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Chap014 - Levy
Chap014 - Levy
Chap014 - Levy
Retail Pricing
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Merchandise Management
Merchandise Buying
Planning Systems Merchandise
Chapter 12 Chapter 13
Retail Retail
Pricing Communication
Mix
Chapter 14 Chapter 15
13-2
Why is Pricing Important?
15-4
Considerations in Setting Retail Prices
15-6
Customer Price sensitivity and Cost
15-7
Price Experiment
15-8
Price Elasticity
15-11
Price Elasticity
15-12
Price Elasticity
= (1100-1500)/1500
(100-90)/90
= -0.2667
.1111
= -2.4005
Price Elasticity
Price Elasticity
■ Substitutable products/services
■ Products/services necessitates
■ Products that are expensive
relative to a consumer’s income
Historically, the price elasticity of gasoline has been greater than -1,
so increases in price have not led to a proportional decrease in sales. 15-14
How Can Retailers Reduce Price Competition?
15-18
PhotoLink/Getty Images
Retail Price and Gross Margin (GM)
Retail Price
$125
Margin
$50
Cost of
GM as a Percent of Merchandise $75
Retail Price
40% = $50/$125
Retail Price = cost + GM
GM% = retail price – cost
retail price
15-20
Breakeven Analysis
Contribution/Unit
Breakeven
point
Fixed Costs
Unit Sales
Fixed cost
Break-even =
quantity Actual unit sales price - Unit variable cost
The quantity at which total revenue equals total cost, and then profit
Occurs for additional sales 15-28
Price Adjustments
15-33
Reasons for Taking Markdowns
■ Promotional Markdowns
To increase sales and promote
merchandise
To Increase traffic flow and sale of
complementary products generate
excitement through a sale
15-34
Liquidating Markdown Merchandise
PhotoLink/Getty Images
15-37
Variable Pricing and Price Discrimination
15-38
Shoppers at Ukrop’s use their loyalty card at
a kiosk and receive unadvertised
personalized coupons
eBay: Auction on
porsche speeder 1960
15-39
Variable Pricing and Price Discrimination
Continued
■ Clearance Markdowns for Fashion Merchandise
■ Coupons
■ Price Bundling
McDonald’s Value Meal
Kids Menu
15-40
Pricing Strategies: High/Low Pricing
■ Advantages
Increases profits through price discrimination
Sales create excitement
Sells merchandise
■ Disadvantages
Train people to buy on deal and wait
Have an adverse effect on profits
15-42
Pricing Strategies: Everyday Low Pricing
15-43
Pricing Strategies
EDLP Hi-Lo
■ Assures customers low ■ Higher profits through
prices price discrimination
■ Reduces advertising and ■ More excitement
operating expenses ■ Build short-term sales
■ Better supply chain and generates traffic
management
Fewer stockouts
Higher inventory turns
15-44
Pricing Techniques for Increasing Sales
■ Leader Pricing
■ Price Lining
■ Odd Pricing
15-48
Leader Pricing
15-49
Dennis Gray/Cole Group/Getty Images Allan Rosenberg/Cole Group/Getty Images Ryan McVay/Getty Images
Price Lining
15-50
Odd Pricing
15-51
Guidelines for Price-ending Decisions
■ When the price sensitivity of the market is NOT high, the risk to
one’s image of using 9 is likely to outweigh the benefits. Even dollar
prices and round numbers are appropriate.
15-52
Internet and Price Competition
These programs search for and provide lists of sites selling what
interests the consumer
(c) image100/PunchStock
15-53
The Three Most Important Things in Electronic Retailing
15-54
Legal and Ethical Pricing Issues
15-55