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8/8/2019 Session 11, Retail Pricing
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Retailing knowhowRetailing knowhow
MindMind--toto--marketmarket
FootprintsFootprints
SPESPE
MirzaMirza
KhadimsKhadims
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Retail PricingRetail Pricing
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ObjectivesObjectives
Retail Pricing and the factors affectingRetail Pricing and the factors affecting
priceprice
Elements of retail priceElements of retail price
Developing the pricing strategyDeveloping the pricing strategy
Adjustments to retail priceAdjustments to retail price
Legal Issues in Retail PricingLegal Issues in Retail Pricing
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Retail pricing objectivesRetail pricing objectives
Retail pricing objectives or goals provideRetail pricing objectives or goals providedirection to the whole pricing processdirection to the whole pricing process
Retailers determine their objectives as the firstRetailers determine their objectives as the firststep in pricingstep in pricing
ObjectivesObjectives-- profitprofit
-- market sharemarket share
-- competitorscompetitors--orientedoriented
-- buyerbuyer--orientedoriented
-- governmentgovernment--orientedoriented
-- productproduct--orientedoriented
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Factors affecting theFactors affecting the
demand of goods & servicesdemand of goods & services Price elasticity of DemandPrice elasticity of Demand
Competitive factorCompetitive factor
Cost factorCost factor
Product factorProduct factor
Legal factorLegal factor
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Factors affecting theFactors affecting the
retail priceretail price
Retail
Price
Economic
Conditions
Competitors
Price
Target
Market &
Demand
Store
Policies
Retail
Price
Economic
Conditions
Competitors
Price
Target Market
& Demand
Store Policies
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Pricing Strategy Pricing Strategy
approachesapproaches Price LiningPrice Lining
Market SkimmingMarket Skimming
Market PenetrationMarket Penetration Loss Leader PricingLoss Leader Pricing
Price BundlingPrice Bundling
Multi Unit PricingMulti Unit Pricing 2 < 1+12 < 1+1
DiscountDiscount EDLPEDLP WalWal--Mart, Toys R UsMart, Toys R Us
Odd PricingOdd Pricing Psychological pricingPsychological pricing
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Price LiningPrice Lining
Establishing a specific number of priceEstablishing a specific number of price
points for each merchandizepoints for each merchandize
classification.classification.
Kids shoes 150, 250, 350.Kids shoes 150, 250, 350.
Reduces shopping confusion.Reduces shopping confusion.
Sales person can engage customers inSales person can engage customers in
trading up.trading up.
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Loss leader pricingLoss leader pricing
Selling a product at substantially lowSelling a product at substantially low
prices than market to generate customerprices than market to generate customer
traffic.traffic.
Make it up by sales of complimentaryMake it up by sales of complimentary
products.products.
Loss word may not be true always.Loss word may not be true always.
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Price bundlingPrice bundling
Distinct items form different product linesDistinct items form different product lines
are clubbed together at a special price.are clubbed together at a special price.
Slow moving items can piggyback on fastSlow moving items can piggyback on fast
moving items.moving items.
Customer can also be tied up for a longerCustomer can also be tied up for a longer
period.period.
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MultipleMultiple--unit pricingunit pricing
Same products being offered together atSame products being offered together at
a price less than the sum of theira price less than the sum of their
individual prices.individual prices.
Normally used to clear out stocks or endNormally used to clear out stocks or end--
ofof--the season merchandize.the season merchandize.
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Odd pricingOdd pricing
Psychological pricing which ends at lessPsychological pricing which ends at less
than a rounded rupee value.than a rounded rupee value.
Trying to make the customers feel thatTrying to make the customers feel that
they are paying less ( UnderRs. Xthey are paying less ( UnderRs. X
syndrome)syndrome)
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EDLPEDLP
Retailers who follow EDLP try to keepRetailers who follow EDLP try to keep
costs low, sell more merchandise, lowercosts low, sell more merchandise, lower
prices further & sell more.prices further & sell more.
Large variety, smaller assortment, lowLarge variety, smaller assortment, low
service levels.service levels.
Little promotional activities.Little promotional activities.
