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

Followed by: ??????