1. Retail Pricing

2. Challenges- Pricing decision
• Pricing decision is important:
- Customers are better informed
- Have better alternatives to choose from
- Want to seek good value
- Value is the ratio of what customers receive (the
perceived benefits) to what they have to pay for
it.
- Value= Perceived benefits/Price
- Thus retailer can increase sale either by
increasing perceived benefits or by reducing price

3. Challenges- Pricing decision
• For some customers- good value- paying lowest
price-other benefits are not important to them
• For some- ready to pay extra – if they are getting
their moneys worth –quality
• Prices are higher than benefits- sales and profit –
decrease
• Prices are low- sales increase , but profits may
decrease due to low profit margin
• Need to consider the value proposition offered
by competitor pricing and legal issues

4. Considerations in setting Retail Pricing
Retail
Price
Price
sensitivity
Competiti
on
Economic
constraint
s
Cost

5. Customer price sensitivity and cost
• Price sensitivity : how many units will be sold at
different price levels. If customers are not price
sensitive, sales will not decrease significantly and vice
versa
• No of factors affect price sensitivity
- More substitutes for a product, more likely it will be
price sensitive. Eg McDonalds meals and petrol
- Necessities are inelastic (insensitive), Eg medicines
- Products that are expensive relative to consumer
income are price elastic . Eg cars

6. Competition
• If product is unique with no competitors-
premium price
• If similar products in the market, competitors
price needs to be considered.
• Pricing policy must be consistent with retailers
overall strategy and its relative market position
• Walmart: low cost strategy for its merchandise
• Tiffany: premium pricing

7. Legal/Ethical pricing issues
• France- regulates pricing. Carrefour affected
by German brands- AIDL, Lidl- store brands
not affected by French rules- converted many
Carrefour shoppers .

8. Ethical pricing issues
• Price discrimination: occurs when retailer charges diff
prices for the identical products/services sold to
different consumers. Eg Restaurant meals, women
haircuts.
• Predatory pricing: arises when a dominant retailer sets
prices below its costs to drive competitors out of
business. Retailer hopes to raise prices in the near
future and regain lost profits. Eg Walmart vs small
retailers
• Horizontal price fixing: involves agreements between
retailers that are in direct competition with each other
to set the same prices

9. Ethical pricing issues
• Bait and switch tactics: deceptive practice,
wherein the customers are lured into the
stores by advt a product at lower than normal
price (bait) and once they are into the store,
induce them to purchase a higher price model
(switch). Can occur by having inadequate
inventory of the advt product/salesperson
disparage the quality of advt model and
promote the superiority of higher priced
model.

10. Economic constraints
Economic slowdown: prices are lowered to
generate demand

11. Retail price and markup
• Retail price (RP)=Cost of merchandise (COM) + Markup (MKP)
• Thus markup=Retail price-cost of merchandise
• Mark up covers all retailers operating expenses needed to sell the
merchandise
• Mark up % age= Retail price-cost of merchandise/Retail price
• Eg Cost of item A= Rs 75,RP: Rs 125,Mark up % age: 125-75/125=
40%
• RP= COM+RP*MKP %age
• RP= COM/1-MKP%age
• Eg if a item A is purchased at Rs14 and retailer needs 30% markup
to meet financial goals, then, RP= 14/1-0.30=20
• Assumption : that all merchandise at all initially set price

12. • Retailers frequently reduce the price of items for special
promotions or to sell excess stock at the end of season
• Also discounts are given for employees, accounting done for
theft,errors etc.
• Factors that reduce the actual selling price from initial sales price
are called as reductions
• Thus there is a diff between initial markup and maintained markup.
• Initial markup= RP initially set – COM
• Maintained markup= Actual realized sale-cost of product
• Maintained markup= Gross margin for the product.
• For eg Item A costs= Rs 0.60,initial RP= rs1, initial
mkp=0.40,mkp%age= 40%, actual SP= 0.90, the reductions are 0.10
rs,so maintained markup= 0.30 and maintained mkp %age:
0.30/0.90=33%

