Retail ManagemnetBy SUBHO SUTRADHAR

FACTORS THAT NEED TO BE TAKEN INTO CONSIDERATION

Demand for the product and the target market

Store policies and the image to be created

Competition for the product and the competitor’s price

Economic conditions prevailing at that time

RETAIL PRICINGDEVELOPING A PRICING STRATEGY1. Cost Oriented2. Demand Oriented3. Competition Oriented

COST ORIENTED PRICING• Basic mark up is added to the cost of merchandise• Retail price is considered to be a function of the cost

and the mark up

Difference between the selling price and cost is Mark UpMark up should cover for operating expenses and

transportation etc

RETAIL PRICING

DEMAND ORIENTED PRICING Focuses on quantities the customers would buy at

various prices• Largely depends on perceived value attached to the

product by customers• Sometimes a high priced product is perceived to be of

high quality• Sometimes a low priced product is perceived to be of

inferior quality

Key to demand oriented pricing

• Understanding of the target market• Value based proposition that they would look for

RETAIL PRICING

COMPETITION – ORIENTED PRICING

• Competition is the criteria of fixing the price

• Competitors play a key role in determining price

• Retailer fixes price on par with the competitors

• Retailer fixes price above the competitor’s price

• Retailer fixes price below the competitor’s price

ELEMENTS OF RETAIL PRICE

1. Cost of goods : Cost of Merchandise Expenses incurred towards

transportation Taxes, duties levies etc.

2. Expenses Incurred : Fixed expenses Variable expenses

3. Fixed Expenses : Expenses that do not vary with quantum of

business eg. Shop rent, Head Office costs etc

4. Variable expenses : Level of sales directly effects variable expenses.

eg. Merchandise margins, product mix costs

Their Management either enhances or destroy

profitability

RETAIL PRICING

IMPORTANT TERMS USED BY RETAILERS IN PRICING

Price Lining : When retailers sell merchandise only at a given price

Price Zone or Price Range : Range of prices for a particular merchandise line

Price Point : A specific price in that price range

Cost Plus Pricing Mechanism

• Every organization runs to earn profits and so is the retail industry.It is the simplest way to calculate price

Cost plus pricing works on the following principle:

Cost Price of the product + Profit Margin (Decided by the retailer) = Final price of the merchandise.

• According to cost plus pricing strategy the retailer adds some extra amount to the actual cost price of the product to earn his share of profits.

Markup

ILLUSTRATION OF COST PLUS PRICING

Cost of fabric = Rs.150.00 per meterFabric consumption = 1.30 meters

Total Fabric Cost = Rs.195.00Manufacturing Cost = Rs.100.00Basic Cost = Rs.295.00Packaging Cost = Rs. 50.00

Cost Price = Rs.345.00Mark Up @ 60% = Rs.207.00

Retail Price = Rs. 552.00 Rounded Off Rs.550.00

MSRP• The retailer sells his merchandise at a price suggested by the

manufacturer.

• Condition 1 The retailer sells the product at the same price as suggested

by the manufacturer.• Condition 2 The retailer sells the merchandise at a price less than what

was suggested by the manufacturer - Such a condition arises when the retailer offers “Sale” on his merchandise.

• Condition 3Retailers initially quote an unreasonably high price and then reduce the price on the customer’s request to make him realize that a favour has been done to him. A condition of Bargain - where the customer negotiates with the retailer to reduce the price of the merchandise.

Keystone pricing• Keystone is a retail term related to

pricing inventory. It is a pricing method of marking merchandise for resale to an amount that is double the wholesale price or cost of the product.

• When Not to Use Keystone Pricing

EDLP• EDLP is essentially a low-price strategy that is designed to

enhance the competitive position of the supplier. – It can be used for both branded and unbranded products

• Successful EDLP strategies tend to generate large volume sales that allow companies to cut costs and pass these savings along to customers.

• EDLP is attractive to some consumer goods manufacturers because of the large amount spent each year on promotional or trade spending.

• Every Day Same Pricing (EDSP) Vs Every Day Low Pricing (EDLP)

Bundling pricing• Retailer bundles a few products and offers

them at a particular price• Price bundling helps sale of related items

Discount Pricing

• According to discount pricing, the retailer sells his merchandise at a discounted price during off seasons or to clear out his stock.

LEADER PRICING

• Retailer sells few items at deep discounts• This increases traffic and sales on complementary

items.• The product must appeal to a large number of people • The concept should appear as a bargain• Items best suited for this type of pricing are those

that are bought frequently• Example : bread, eggs, biscuit, milk etc.

Time PricingTime-based pricing is a special case of price

discrimination in which producers charge different rates for a given good or service depending on the time, day, month, and so on.

Eg: • Wednesday Bazaar • Festive Season Pricing • Special Offer Period pricing • Sabse Sasta Din • School Time • Seasonal Offers

MARKET SKIMMING

• Strategy to charge a high price initially• Gradually reduce it if necessary• Policy is a form of price discrimination over

time• To be effective several conditions are to be

considered

MARKET PENETRATION

• Opposite of Market Skimming• Aim to capture a large market share by charging

low price• Low prices stimulate purchases• Low prices discourages competitors from entering

the market• Economies of scale is required in manufacturing

or retail to be effective

Psychological Pricing

• Certain price of a product at which the consumer willingly purchases it is called psychological price.

• The consumer perceives such prices to be correct.

• A retailer sets a psychological price which he feels would meet the expectations of the buyers and they would easily buy the merchandise.

THANK YOU SIR