Integral part of retail marketing mix Source of revenue for the retailer Communicate the image of the retail store Merchandise- retailers set price by carefully analyzing the attributes of the merchandize & the value the customer attaches to these attributes. Demand for the product and the target market Location – the location of the store in terms of proximity to its competitors & customers has a effect on the pricing strategy . Credit- retailers selling on credit are often able to generate more demand than retilers offering special discounts on cash paying customers. It is observed that customers tend to purchase more than their list when using credit. Store Image Legal Constraints- Almost all packaged products in India have a listed maximum retail price (MRP) . No retailers can sell its merchandise above this MRP. Other Environmental Factors Retail Price = Cost + Mark Up Or Cost = Retail Price - Mark Up Or Mark Up = Retail Price - Cost Example Cost = Rs 300 Markup= 200 Price= 500 500=300+200 300= 500-200 200= 500-300 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 ILLUSTRATION Assume the cost of merchandise = Rs.300.00 The Mark Up is = Rs.200.00 Retail Price = 300 + 200 = 500 Mark Up % on Retail = 200 / 500 = 40% Mark Up % on Cost = 200/ 300 = 66.66% 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 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 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 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 competitor’s price Retailer fixes price below the competitor’s price 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 EXPANSIONISTICAnother form of penetration. Companies attempting to enter a ne w or international market usually adopt this strategy. A low cost version of a product may be offered at a low price to gain recongnition & acceptance by consumers. Once acceptance has been achieved more expensive versions or models of the offering can be made available at higher 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: ??????