RETAIL PRICING

CONCEPT OF RETAIL PRICING

Integral part of retail marketing mix Source of revenue for the retailer Communicate the image of the retail store

FACTORS THAT NEED TO BE TAKEN INTO CONSIDERATION

Demand

for the product and the target market Store policies and the image to be created Competition for the product and the competitors price Economic conditions prevailing at that time

PRICING OBJECTIVE
In

agreement with the mission statement In agreement with the merchandising policies

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ELEMENTS OF RETAIL PRICE

1.

Cost of goods

: Cost of Merchandise Expenses incurred towards transportation Taxes, duties levies etc. : Fixed expenses Variable expenses

2.

Expenses Incurred

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

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FIXING THE RETAIL PRICE
Consideration : Profit to be earned Profit from Merchandise planed before price fixation Profit to be arrived at is expressed as a mark up percentage

Retail Price = Cost + Mark Up Or Cost = Retail Price - Mark Up Or Mark Up = Retail Price - Cost

Components of the formula can be expressed in Rupee Term or as a percentage

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THE FOLLOWING FORMULA WOULD APPLY
Mark Up percentage can be expressed as Percentage of retail price or as a percentage of cost price

Mark Up percent (based on Retail Price) = Mark Up in Rupees / Retail Price

Mark Up percent (based on Cost) = Mark Up in Rupees / Cost

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ILLUSTRATION
Assume the cost of merchandise = Rs.200.00 The Mark Up is = Rs.150.00

Retail Price = 200 + 150 = 350 Mark Up % on Retail = 150 / 350 = 42.86% Mark Up % on Cost = 150 / 200 = 75 % Mark Up fixed is termed as Initial Mark Up Rarely are all products sold completely at fixed prices

Reduction in price are often made and could be due to Markdowns, Employee discounts, Customer Discounts or Shrinkage

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ILLUSTRATION OF COST PLUS PRICING
Cost of fabric = Rs.150.00 per meter Fabric consumption = 1.30 meters Total Fabric Cost Manufacturing Cost Basic Cost Packaging Cost Cost Price Mark Up @ 60% Retail Price = = = = Rs.195.00 Rs.100.00 Rs.295.00 Rs. 50.00

= Rs.345.00 = Rs.207.00 = Rs. 552.00 Rounded Off Rs.550.00

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DEVELOPING A PRICING STRATEGY
1. 2.

3.

Cost Oriented Demand Oriented Competition Oriented

COST ORIENTED PRICING Basic mark up is added to the cost of merchandise Retail price is considered to be a function of the cost and the mark up Thus Retail Price = Cost + mark Up Or Cost = Retail Price Mark Up Or Mark Up = Retail Price - Cost Difference between the selling price and cost is Mark Up Mark up should cover for operating expenses and transportation etc

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DEMAND ORIENTED PRICING

Focuses on quantities the customers would buy at various prices Largely depends on perceived value attached to the product by customers Sometimes a high priced product is perceived to be of high quality Sometimes a low priced product is perceived to be of inferior quality

Key to demand oriented pricing

Understanding of the target market Value based proposition that they would look for

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COMPETITION ORIENTED PRICING

Competition is the criteria of fixing the price Competitors play a key role in determining price Retailer fixes price on par with the competitors Retailer fixes price above the competitors price Retailer fixes price below the competitors price

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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

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APPROACHES TO PRICING STRATEGY

Market Skimming Market Penetration Leader Pricing Price Bundling Multi-Unit Pricing Discount Pricing Everyday Low Pricing Odd Pricing

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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

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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

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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

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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 Us 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: ??????