PRODUCT SELECTION AND PRICING IN RETAIL MARKETING

LEARNING OBJECTIVES
At the end of the chapter you will be able to:

To understand the importance of merchandising planning, its forms and processes. To understand that the merchandise budget for a retail store is a blueprint of all merchandise requirements. To understand that model stock is an everchanging, desired merchandise assortment chosen carefully to best serve the needs of target market.

Merchandise Planning
Important:

undamental to the direction of the business Targeting the right people, with the right merchandise at the right time and in the right place !etting the right merchandise for the store"s image

ha! is Merchandising

#erchandising is concerned with the planning, sourcing, buying and arranging of these products and services. It is the coordination of these and other functions that make for a successful retail business #erchandising is necessary for most typ$es of products and services %sed to describe many aspects of the planning and presenting of stock

S!ages "# Merchandising

$%

Planning
&lanning retail ranges involves careful consideration of the customer, competitors and the type of retail business, that is, discount'upscale, high priced'low priced

&%

S"'rcing
(ourcing is the locating and purchasing of merchandise to sell in the store. An apparel retailer will source catwalk fashions from low-cost sources to enable them to sell at high street prices

). B'(ing

*uying involves negotiation

+. Arranging and Dis)la(s

Arranging and displays can have ma,or affect on sales. -ustomers reasonably e.pect displays of merchandise to be e.citing and enticing

*%

S)ace Manage+en!
&lanning for space allocation and may require the use of computer-based planning models.

Es!i+a!ing De+and
/ot

an easy task, but forecasting is essential if the right merchandise in the right amount is to be purchase at the right time

T""l Use in Es!i+a!ing De+and

0.

Target market
1emographic information and'or profile are variables that influence the needs and desires of the target market

2.

&roduct 3ife -ycle

#ay also affect the retailer"s buying decision concerning a product or service A marketing model that illustrates the selling duration of a product or service -an be use effectively if retailer understand the characteristics of the target market

).

ashion -ycle
Also a model that illustrates how potential customers may react to a product ashion cycle has ) stages: 0. 1istinctiveness (tage

Attracts a very few individuals who are drawn to something different 5ccurs when the fashion good is found in high-prestige stores (uch stores serve a group who wish to emulate the 6,et set7 in order to be fashionable but do not wish to or cannot buy original designs 5ccurs when the item has reached the mass merchandising outlets and budget stores Items sold on the basis of price

2.

4mulation (tage

).

#ass emulation (tage

+.

8ant (lips'*ooks

-ustomer asks'looking for something that is not carried by the store 9 a note should be made of this request (everal customers making such a request may indicate a demand for the item Also use to estimate demand for the length of time it would take to obtain the merchandise

:.

Trade &ublications
Assist the retailer in determining what products are available and what may sell 8ill point out what type of consumer advertising is in use or is planned for a product

;.

(uppliers" Information
5f assistance by revealing information about what is or is not selling in other parts of the country (uppliers" own estimates of demand is of interest to the retailer <etailer is required to use good ,udgment when using this information source for estimating demand

=.

-omparison (hopping

To find out what is selling in other stores and the potential demand *est determined by making frequent comparison shopping trips on a regular basis to different stores #ake note of changes in merchandise from trip to trip can result in information that may be of great interest to the store Trips to e.clusive shops may indicate what may be carried ne.t by the store

>.

-ustomer 5pinion

another source of information %se panels and questionnaires 9 learning from the 6horse"s mouth7 of what is wanted by this group -are should be used 9 most people do not really know what they want or will want several months from now when the merchandise ordered may be on the retailer"s shelf &anel provides group interaction

?.

/oncompeting (tore

-an be derived from swapping ideas with similar stores in competing areas that serve similar markets <etailer gets benefit of the advice and counsel of another retailer who is faced with a somewhat similar situation

0$. &ast (ales &erformance

Additional information is available on the performance of the product in the past, customer"s reactions !enerally serves many stores as they serve in their role of advisor to the retailer In the position to get the feel of the market !enerally know what is coming out from the manufacturers and how much these products will be pushed by the manufacturers

00.*uying 5ffice

02.

