17-1 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Pricing in Retailing RETAIL

MANAGEMENT:A STRATEGICAPPROACH11th Edition11th Edition

BERMAN EVANS

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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 that consumers, government, manufacturers, wholesalers and other suppliers, current/potential competitors have on pricing decisions

To present a framework for developing a retail price strategy: objectives, broad policy, basic strategy, implementation, and adjustments

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Pricing Options for Retailers

Discount orientation At-the-market orientation Upscale orientation

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Figure 17-1: Barnes & Noble – A Huge Selection and Discounts

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Figure 17-2: Comparison Shopping

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Figure 17-3: Factors Affecting Retail Price Strategy

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Price Elasticity of DemandPrice 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.

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Table 17-1: A Movie Theater’s Elasticity of Demand

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Market Segments by Price Sensitivity Market Segments by Price Sensitivity

Economic consumers Status-oriented consumers Assortment-oriented consumers Personalizing consumers Convenience-oriented consumers

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The Government and Retail PricingThe 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

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Justifiable Price Discrimination Under the Justifiable Price Discrimination Under the Robinson-Patman ActRobinson-Patman Act

♦ 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.

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Competition and Retail PricingCompetition and Retail Pricing

Market pricingMarket pricing – Retailers often price similarly to each other and have less control over price because consumers can easily shop around.

Administered pricingAdministered pricing – Firms seek to attract consumers on the basis of distinctive retailing mixes.

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Figure 17-4: A Framework for Developing a Retail Price Strategy

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MarketSkimming

Market Penetration

Objectives and PricingObjectives and Pricing

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Figure 17-6: Specific Pricing

Objectives

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Price Policy ChoicesPrice 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.

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Price StrategyPrice Strategy

Demand-oriented pricing Cost-oriented pricing Competition-oriented pricing

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Demand-Oriented PricingDemand-Oriented Pricing

Psychological pricingPsychological pricingPrice-quality associationPrestige pricing

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Table 17-4: Markup Equivalents

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Figure 17-7: How to

Determine Direct

Product Profitability

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Integration of Approaches to Price StrategyIntegration 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? (Cost orientation)

What price levels are competitors setting? (Competitive orientation)

Can above-market prices be set due to a superior image? (Competitive orientation)

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Figure 17-8: Specific Pricing Decisions

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Price Strategy ConceptsPrice Strategy Concepts

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

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Figure 17-9: Wal-Mart and Everyday Low Pricing

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Figure 17-10: Odd Pricing

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Reasons to Use Multiple-Unit PricingReasons 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.

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Price AdjustmentsPrice Adjustments

Adaptive mechanismMarkdownAdditional markupEmployee discount

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Figure 17-11: Price Change Authorization Form

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Timing MarkdownsTiming Markdowns

Early markdown policy Late markdown policy Staggered markdown policy Automatic markdown plan Storewide clearance

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Figure 17-12: Giant Eagle – Going Beyond Everyday Low Pricing

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