13. Price adjustments
• Markdowns: Price reductions or discounts from initial retail price
• Take markdowns either for clearance or for promotion
• Clearance markdowns: when merchandise is selling at slower rate
than planned, will become obsolete at end of season. Slow selling
merchandise decreases inventory turnover, prevents buyer from
acquiring new/better selling merchandise and can mar a retailers
image.
• Cost of doing business, and buyers plan for them. Eg order more of
fashion merchandise – concerned about underordering and
stockout. Stockout can have detrimental effect on image but
whereas markdown just reduces mainatined markup
• Promotional markdown: to promote merchandise and increase
sales. Some complemenatry products are marked down to promote
the sale of other items in the store and to generate traffic

14. Markdowns
• Work closely with vendors to coordinate deliveries and
share financial burden of taking markdowns.SCM
systems reduce the lead time for receiving
merchandise so that retailers can monitor change in
trends and demand.
• Liquidating merchgandise: unsold goods
- Sell to other retailer
- Consolidate the unsold merchandise to other outlets
- place on internet auction website
- Charity
- Carryover to next season

15. Variable pricing and Price discrimination
• Individualised variable pricing: charging each individual
customer a different price based on their willingness to pay
• self selected variable pricing: offer the same price schedule
to all customers but require that customers do something
to get the lower price. Eg early bird specials.
• Coupons: offer a discount on price of items when they are
purchased. Issued by mfgs and retailers in newspapers, on
products, on shelf at cashregister, through internet and
mail. Used to induce people to try out product for first
time, convert first time users to regular users, encourage
large purchases,increase usage and protect market share.
Price sensitive customers spend extra effort in collecting
coupons . For eg coupon on sugar,stockpile and reduce
future sale

16. • Price bundling: practice of offering two or
more different products for sale at one
price:Eg Mc value meal. Increase both unit
and volume sale by increasing the amount of
merchandise bought on a store visit
• Multiple unit pricing: Quantity disocunts for
same product to increase sales volume.

17. PRICING STRATEGIES

18. • High/low pricing: Discount the initial prices
for merchandise through frequent sales
promotion. Increased frequency of sales to
target competition and the value conscious
customer.
• Adv: Increase profits through price
discrimination, sales create excitement and
sell merchandise

19. • EDLP: Every day low pricing: Followed by
supermarkets, home improvement stores. Emphasizes
the continuity of retail prices at a level between the
regular non sale price and the deep discount prices of
high/low retailers. Term is misleading because they
may not be lowest in the market. Follow a low price
guarantee policy: offer lowest price for the products
they sell. Eg Big bazaar
• Adv: Assures customers of low prices, reduces advt
and operating expenses, reduce stock out and
improves inventory management

20. Pricing techniques for increasing sales
• Leader pricing: involves a retailer pricing
certain items lower than normal to increase
customer traffic flow or to boost the sales of
complementary products. These products are
called as “loss leaders”. Eg frequently
purchased products like whitebread,milk
eggs.Retailer hopes that consumer will
purchase their entire weekly grocery list while
shopping for loss leaders. Eg Toys R us and
disposable diapers

21. • Price lining: offer a limited no of pre
determined price points within a merchandise
category. For eg tire stores may offer tires at
69.99,89.99,129.99 that reflect good,better
and best quality. This price is referred to as
price lining

22. • Odd pricing: refers to the practice of using a
price that ends in an odd number, typically a 9
• Used in early days to reduce losses due to
employee theft
• Assumption that shoppers don’t notice the
last digits of the price . 9 endings signifies low
prices would create a positive price image

23. GMROI (Gross Margin Return on
Investment)
• A decision making tool that assists the buyer in identifying
and evaluating whether an adequate gross margin is being
earned by products purchased ,compared to the
investment in inventory required to generate the gross
margin
• The focus is on return on investment rather than on sales
• The focus is on SKU’s of each individual product
• Helps in identifying product winners and core products
• Product winners : products which perform well, which
boost profitability and are the best ROI product
• Core products: Buyers list of existing winners that should
never be out of stock. Give high profitability and ROI