Price is a measure of value and the only element of the marketing mix that represents revenue

 Is the most flexible marketing mix element
 Can be changed quickly unlike product features, channel commitments and promotions
 Communicates the intended value positioning to the market
 Decisions are complex and difficult

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Maintain the retail image - (Bulgari)
To be perceived as fair to all stakeholders
(suppliers, staff, customers) – Waitrose
To increase customer traffic in slow periods
(demand fill) – JD Wetherspoon
Clear out seasonal merchandise – most retailers especially fashion
Match competitors without starting a price war
(Comet)
Promote “never undersold” philosophy (John Lewis)
To be the price leader (Asda, Morrisons)
To provide extra customer services and higher perceived value (Tesco)

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Question economists’ view of price
 Consumers do not accept prices as given
 Consumers interpret price according to prior knowledge and experience and purchase decisions are based on perception of price
 Consumers have lower and upper threshold prices – below which the price signals inferior quality, above which it signals inferior value

 Price cues: consumers process prices left to right rather than rounding (Stiving and Winer
1997, Empirical analysis of price endings with scanner data)
 Hence £299 is closer to £200 than to £300
 Prices ending in odd numbers convey a deduction or discount (Anderson and
Simester 2003, Effects of $19 price endings on retail sales). Firms with high price images should avoid this

 Price – Quality inference: many consumers use price as an indicator of quality

Marketing objectives
Buyer perceptions
Production,
Operational costs
PRICE DECISIONS Competition
Marketing channel,
Distribution costs
Laws, regulations,
Directives, compliance

 Premium (superior products, service and store interiors but at a higher price)
 Discount (low prices with sacrifices in other areas)
 Every Day Low Price (reliable prices with few or no promotions)
 Hi-Lo (higher prices on most items but offset by special promotions)

Pricing strategies for leading UK retailers
Discount

Source: IGD

Reasons for low price/promotion preference

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Cost of goods – invoice costs, carriage inwards, depreciation on unsold goods
Gross margin – sales minus cost of goods sold
% gross margin – gross margin as % of sales
Mark up – amount added to cost of goods to give required selling price (can be expressed as % of cost)
Net profit – sales less cost of goods less operating expenses
Mark down – total reduction on normal RSP for all items sold
Margin levels – high on slow moving lines (furniture), low on fast moving lines (grocery)

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A supply chain initiative which aims to remove unnecessary transportation costs and improve efficiency of the supply chain
Provides efficient transportation – suppliers for whom transportation is not core can transfer cost and responsibility to retailer
Improved availability – more product available on shelf
Lower prices for consumers – through lower transport costs
Environmental benefits

Possible retailer cost saving through FGP

 If prices are reduced will revenues increase
(demand orientation)
 Will a given price level provide the desired retail markup? (cost orientation)
 What price levels are competitors setting?
(competitor orientation)
 Can above market prices be set due to superior image? (competitor orientation)

 Price is a strong determinant of position
 Competitive strategy determines pricing strategy and pricing policy
 Possible pricing strategies
Low cost
Premium
Prestige

 Apply necessary mark-up to cost price to achieve profit objectives
 Cost price to include purchase ,transport, storage, selling etc
 Must not exceed ceiling above which price is expensive relative to competitors
 Weaknesses lie in price/demand/marketplace/competitor considerations

Retail Markup % = Retail selling price – merchandise cost
Retail selling price
Example: TKMaxx can buy a shipment of jeans at £12 per pair and wants to achieve a 30% retail mark up. What retail price should the store charge to achieve markup.?
0.30 = RSP – 12.00 or 12 = £17
RSP 0.7
Rymans Stationers seeks a minimum 40 % retail markup. It sells manila envelopes at £7.99 per box. What is the maximum price it should pay a supplier per box?
0.40 = 7.99 – merchandise cost or 7.99 x 0.6
7.99
Merchandise cost = £4.79

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Use price tactically according to market demand
(Xmas, economic downturn)
Knowledge of consumers
Respond to competitive pressure (fuel price to drive footfall)
Stimulate demand for other/related items (Jessops, offers on entry level cameras)
Achieve market presence
Discrimination, backward, skimming, leader, competitive, penetration, EDLP

First degree
Second degree
Third degree
Price varies by customer willingness or ability to pay. Student discounts. Higher prices for flowers on Mothers/Valentines Day
Price varies according to quantity sold: quantity discounts or non-linear pricing eg Stella Artois @
£1 bottle of £7.99 for 12 bottles
Price varies by attributes such as location, time, customer segment, individual customer eg Tesco
Express prices higher than Extra

 Determine the price the customer is willing to pay and work backwards
 Source merchandise to fit into price lines £25, £35,
£45 (also known as price lining)
 Price lines must reflect clear value difference for consumer
 Wide assortment can be concentrated into narrow price lines thus simplifying consumer choice process and creating defined store image (see Charles
Tyrwhitt for price lined male tailoring, Specsavers
£25, £45, £69 etc ranges)

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Stimulate overall demand selling selected lines (widely and frequently purchased) at or below cost
Increase store visits, build brand image and perception of value
Can lead to consumer selectivity in lines purchased
Eg milk at Iceland £1 for 4 pints – try going to Iceland and just buying milk
Items chosen for leader pricing must be frequently bought where customers know going rate price

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A low price position which remains stable relative to discounters and mark-down strategies
Perception of fairness
Reduced advertising: customers know prices are low
Improved customer service: as demand is less volatile
Improved inventory management: based on more even demand
Increased profits: through higher volumes

 Reductions in price to reflect current value
(maturity/decline stage PLC)
 Correctional mark-downs stimulate interest in a line (new size, flavour, variety): establish buying habit
 Operational mark-downs: shopworn, out of date, end of season
 Promotional mark-down: stimulate demand through lower prices

 Competitor activity
 Poor original price setting
 Economic/seasonal change
 Poor quality
 New competitor product better matched to consumer needs
 Free display space on slow selling lines
 Improve customer goodwill through larger mark-down