Retail Pricing
Strategies
Pricing Strategies
Price is one of the most important elements for both
buyers and sellers and maintaining an appropriate
balance between the two is a crucial element of
retailing.
Customers are looking for greater value for their money
in what they purchase. Arriving at the right price for a
product or service is one of the most difficult tasks of
marketing. Price is the value placed on what is
exchanged. It is the point at which the exchange
between buyer and seller takes place, where supply
and demand are equal.
Elements of Retail Price
Fixed Costs
Variable Costs
The price of a product is the total of the fixed and
variable expenses to manufacturer or offers your
product or service. Price on the other hand is the
selling price per unit customers pay for your product
or service. For consumers, the price of a product is the
most obvious indicator of cost – hence, the need to get
product pricing right. The profit to be earned from the
merchandise must be planned before fixing the retail
price.
Pricing Strategies
EDLP (Every Day Low Price)
Many retailers have adopted an every day low price
strategy, which stresses continuity of retail prices at a
level somewhere between the maximum printed price
and the cost of the product. The term ‘everyday low
price’ is therefore somewhat of a misnomer, as low
does not necessarily mean the lowest.
EDLP
The importance of pricing cannot be more aptly proved
anywhere in the world than by the fact that some of the
larges and most successful retail chains around the
world including Wal-Mart, Kmart,Home Depot, Office
Depot,Toys “R” Us, Target and Tesco all adopt a
deliberate policy of EDLP
Having established their goodwill over many years, the
retailers who have adpoted EDLP have been able to win
over their customers by offering them good quality and
durable products at reasonable prices throughout the
year.
Benefits of EDLP
High / Low Pricing
Many retailers around the world and in India as well have
successfully maintained their market appeal by offering
customers high quality merchandise and service without
attempting to offer the lowest prices on a particular
product category. Marks & Spencer’s, Harrods, and
hundreds of other designer labels do cater to a very niche
clientele and are good examples of retailers being able to
hold their fort in this competitive market.
High / Low Pricing
Similarly in India popular garment retailers like Ritu kumar, J J
Vallaya, Ravi Bajaj, Moan Pali, Sunit Verma and Rohit Bal, and
manyother designer labels selling high fashion ladies garments in
India, also offer high quality prducts and services without
compromising on prices. The common factor that is common to all
such retail formats in India and anywhere across the world is that
they cater only to their limited markets and cannot expand beyond
a certain point. Despite the vast benefits that it offers, the EDLP
policy, however, is not for every retailer and for every market. In a
high/low pricing strategy, retailers very often offer prices that are
sometimes even lower than their competitor’s EDLP. A high/low
strategy also has certain strengths, some of which are described
below:
Benefits of High/Low Pricing
 Can target many customer segments
 Merchandise moves
 Maximum emphasis on quality
 It is hard to maintain EDLP
SPECIFIC PRICING STRATEGIES
1. Customary Pricing: is a policy in which the retailer sets
prices for goods and services and seeks to maintain
those prices over an extended period of time. Examples:
Candy bars, newspapers, movies and vending
machines.
2. Variable Pricing: is a policy that recognizes the
differences in demand and cost necessitate the retailer
change prices in a fairly predictable manner. Examples
Flowers tend to higher priced when demand is greater
around Mother’s Day and Valentines Day.
SPECIFIC PRICING STRATEGIES
3.Flexible Pricing: is a policy that encourages offering the same
products and quantities to different customers at different prices.
Examples: Most jewelry stores and automobile dealerships.
4. One – Price Policy: is a policy that establishes the retailer will
charge all customers the same price for an item. Examples: All
people buying the same CD at a local retailer will pay the same
price.
5. Odd Pricing: is the practice of setting retail prices that end in the
digits 5,8,9 – such as 29.95, 99.99 etc.
6. Multiple – Unit Pricing: occurs when the price of each unit in a
multiple – unit package is less than the price of each unit if it
were sold individually. Examples: A convenience store may sell
3ltrs of soda for Rs. 200/- when the price per unit is Rs.75/-
SPECIFIC PRICING STRATEGIES
7.Bundle Pricing: occurs when distinct multiple items, generally
from different merchandize lines, are offered at a special price.
The products are put together as a package deal and are charged
one price. Examples: A computer hardware manufacturer selling
the hardware and the printer and some software's at a particular
price as a package
8. Leader Pricing: is the price where the retailer sells one or a few
items at a deep discount to increase traffic and sales on
complementary items. Examples: Bread, Eggs, Milk, etc.
Price Adjustments
Retail prices need to be many times adjusted to meet the conditions
prevailing in the market. Adjustments to retail price can be done
by way of Markdowns or by way of promotions.
Markdowns are the reductions in the initial retail price. It is a type of
second – degree price discrimination because the lower price
induces price sensitive customer to buy more merchandize.
Reasons for Markdowns
 Encourage customers to respond more satisfactorily to aline
 Sell off shopworn goods, remnants, broken lots, out – of – date,
and end – of – season merchandize
 Increase sales by giving customers the incentive of lower – prices
 Mark downs are also taken to increase customer’s traffic flow
Price Adjustments
Mark downs due to buying errors:
 Lack of planning for demand
 Failure to buy experimentally in small quantities first
 Buying more than the current stock requirements
Mark down due to Pricing Errors
 When the initial price has been set too high
 Failure to check competitor’s price.
 Differing price reductions too long
 Making the initial – mark down too small
Mark down due to Selling Errors
 Failure to show & display merchandize properly
 Display of merchandize in wrong location
 Failure to inform sales people about the target customer market
 Poor stock- keeping
 Careless handling
Promoting the Merchandise
The overall objective of every retailer is to enhance sales and
profits. It is necessary for the retailer to define the specific
communications such as :
Advertising
Sales promotions
Publicity
Store atmosphere (architecture, design, layouts, interiors etc)
Personal selling
Word of mouth
Implementing an Advertising Plan
Deciding the objectives
Identifying the Tasks
Decreasing sales/profits
Decreasing store loyalty
Reducing usage for limited products
Lack of customer interest
Decreasing awareness
Lack of customer satisfaction with prices
The
Target Clientele
Choosing the communication medium
Deciding the frequency and timing
CONSIDERING THE BASIC PRINCIPLES OF
ADVERTISING
An eye – catching headline that lures the customer to
store is an ideal beginning to a good advertisement
The layout of the ad should be simple
The information desired to be conveyed must be
mentioned clearly
If the ad is in a news paper which carries hundred of ads,
your ad must be bold and distinct from the other ads
The companies recognizable logo, the retailers name,
address and phone numbers must be clearly mentioned.