Transcript Price

Chapter 17
Pricing in Retailing
RETAIL
MANAGEMENT:
A STRATEGIC
APPROACH,
9th Edition
BERMAN
EVANS
Chapter Objectives
 To describe the role of pricing in a retail
strategy and to show that pricing decisions
must be made in an integrated and adaptive
manner
 To examine the impact of consumers;
government; manufacturers, wholesalers, and
other suppliers; and current and potential
competitors on pricing decisions
 To present a framework for developing a retail
price strategy: objectives, broad policy, basic
strategy, implementation, and adjustments
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Pricing Options for Retailers
Discount orientation
At-the-market orientation
Upscale orientation
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Figure 17.1 Ross Dress for Less
Means Value
17-4
Figure 17.2 Factors Affecting
Retail Price Strategy
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Price Elasticity of Demand
The sensitivity of customers to price
changes in terms of the quantities they will
buy
* Elastic – small percentage changes in
price lead to substantial percentage
changes in the number of units bought
* Inelastic – large percentage changes in
price lead to small percentage changes
in the number of units bought
17-6
Table 17.1 A Movie Theater’s
Elasticity of Demand
Price ($)
6.00
Tickets Sold
(Saturday Night)
1,000
Total Ticket
Receipts
Elasticity of
Demand (E)
6,000
E = 0.68
7.00
900
6,300
E = 0.79
8.00
810
6,480
E = 1.00
9.00
720
6,480
E = 2.54
10.00
17-7
550
5,500
Price Sensitivity Market Segments
Economic consumers
Status-oriented consumers
Assortment-oriented consumers
Personalizing consumers
Convenience-oriented consumers
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The Government and Retail Pricing
Horizontal Price Fixing
Vertical Pricing Fixing
Price Discrimination (Robinson-Patman
Act)
Minimum Price Laws
Unit Pricing
Item Price Removal
Price Advertising
17-9
Justifiable Price Discrimination
Products are physically different
The retailers paying different prices are not
competitors
Competition is not injured
Price differences are due to differences in
supplier costs
Market conditions change – costs rise or
fall or competing suppliers shift their prices
17-10
Competition and Retail Pricing
 Market pricing – retailers often price
similarly to each other and have less control
over price because consumers can easily
shop around
 Administered pricing – firms seek to attract
consumers on the basis of distinctive
retailing mixes
17-11
Figure 17.3 A Framework for
Developing a Retail Price Strategy
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Objectives and Pricing
Market
Skimming
Market
Penetration
17-13
Figure 17.4
A Marketing Skimming Approach
17-14
Figure 17.5
Specific
Pricing
Objectives
from
Which
Retailers May
Choose
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Price Policy Choices
 No competitors will have lower prices; no
competitors will have higher prices; or prices
will be consistent with competitors
 All items will be priced independently or the
prices for all items will be interrelated to
maintain image and ensure proper markups
 Price leadership will be exerted; competitors
will be price leaders and set prices first; or
prices will be set independently of competitors
 Prices will be constant over a year or season;
or prices will change if costs change
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Price Strategy
Demand-Oriented Pricing
Cost-Oriented Pricing
Competition-Oriented Pricing
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Demand-Oriented Pricing
Psychological pricing
* Price-quality association
* Prestige pricing
17-18
Table 17.4 Markup Equivalents
Percentage of Retail
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Percentage of Cost
10.0
11.1
20.0
25.0
30.0
42.9
30.0
42.9
40.0
66.7
50.0
100.0
60.0
150.0
70.0
233.3
80.0
400.0
90.0
900.0
Figure 17.6
How to
Determine
Direct
Product
Profitability
17-20
Integration of Approaches to
Price Strategy
 If prices are reduced, will revenues increase greatly?
(Demand orientation)
 Should different prices be charged for a product based on
negotiations with customers, seasonality, and so on?
(Demand orientation)
 Will a given price level allow a traditional markup to be
attained? (Cost orientation)
 What price level is necessary for a product requiring
special costs in purchasing, selling, or delivery? (Cost
orientation)
 What price levels are competitors setting? (Competitive
orientation)
 Can above-market prices be set due to a superior image?
(Competitive orientation)
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Figure 17.7 A Checklist of Selected
Specific Pricing Decisions
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Price Strategy Concepts
 Customary Pricing
* Everyday Low
Pricing
 Variable Pricing
* Yield Management
Pricing
 One-Price Policy
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 Flexible Pricing
* Contingency
Pricing
 Odd Pricing
 Leader Pricing
 Multiple-Unit Pricing
 Price Lining
Figure 17.8 Ikea and
Low Pricing
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Figure 17.9 Odd Pricing: A
Popular Retailing Tactic
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Reasons to Use Multiple-Unit Pricing
A firm could seek to have shoppers
increase their total purchases of an item
This approach can help sell slow-moving
and end-of-season merchandise
Price bundling may increase sales of
related items
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Price Adjustments
Adaptive mechanism
* Markdown
* Additional markup
* Employee discount
17-27
Figure 17.10
A
Price Change
Authorization
Form
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Timing Markdowns
Early markdown policy
Late markdown policy
Staggered markdown policy
Automatic markdown plan
Storewide clearance
17-29
Figure 17.11 Promoting Markdowns
17-30