Pricing
• Discounts given to Haggling
specific customers
 One-Price Policy
• No Discounting
Pricing Strategies (2 of 3)
 Pricing Strategies (2 of 3)

 Price Lining
 Pricing Strategies (2 of 3)

 Price Lining
• Series of merchandise at relatively
equal pricing for quality
 Pricing Strategies (2 of 3)

 Price Lining
• Series of merchandise at relatively
equal pricing for quality
 Odd Pricing
 Pricing Strategies (2 of 3)

 Price Lining
• Series of merchandise at relatively
equal pricing for quality
 Odd Pricing
• Prices end in digits 5, 8 or 9
 Pricing Strategies (2 of 3)

 Price Lining
• Series of merchandise at relatively
equal pricing for quality
 Odd Pricing
• Prices end in digits 5, 8 or 9
 Multiple Unit Pricing
 Pricing Strategies (2 of 3)

 Price Lining
• Series of merchandise at relatively
equal pricing for quality
 Odd Pricing
• Prices end in digits 5, 8 or 9
 Multiple Unit Pricing
• Prices stated for more than one (e.g.
3 for $1.00. Can buy separately)
 Pricing Strategies (2 of 3)

 Price Lining
• Series of merchandise at relatively
equal pricing for quality
 Odd Pricing
• Prices end in digits 5, 8 or 9
 Multiple Unit Pricing
• Prices stated for more than one (e.g.
3 for $1.00. Can buy separately)
 Bundle Pricing
 Pricing Strategies (2 of 3)

 Price Lining
• Series of merchandise at relatively
equal pricing for quality
 Odd Pricing
• Prices end in digits 5, 8 or 9
 Multiple Unit Pricing
• Prices stated for more than one (e.g. 3
for $1.00. Can buy separately)
 Bundle Pricing
• Prices stated for more than one (e.g.,
3 for $1.00. Must buy together)
 Pricing Strategies (2 of 3)

 Price Lining
• Series of merchandise at relatively
equal pricing for quality
 Odd Pricing
• Prices end in digits 5, 8 or 9
 Multiple Unit Pricing
• Prices stated for more than one (e.g. 3
for $1.00. Can buy separately)
 Bundle Pricing
• Prices stated for more than one (e.g.,
3 for $1.00. Must buy together)
Pricing Strategies (3 of 3)
 Pricing Strategies (3 of 3)

 Leader Pricing
 Pricing Strategies (3 of 3)

 Leader Pricing
• Sell items at or below cost to bring
customers into store
 Pricing Strategies (3 of 3)

 Leader Pricing
• Sell items at or below cost to bring
customers into store
 Bait and Switch Pricing
 Pricing Strategies (3 of 3)

 Leader Pricing
• Sell items at or below cost to bring
customers into store
 Bait and Switch Pricing
• Against the law
 Pricing Strategies (3 of 3)

 Leader Pricing
• Sell items at or below cost to bring
customers into store
 Bait and Switch Pricing
• Against the law
 Private Brand Pricing Prices
 Pricing Strategies (3 of 3)

 Leader Pricing
• Sell items at or below cost to bring
customers into store
 Bait and Switch Pricing
• Against the law
 Private Brand Pricing
 Pricing Strategies (3 of 3)

 Leader Pricing
• Sell items at or below cost to bring
customers into store
 Bait and Switch Pricing
• Against the law
 Private Brand Pricing
• Sell own label goods at reduced
prices.
 Pricing Strategies (3 of 3)

 Leader Pricing
• Sell items at or below cost to bring
customers into store
 Bait and Switch Pricing
• Against the law
 Private Brand Pricing
• Sell own label goods at reduced
prices.
• Own label becomes its own brand.
 Pricing Strategies (3 of 3)

 Leader Pricing
• Sell items at or below cost to bring
customers into store
 Bait and Switch Pricing
• Against the law
 Private Brand Pricing
• Sell own label goods at reduced
prices.
• Own label becomes its own brand.
• Care must be taken not to
underprice
Markups
 Markups

 Understanding of basic
markup formulae
critical to ensuring
proper pricing
 Markups

 Understanding of basic
markup formulae
critical to ensuring
proper pricing
 Markup must cover
 Markups

 Understanding of basic
markup formulae
critical to ensuring
proper pricing
 Markup must cover
• planned profit
 Markups

 Understanding of basic
markup formulae
critical to ensuring
proper pricing
 Markup must cover
• planned profit
• operating expenses
 Markups

 Understanding of basic
markup formulae
critical to ensuring
proper pricing
 Markup must cover
• planned profit
• operating expenses
• markdowns
 Markups

 Understanding of basic
markup formulae
critical to ensuring
proper pricing
 Markup must cover
• planned profit
• operating expenses
• markdowns
• discounts
 Markups

 Understanding of basic
markup formulae critical
to ensuring proper
pricing
 Markup must cover
• planned profit
• operating expenses
• markdowns
• discounts
• stock shortages
Exhibit 10.4

Basic Markup Formulas

% Markup on Selling Price = Selling Price - Cost

Selling Price

= Markup
Selling Price

% Markup on Cost = Price - Cost = Markup

Cost Cost

Finding % Markup on Cost when % Markup on Selling

is Known:
% Markup on Cost = % Markup on Selling Price
100% - % Markup on Selling Price
Retailing, 3rd Edition, Dunne and Lusch Copyright © 1999 by Harcourt Brace & Company
All rights reserved.
Pricing Adjustments
 Pricing Adjustments

 Discounts - e.g., employee, senior

citizen
 Pricing Adjustments

 Discounts - e.g., employee, senior

citizen
 Markdowns -- caused by failure to sell
product at full price
 Pricing Adjustments

 Discounts - e.g., employee, senior

citizen
 Markdowns -- caused by failure to sell
product at full price
 Pricing Adjustments

 Discounts - e.g., employee, senior

citizen
 Markdowns -- caused by failure to sell
product at full price
 Sales - planned markdown used to
stimulate product movement
 Pricing Adjustments

 Discounts - e.g., employee, senior

citizen
 Markdowns -- caused by failure to sell
product at full price
 Sales - planned markdown used to
simulate product movement
 Coupons - can be manufacturer (cost
borne by manufacturer) or in-store
coupons (cost borne by retailer)
 Pricing Adjustments

 Discounts - e.g., employee, senior

citizen
 Markdowns -- caused by failure to sell
product at full price
 Sales - planned markdown used to
simulate product movement
 Coupons - can be manufacturer (cost
borne by manufacturer) or in-store
coupons (cost borne by retailer)
 Pricing Adjustments

 Discounts - e.g., employee, senior

citizen
 Markdowns -- caused by failure to sell
product at full price
 Sales - planned markdown used to
simulate product movement
 Coupons - can be manufacturer (cost
borne by manufacturer) or in-store
coupons (cost borne by retailer)
 Special purchase, i.e, bonus buy - often
tied in to manufacturer special
promotional allowance
Summary
 Summary

 Pricing Policy is
Critical to Retail
Success
 Summary

 Pricing Policy is
Critical to Retail
Success
 Underpricing is
as harmful to
retail success
as Overpricing
 Summary

 Pricing Policy is
Critical to Retail
Success
 Underpricing is
as harmful to
retail success
as Overpricing
 Items must be
priced to Sell