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Integral part of retail marketing mix
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Source of revenue for the retailer
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Communicate the image of the retail store
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Merchandise- retailers set price by carefully analyzing the
attributes of the merchandize & the value the customer
attaches to these attributes.
Demand for the product and the target market
Location – the location of the store in terms of proximity to its
competitors & customers has a effect on the pricing strategy .
Credit- retailers selling on credit are often able to generate
more demand than retilers offering special discounts on cash
paying customers. It is observed that customers tend to
purchase more than their list when using credit.
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Store Image
Legal Constraints- Almost all packaged
products in India have a listed maximum
retail price (MRP) . No retailers can sell its
merchandise above this MRP.
Other Environmental Factors
Retail Price = Cost + Mark Up
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Or Cost = Retail Price - Mark Up
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Or Mark Up = Retail Price - Cost
Example
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Cost = Rs 300
Markup= 200
Price= 500
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500=300+200
300= 500-200
200= 500-300
THE FOLLOWING FORMULA WOULD APPLY
Mark Up percentage can be expressed as
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Percentage of retail price or as a percentage of cost price
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Mark Up percent (based on Retail Price) = Mark Up in Rupees / Retail Price
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Mark Up percent (based on Cost) = Mark Up in Rupees / Cost
ILLUSTRATION
Assume the cost of merchandise = Rs.300.00
The Mark Up is
= Rs.200.00
Retail Price = 300 + 200 = 500
Mark Up % on Retail
= 200 / 500 = 40%
Mark Up % on Cost
= 200/ 300 = 66.66%
Mark Up fixed is termed as Initial Mark Up
Rarely are all products sold completely at fixed prices
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Reduction in price are often made and could be due to Markdowns, Employee discounts,
Customer Discounts or Shrinkage
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Cost Oriented
Demand Oriented
Competition Oriented
COST ORIENTED PRICING
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Basic mark up is added to the cost of merchandise
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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
DEMAND ORIENTED PRICING
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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
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Understanding of the target market
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Value based proposition that they would look for
COMPETITION – ORIENTED PRICING
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Competition is the criteria of fixing the price
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Competitors play a key role in determining price
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Retailer fixes price on par with the competitors
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Retailer fixes price above the competitor’s price
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Retailer fixes price below the competitor’s price
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
APPROACHES TO PRICING STRATEGY
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Market Skimming
Market Penetration
Leader Pricing
Price Bundling
Multi-Unit Pricing
Discount Pricing
Everyday Low Pricing
Odd Pricing
MARKET SKIMMING
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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
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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
LEADER PRICING
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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
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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
MULTI UNIT PRICING
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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
EXPANSIONISTICAnother form of penetration. Companies attempting to enter a ne w or international
market usually adopt this strategy. A low cost version of a product may be offered
at a low price to gain recongnition & acceptance by consumers. Once acceptance
has been achieved more expensive versions or models of the offering can be made
available at higher prices.
EVERY DAY LOW PRICING
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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” U’s regularly use this strategy
ODD PRICING
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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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