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Strategic Retail Pricing Decisions

Delve into the crucial role of pricing strategies in retailing, understanding market dynamics, competition impact, and pricing options for retailers. Learn about price elasticity, market segments, price discrimination laws, and various pricing strategies in a retail setting. Explore how to develop a comprehensive retail price strategy, integrate different pricing approaches, and make effective pricing decisions to drive profitability and customer appeal.

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Strategic Retail Pricing Decisions

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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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