Retail Pricing

Prices are one of the most tangible ways to create

differentiation and hence build the image of the
store.
Pricing decision has impact on retailers image
From the customers point of view price is
frequently a major reason for shopping in a
particular store
Price has given rise to new formats, discount
sore , off price store, EDLP
It is an important variable in decision making
Customer is interested in best value for a particular
price
Price decision depends on retailers mission,
objectives, product mix, location, credit, promotions,

Pricing Options for Retailers

Discount orientation: use low price as major competitive

advantage
Target price oriented customers, focus on low operating costs and
high inventory turn over
Example: off price store, full line discount stores
Market orientation: charge average price , offer solid service and
nice atmospheres to the middle class shoppers
Margins are moderate to good, average to above quality products
stocked
Example , traditional departmental stores and drugstores
Upscale orientation: a prestige image is retailers major
competitive advantage
Target market is small, customer loyalty, distinctive product/
service, high per unit profits
Examples: upscale departmental stores, specialty stores

Factors affecting Pricing Decisions

Legal Constraints

Store Image

Customer Service

Merchandise

A Retailers Pricing
Objectives Must
Interact with These
Other Decisions

Credit

Location

Promotion

Components of Pricing System

Setting Prices

Pricing
Pricing Objectives
Objectives

Pricing
Pricing Strategy
Strategy

Bases
Bases of
of Pricing
Pricing

Skimming
Skimming
Penetration
Penetration
Bargain
Bargain

Demand
Demand
Cost
Cost
Competition
Competition

A.
A. Store
Store Objectives
Objectives
Sales
Sales
Profit
Profit in
in dollars
dollars
Return
on
Return on investment
investment
Early
Early recovery
recovery of
of cash
cash
B.
B. Pricing
Pricing Policy
Policy
Build
Build Volume
Volume
Build
Build Image
Image
Balance
Balance Price
Price and
and Value
Value

Adaptations
Adaptations of
of Price
Price
Strategy
Strategy

A.
A. Fixed
Fixed Pricing
Pricing

Customary
Customary
One-price
One-price
Odd
Odd pricing
pricing
Multiple-unit
Multiple-unit Pricing
Pricing
Price
lining
Price lining
B.
B. Variable
Variable Pricing
Pricing
High
High Low
Low
Flexible
Flexible Pricing
Pricing
Leader
Leader Pricing
Pricing
Bait
Bait and
and Watch
Watch
Bundling
Bundling
Private
Private label
label
Internet
Internet Pricing
Pricing

Managing Retailing 2e
Oxford University Press 2012

All rights reserved

Pricing Objectives

Primary Pricing Objectives

Build Volume by playing a price game,
Offer merchandise at the lowest possible price
Wal-Mart, Metro, Sams Club
Establish a distinctive high value image,
Exclusive, designer stores, cater niche market
Become a price value optimizer
Value relationships, department store, Toys R,
Flea Markets, sell out of fashion, or outdated
products.

Managing Retailing 2e
Oxford University Press 2012

All rights reserved

Pricing Strategy
A pricing strategy must be consistent with the
retailers overall image, selection of target
market, composition of retail mix and selection
of price policy.

Different store formats require different price

strategies.
Types of Pricing Strategy

Skimming

Penetration

Predatory prices

Bargain

Managing Retailing 2e
Oxford University Press 2012

All rights reserved

Bases of Pricing
A price can be set based on demand, cost and/or
competition
Demand Oriented Pricing
Cost-Oriented Pricing
Competition-Oriented Pricing

Managing Retailing 2e
Oxford University Press 2012

All rights reserved

Demand Oriented Pricing

Set price on the basis of consumer demands
Understand the range of price acceptable to
customer,
Consider the psychological aspects of pricing,
Price-quality associations
Price- prestige association

Cost Based Pricing

Cost-based pricing involved setting prices based on

the costs for producing, distributing and selling the
product plus a fair rate of return for its effort and
risk.

Fixed costs are costs that do not vary with production or

sales level. eg. Rent, utilities, insurance, management
salaries.

Variable costs vary directly with the level of production.

Their total varies with the number of units produced, such
as raw materials, labor, supplies.

Total costs are the sum of the fixed and variable costs for
any given level of production.
9

Competition-Based Pricing
It involves setting prices based on
competitors strategies, costs, prices, and
market offerings.
Consumers will base their judgments of a
products value on the prices that competitors
charge for similar products.
No matter what price you charge relative to the
competitionhigh, low, or in-betweenbe certain
to give customers superior value for that price.
10

Adaptations of Price Strategy

The retailer may be required to adjust prices to various internal and

external conditions
Appropriate pricing strategy help in building the revenue streams,
as well as differentiating the stores in a competitive market
Customary pricing: sets pricing for longer period of time, newspaper,
movie tickets, vending machine products, pay phone services
Acts as reference to other stores.
One price policy: charge same price from all customers, selling all
product for Rs. 99
Odd pricing, 555, 199, Bata
Multiple unit pricing: the price of complete package is less than the
price of each unit in the package if sold individually. Help sell slow
moving and end of the season merchandise.
Price Lining: sell merchandise at limited range of price points.
Provide ease of shopping, aid in merchandise planning

Managing Retailing 2e
Oxford University Press 2012

All rights reserved

Adaptations of Price Strategy

High _ Low Pricing: initially charge high price because of the
novelty and exclusivity of the product , fashion retailers follow 4
months cycles. They reduce the prices drastically because of
the high rate of obsolescence, (sell at original price then at
lower price during sales)
Flexible Pricing: Alter pricing because of fluctuation in costs or
consumer demand, i.e, movie tickets are priced lower during
weekdays compared to weekends. Restaurants , happy hour
concept, jewelry retailers, online auctioneers, consumer
electronics retailers
Bundle Pricing: multiple products offered together at a special
price. Book store can offer coupon for coffee, store can offer
free movie tickets
Leader Pricing: sell product at less than the usual profit margins,
i.e, supermarkets, toy stores fast food restaurants

Adaptations of Price Strategy

Bait and switching pricing: provide deep
discounts on some products to sell other higher
price products.
Coupons : are given either before purchase or after
purchase through newspapers, inserts, direct mail,
lottery base on coupon
Rebates are direct price offs based on the purchase
by the customers, provided for next purchases.
Private Label Pricing
Captive Pricing
Dynamic Pricing

Pricing on the Internet

It is new channel of retailing

Enable customers to offer low price
Compare price, www.priceline.com
Internet as a medium do not have to pay sales
tax
Auctioning is possible , eBay
In most cases price determination on internet
seems to have moved from the sellers domain to
customers domain,