Transcript The Retail Price

Chap 5..The Retail Price
What is Price?
Price is the amount of money which customer
can pay in a given product.
The right price is that which consumers are willing
and able to pay and retailers are willing to
accept in exchange for merchandise and
services
Determinants of Pricing Strategy
Target Market
Type of Merchandise
Costs to the firm
Target Market
How sensitive are consumers to changes
in price? (price elasticity)
Does the target market use price as a
replacement for quality?
Type of Merchandise
Convenience goods
Products consumers
want but are not
willing to spend much
time/effort, or money
to purchase. Little
product differentiation.
Generally low-price,
low mark-up,
Shopping goods
Products that
consumers are willing
to expend
considerable time and
effort in evaluting and
comparing various
attributes and
price/quality.
Costs to the Firm
Merchandise Costs
Fixed Costs (e.g. insurance, equip.,
salaries, lights, heat)
Variable Costs (e.g. promotional
expenditures, delivery costs, seasonal
employees)
Semi-Variable Costs (e.g. gift , credit)
Tips for Pricing Decisions
 identify of averaging total variable costs to estimate cost
of a single unit.
 identify of accounting depreciation formulas – more
important to know the actual value of the asset for
future use
 Effective pricing must be approached holistically
Sales forecasts
Market share
Break-even point
Expenditures on advertising, packaging, gift , etc.
Pricing Objectives
Sales Objectives(to increase sales of the
business)
Market-Share Objectives(increasing
customer)
Growth
Profit Objectives
Profit maximization
Competitive Objectives (meet, stop,
Price Setting Methods
Mark-up Method
Competitive Pricing Method
Vendor Pricing Method
Mark-up Method of Pricing
Mark-up is the difference between the
cost of the merchandise and its retail
price. May be expressed as a % of cost
or retail price.
Competitive Pricing
Method
The retailer sets retail prices in relation to
competitors’ prices. No reaction to
changes in demand or costs unless
reflected in competition’s prices. Largely
a judgmental pricing method whereby the
retailer uses competitor’s prices as
reference points for price-setting
decisions.
Vendor Pricing Method
 vendor pricing method manufacture or wholesaler
determine the retail price. Vendors can suggest
prices by providing a pricing list, printing the price
and with the help of detail information.
 Retailer is not required to use suggested retail price,
but many retailers believe it represents a fair
estimate of the going market price.
Price Setting Policies
One-Price Policy
Variable-Price Policy
Multiple-Price Policy
Odd Pricing Policy
Unit Pricing Policy
One-Price Policy
Business charged the same price for the same
customer but in those product which have the
same features.
Advantages:
Facilitates speed of transactions, simplifies
accounting records, limits need for sales personnel,
reduces customers’ uncertainty
Disadvantages:
Lack of flexibility , failure to meet some consumers’
desire to “knock down the price”
Variable-Price Policy
Policy which allows the customer to negotiate
the final selling price.
Usually implemented when:
products have high price
need for personal selling
Advantage: flexibility
Disadvantages: increased costs (personnel,
time), customer dissatisfaction
Multiple-Price Policy
Attempts to increase both unit and dollar
sales volume by giving customers a
reduced price or discount for making
quantity purchases.
Odd Pricing Policy
Form of psychological pricing where
consumers will perceive odd prices as
lower than even prices ($2.95 is less than
$3.00)
Unit-Pricing Policy
Practice of posting prices on a per unit
measurement basis in order to facilitate
price comparisons between various
package sizes, shapes, brands, etc.