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RETAIL PRICING

CONCEPT OF RETAIL PRICING

Integral part of retail marketing mix Source of revenue for the retailer Communicate the image of the retail store

FACTORS THAT NEED TO BE TAKEN INTO CONSIDERATION

Demand for the product and the target marketStore policies and the image to be createdCompetition for the product and the competitors priceEconomic conditions prevailing at that time

PRICING OBJECTIVE

In agreement with the mission statementIn agreement with the merchandising policies


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RETAIL PRICING

ELEMENTS OF RETAIL PRICE

1. Cost of goods : Cost of MerchandiseExpenses incurred towards transportationTaxes, duties levies etc.

2. Expenses Incurred : Fixed expensesVariable expenses

3. Fixed Expenses : Expenses that do not vary with quantum ofbusinesseg. 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 destroyprofitability


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RETAIL PRICING

FIXING THE RETAIL PRICE

Consideration : Profit to be earned

Profit from Merchandise planed before price fixation

Profit to be arrived at is expressed as a mark up percentage

Retail Price = Cost + Mark Up

Or Cost = Retail Price - Mark Up

Or Mark Up = Retail Price - Cost

Components of the formula can be expressed in

Rupee Term or as a percentage


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RETAIL PRICING

THE FOLLOWING FORMULA WOULD APPLY

Mark Up percentage can be expressed as

Percentage of retail price or as a percentage of cost price

Mark Up percent (based on Retail Price) = Mark Up in Rupees / Retail Price

Mark Up percent (based on Cost) = Mark Up in Rupees / Cost


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RETAIL PRICING

ILLUSTRATION

Assume the cost of merchandise = Rs.200.00The Mark Up is = Rs.150.00

Retail Price = 200 + 150 = 350Mark Up % on Retail = 150 / 350 = 42.86%Mark Up % on Cost = 150 / 200 = 75 %

Mark Up fixed is termed as Initial Mark Up

Rarely are all products sold completely at fixed prices

Reduction in price are often made and could be due to Markdowns, Employeediscounts, Customer Discounts or Shrinkage


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RETAIL PRICING

ILLUSTRATION OF COST PLUS PRICING

Cost of fabric = Rs.150.00 per meter

Fabric consumption = 1.30 meters

Total Fabric Cost = Rs.195.00

Manufacturing Cost = Rs.100.00Basic Cost = Rs.295.00

Packaging Cost = Rs. 50.00

Cost Price = Rs.345.00

Mark Up @ 60% = Rs.207.00

Retail Price = Rs. 552.00 Rounded Off Rs.550.00


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RETAIL PRICING

DEVELOPING A PRICING STRATEGY

1. Cost Oriented2. Demand Oriented

3. 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

Thus Retail Price = Cost + mark Up

Or Cost = Retail Price Mark Up

Or Mark Up = Retail Price - Cost

Difference between the selling price and cost is Mark Up

Mark up should cover for operating expenses and transportation etc


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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


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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 competitors price

Retailer fixes price below the competitors price


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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


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RETAIL PRICING

APPROACHES TO PRICING STRATEGY

Market Skimming

Market Penetration

Leader Pricing

Price Bundling

Multi-Unit Pricing

Discount Pricing

Everyday Low Pricing

Odd Pricing


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RETAIL PRICING

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


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RETAIL PRICING

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.

PRICE BUNDLING

Retailer bundles a few products and offers them at a particular price

Price bundling helps sale of related items

Example: A PC at a fixed price including a printer and a web camera

Value Meal offered by McDonalds


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RETAIL PRICING

MULTI UNIT PRICING

Retailer offers discounts to customers who buy in large quantities or who buy a

product in bundle

This involves value pricing for more than one of the same item

Multi unit pricing helps move products that are slow moving

Example: Offer price of one T-shirt for Rs.255.99 and two T-shirts for

Rs.355.99

DISCOUNT PRICING

Used as a strategy by outlet stores who offer merchandise at the lowest market

prices


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RETAIL PRICING

EVERY DAY LOW PRICING

Popularly known as EDLP

Strategy adopted by retailers who continually price their products lower than

the other retailers in the area

Example: Food Bazaar, Wal-Mart and Toys R Us regularly use this strategy

ODD PRICING

Strategy is to set retail prices in such a manner that the price ends in odd

numbers Example: Rs.99.99, Rs.199.99 or Rs.299.99

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