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Chapter 17. RETAIL MANAGEMENT: A STRATEGIC APPROACH , 10th 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 RETAIL MANAGEMENT: A STRATEGIC APPROACH, 10th 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 • 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
Pricing Options for Retailers • Discount orientation • At-the-market orientation • Upscale orientation
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
Market Segments by Price Sensitivity • Economic consumers • Status-oriented consumers • Assortment-oriented consumers • Personalizing consumers • Convenience-oriented consumers
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
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 prices
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
Figure 17-4: A Framework for Developing a Retail Price Strategy
Objectives and Pricing Market Skimming Market Penetration
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 independent of competitors • Prices will be constant over a year or season; or prices will change if costs change
Price Strategy • Demand-Oriented Pricing • Cost-Oriented Pricing • Competition-Oriented Pricing
Demand-Oriented Pricing • Psychological pricing • Price-quality association • Prestige pricing
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)
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
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
Price Adjustments • Adaptive mechanism • Markdown • Additional markup • Employee discount
Timing Markdowns • Early markdown policy • Late markdown policy • Staggered markdown policy • Automatic markdown plan • Storewide clearance