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HiHi--Lo pricingLo pricing
Normally prices higher than EDLPNormally prices higher than EDLP
retailersretailers
Occasional dip (promotional offers)Occasional dip (promotional offers)
Advertise frequentlyAdvertise frequently
Convenient formatConvenient format
More servicesMore services
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Developing a PricingDeveloping a Pricing
StrategyStrategy Cost Oriented PricingCost Oriented Pricing add a basicadd a basic
markmark--up to the cost of merchandizeup to the cost of merchandize
Demand Oriented PricingDemand Oriented Pricing Focusing onFocusing on
quantities that customers would buy atquantities that customers would buy at
various prices. Also consider perceivedvarious prices. Also consider perceived
values.values. Competition Oriented PricingCompetition Oriented Pricing
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Cost Plus Pricing .. AnCost Plus Pricing .. An
exampleexample Example of cost plus pricing for a shirt.Example of cost plus pricing for a shirt.
The cost of fabric is Rs. 150 per meter.The cost of fabric is Rs. 150 per meter.
Fabric consumption is 1.30 meters.Fabric consumption is 1.30 meters.
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Total fabric cost (cost xTotal fabric cost (cost xconsumption)consumption)
195195
Manufacturing CostManufacturing Cost 100100
Basic CostBasic Cost 295295Packaging CostPackaging Cost 5050
Cost PriceCost Price 345345
Mark Up @ 60 %Mark Up @ 60 % 207207
Retail PriceRetail Price 550550
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Demand oriented pricingDemand oriented pricing
Factors that affect customers sensitivity toFactors that affect customers sensitivity to
priceprice
Awareness about substitutesAwareness about substitutes
Volume of expenditureVolume of expenditure
Difficulty in comparisonDifficulty in comparison
Benefit/price relationshipBenefit/price relationship
Task definitionTask definition
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Pricing approaches and retailPricing approaches and retailmarketing mixmarketing mix
Retail
marketing mix
variable
Price below market
price
Price at market
price
Price above
market price
Location No parking, poor layout,
inaccessible
Central business
district, proximity to
competition
Monopoly,
compatible location
to target segment
Service attributes Self-service, limited
offerings, no sales
Support for sales
people
Personalized
attention to
customers, home
delivery, exchange
facility, customizedofferings
Assortment Limited variety Medium Extensive assortment
Store
environment
Poor quality fixtures,
limited space to move
around, wall shelves,untidy
Compatible store
environment
Inviting, impressive
store dcor, visual
merchandiseattractive
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Elements of Retail PriceElements of Retail Price
Cost of GoodsCost of Goods
ExpensesExpenses Fixed & VariableFixed & Variable
MarginsMargins
Mark UpMark Up
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Elements.Elements.
Retail Price = Cost + Mark Up or,Retail Price = Cost + Mark Up or,
Cost = Retail PriceCost = Retail Price Mark Up and,Mark Up and,
Mark Up = Retail PriceMark Up = Retail Price CostCost
Mark Up % (Based on Retail Price) =Mark Up % (Based on Retail Price) =
Mark Up in Rupees/ Retail PriceMark Up in Rupees/ Retail Price
Mark Up % (Based on Cost) = Mark Up inMark Up % (Based on Cost) = Mark Up in
Rupees/ CostRupees/ Cost
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Adjustments to RetailAdjustments to Retail
PricePrice Mark DownsMark Downs Reduction in selling price.Reduction in selling price.
ReasonsReasons wrong forecasting, overbuying,wrong forecasting, overbuying,
faulty selling practices, odd sizesfaulty selling practices, odd sizes
remaining, end of the season,remaining, end of the season,
competitive action.competitive action.
PromotionsPromotions To get additional salesTo get additional salesduring peak seasons.during peak seasons.
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Other reductions in InitialOther reductions in Initial
markmark--upup Employee discountsEmployee discounts
ShrinkagesShrinkages expired stocks, damaged,expired stocks, damaged,
theft, pilferagetheft, pilferage
All of them reduce the profit margin andAll of them reduce the profit margin and
hence must be accounted forhence must be accounted for..
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Timing of the markdownTiming of the markdown
Tricky decisionTricky decision
Early markdown in a seasonEarly markdown in a season
Late markdownsLate markdowns
Both the timings have pros & cons.Both the timings have pros & cons.
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Legal IssuesLegal Issues
Price discriminationPrice discrimination
CartelizationCartelization
Comparative price advertisingComparative price advertising
Predatory pricingPredatory pricing
Bait & switch tacticsBait & switch tactics