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Retail Pricing

Overview
1)Consideration in setting retail prices 2)Setting Retail Prices 3)Price Adjustments 4)Pricing Strategies 5)Pricing Techniques for increasing sales

1)Setting Retail Price Consideration


1.

Cost

2.

Price sensitivity
1. 2. 3. 4.

Elasticity effects Product with substitutes are price inelastic, necessities are price inelastic and products that are expensive relative to income is price elastic and reducing price competition

3.

Competition-collecting and using competitive price data Legal and Ethical Constraints-price discrimination(retailers charge diff prices for identical products to diff customers

4)

4)Legal and Ethical Constraints price discrimination(retailers charge diff prices for identical products to diff customers

Predatory pricing-low prices below the cost price


Resale price maintenance=encourage retailers to sell their merchandise at a specific price (manufacturers suggested retail prices to reduce retail price competition and eliminate retailers to provide complementary products) Horizontal price fixing-agreement b/w retailers to fix a price Bait and Switch tactics-deceptive practise that lures customers at store and induce him to buy a high priced model

2)Setting Retail price


Reductions: Rs10 Maintained Markup Rs30 Cost of Merchandise Rs60 Initial Retail Price Rs100 Initial Markup = 40%

Maintained Markup as % of actual sales Rs30/Rs90 = 33%

Setting price based on price senstivity of consumers and cost of merchandise Limitation-

1)Fails to consider competitor prices


2)Requires knowledge of price senstivity of each item Retail price=cost of merchandise+ mark up Initial mark up=initial retail price cost of merchandise

Mantained mark up=actual sales realised for merchandise costs (gross margin of product
Profit Impact of setting a retail price-Break even Number and Quantity

3)Adjusting Retail Prices

Mark downs: price reductions on initial retail price

Promotional: Holidays, special events, even-out traffic Clearance: Obsolete, slow- and nonmoving, end-of-season

Variable Pricing Methods

First Degree price discrimination:

Based on willingness to pay (not popular)charging individual customers a different price


Difficult to access customers willingness and retailers cannot change the posted price in stores based on willingness to pay Same price to all on special time/category but some customers pay lower prices either because of clearance markdown,coupons.price bundling or multiple unit pricing(reduce cost for buying nore units)

Second Degree price discrimination:

Third Degree price discrimination:

Different prices for different market segments


Also called zone pricing (charging different prices in different markets,stores or regions

4)Pricing Strategies
1)High/low pricing-increases profit margin,creates sales and causes excitement 2)Everyday low pricing- assures customers of low prices ,reduces advertising expense and reduces stock outs and improves inventory management

5)Pricing Techniques for Increasing Sales

Leader Pricing

Loss Leaders to get the shoppers inside. pricing certain items lower than normal to increase customers
Graded pricing to reflect quality, performance and durability

Price Lining

Reduces confusion and simplifies merchandising task and give buyers greater flexibility
99,9, 0.99 etc Practice of using a price that ends in odd number Effective when price senstivity is high

Odd Pricing

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