PRICINGTEAM 9
Pricing decisions is important because customers have alternatives to choose from and are better informed.
A firm must set a price for the first time when it develops a new product and when it introduces its regular product to new distribution channel.
Customers are in a position to seek good value
PRICING brings the revenue
This is the only element in the marketing mix that brings in the revenues. All the rest are costs.
It communicates the value positioning of the product.
A company must set its price in relation to the value delivered and perceived by the customer.
Value = perceived benefits price
ELEMENTS OF RETAIL PRICE1. Cost of goods : Cost of Merchandise
Expenses incurred towards transportation
Taxes, duties levies etc.
2. Expenses Incurred : Fixed expenses
Variable expenses
3. Fixed Expenses : Expenses that do not vary with quantum of
business
eg. 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 destroy
profitability
Price Sensitivity and Demand
When price increases then sales can decrease
Types of Price Discrimination
First Degree
unique price for each customer Eg: Auctions, Personalized Internet Prices
Second Degree
Offer the same price schedule to all customers Eg: Quantity discounts
Coupons
Over Weekend Travel Discount
Third Degree
Charge different groups different prices Eg: Kids Menu
Seniors Discounts
To reduce price competition
Private labels
Negotiate
Can ask vendors to make unique products
Need to set price for 1000’s of products many times during year.
Set prices based on pre-determined markup and merchandise cost.
Make adjustments to markup price based on customer price sensitivity and competition
RETAIL PRICE AND MARKUPS
Retail Price Rs.125
Cost of Merchandise Rs.75
Margin Rs.50
Markup as a Percent of Retail Price 40% = Rs.50/Rs.125
Retail Price = cost + markup
Initial markup – retail selling price initially set for the merchandise minus the cost of the merchandise.
Maintained markup – the actual sales realized for the
merchandise minus its costs
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
Market Skimming
Market Penetration
Leader Pricing
Price Bundling
Multi-Unit Pricing
Discount Pricing
Everyday Low Pricing
Odd 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
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
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
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” U’s 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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