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Chapter 17

Chapter 17. RETAIL MANAGEMENT: A STRATEGIC APPROACH, 9th Edition. Pricing in Retailing. BERMAN EVANS. Chapter Objectives. To describe the role of pricing in a retail strategy and to show that pricing decisions must be made in an integrated and adaptive manner

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Chapter 17

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  1. Chapter 17 RETAIL MANAGEMENT: A STRATEGIC APPROACH, 9th Edition Pricing in Retailing BERMAN EVANS

  2. Chapter Objectives • To describe the role of pricing in a retail strategy and to show that pricing decisions must be made in an integrated and adaptive manner • To examine the impact of consumers; government; manufacturers, wholesalers, and other suppliers; and current and potential competitors on pricing decisions • To present a framework for developing a retail price strategy: objectives, broad policy, basic strategy, implementation, and adjustments

  3. Pricing Options for Retailers • Discount orientation • At-the-market orientation • Upscale orientation

  4. Figure 17.1 Ross Dress for Less Means Value

  5. Figure 17.2 Factors Affecting Retail Price Strategy

  6. Price Elasticity of Demand • The sensitivity of customers to price changes in terms of the quantities they will buy • Elastic – small percentage changes in price lead to substantial percentage changes in the number of units bought • Inelastic – large percentage changes in price lead to small percentage changes in the number of units bought

  7. Table 17.1 A Movie Theater’s Elasticity of Demand

  8. Price Sensitivity Market Segments • Economic consumers • Status-oriented consumers • Assortment-oriented consumers • Personalizing consumers • Convenience-oriented consumers

  9. The Government and Retail Pricing • Horizontal Price Fixing • Vertical Pricing Fixing • Price Discrimination (Robinson-Patman Act) • Minimum Price Laws • Unit Pricing • Item Price Removal • Price Advertising

  10. Justifiable Price Discrimination • Products are physically different • The retailers paying different prices are not competitors • Competition is not injured • Price differences are due to differences in supplier costs • Market conditions change – costs rise or fall or competing suppliers shift their prices

  11. Competition and Retail Pricing • Market pricing – retailers often price similarly to each other and have less control over price because consumers can easily shop around • Administered pricing – firms seek to attract consumers on the basis of distinctive retailing mixes

  12. Figure 17.3 A Framework for Developing a Retail Price Strategy

  13. Objectives and Pricing Market Skimming Market Penetration

  14. Figure 17.4 A Marketing Skimming Approach

  15. Figure 17.5 Specific Pricing Objectives from Which Retailers May Choose

  16. Price Policy Choices • No competitors will have lower prices; no competitors will have higher prices; or prices will be consistent with competitors • All items will be priced independently or the prices for all items will be interrelated to maintain image and ensure proper markups • Price leadership will be exerted; competitors will be price leaders and set prices first; or prices will be set independently of competitors • Prices will be constant over a year or season; or prices will change if costs change

  17. Price Strategy • Demand-Oriented Pricing • Cost-Oriented Pricing • Competition-Oriented Pricing

  18. Demand-Oriented Pricing • Psychological pricing • Price-quality association • Prestige pricing

  19. Table 17.4 Markup Equivalents

  20. Figure 17.6 How to Determine Direct Product Profitability

  21. Integration of Approaches to Price Strategy • If prices are reduced, will revenues increase greatly? (Demand orientation) • Should different prices be charged for a product based on negotiations with customers, seasonality, and so on? (Demand orientation) • Will a given price level allow a traditional markup to be attained? (Cost orientation) • What price level is necessary for a product requiring special costs in purchasing, selling, or delivery? (Cost orientation) • What price levels are competitors setting? (Competitive orientation) • Can above-market prices be set due to a superior image? (Competitive orientation)

  22. Figure 17.7 A Checklist of Selected Specific Pricing Decisions

  23. Customary Pricing Everyday Low Pricing Variable Pricing Yield Management Pricing One-Price Policy Flexible Pricing Contingency Pricing Odd Pricing Leader Pricing Multiple-Unit Pricing Price Lining Price Strategy Concepts

  24. Figure 17.8 Ikea and Low Pricing

  25. Figure 17.9 Odd Pricing: A Popular Retailing Tactic

  26. Reasons to Use Multiple-Unit Pricing • A firm could seek to have shoppers increase their total purchases of an item • This approach can help sell slow-moving and end-of-season merchandise • Price bundling may increase sales of related items

  27. Price Adjustments • Adaptive mechanism • Markdown • Additional markup • Employee discount

  28. Figure 17.10A Price Change Authorization Form

  29. Timing Markdowns • Early markdown policy • Late markdown policy • Staggered markdown policy • Automatic markdown plan • Storewide clearance

  30. Figure 17.11 Promoting Markdowns

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