(ale orecast
A sub,ective estimate <epresents the sum total of the information gained from want slips, trade publications, suppliers, comparison shopping, customer opinion, noncompeting stores, past sales performance of products and buying offices combined with the good ,udgment of the retailer

T,E MERC,ANDISING MI-

Merchandise Mi. / M"del S!"c0

1etermining the actual physical units the store needs to purchase is an important factor in merchandise planning *asic ingredient of this procedure is the model stock: 1efined as an ever-changing, desired assortment of merchandise carefully chosen by a store to best serve a target market 4ssential element in the definition is ass"r!+en!1 Ass"r!+en! is defined as the distribution of merchandise 6in sight7 @inventory on hand and merchandise on orderA according to classification, subclassification, style, color, patter, siBe and price, with the quantities in each of these factor fitting customer demand. Assortment is concerned with the variety, width, depth, consistency, balance, and fle.ibility of the merchandise.

$%

id!h

8idth

or breadth is concerned with complementary items within a merchandise line:

A shoe store sells pantyhose A store selling (ilverstone tires also sells (ilverstone batteries

&% De)!h

1epth stands for the number of siBes, colors, and other characteristics that are carried in a single line:

A store that sells *onia shirts in seven siBes, five sleeve lengths, four collar designs and si. colors is found to have great depth in the *onia shirt line (uch a store would have = . : . + . ; or >+$ (C%s @(tock-Ceeping %nitsA in the *onia line. %nder most guidelines, the store would then carry three of each stockkeeping unit or a total shirt inventory of 2,:2$ units.

(tock-keeping %nit @(C%A stands for one, distinct, individual type of item carried by a store:

If store carries 02 shirts ,ust alike in siBe, color, style and etc, then all 02 shirts represent only one (C% If, si. are blue and si. are white, two (C%s are present

(C%s are important to retailer since much merchandise arrives at the store are already coded as to siBe, color and etc using a %niversal Dendor #arking @%D#A system %D# allows the retailer to keep track of merchandise by means of a common identifying system that can be read by optical scanner or manually.

2% C"nsis!enc(

The degree to which products are related in the customer"s mind:

A particular assortment may appear to be ,ust be unrelated merchandise to one person, the ne.t customer may view it as a logical combination: 4.g. a gift department in a large department store. #erchandise of many types is drawn together for the benefit of the customer. (ince the customer views the items as all having the same purpose 9 a gift, a gift department is thought to have a good breadth of merchandise from which to select.

Eow customers perceive the assortment is the only thing that counts 9 is considered as consistent.

3% Balance

An important factor is stock balance:

Amount of (C%s are needed in each line to attract a customer

As store has limited space, it must work to achieve a balance throughout the store for ma.imum customer satisfaction within the space provided /eed to develop a balance that will be in keeping with the desired image of the store:

4.g. if the store wishes to remain a men"s clothing store in the minds of the consumers, it must watch its stock mi. to guard against adding too many nonclothing items or in some cases too many clothes for women.

*% 4le.i5ili!(
Assortment

for a store is every changing:

4.g. during a special promotion, goods not normally purchased will be added to the store.

Assortment

also changes due to fashion and technological obsolescence:

4.g. women"s shops that used to carry a large selection of hats, purses, and shoes to match no longer do so due to changes in fashion

Assortment

varies with the seasons, weather, and customers of the area.

(ome items such as staple goods, the change is very slow:

Amount, brands, siBes, and etc of bread needed by the store this month will be somewhat similar to those of last month

(ome cases the model stock will almost be static in the short run 1emand for shopping goods is dynamic:

8hat customer desires now may not be true ne.t year or even ne.t month or clothing store, the retailer may know how many (C%s are needed

Merchandise Res"'rces
8hat is available and where to find it are the basic assignments facing a retailer when the question of merchandise resources is raised.

A6aila5le Res"'rces

$% In7s!"re Sales Calls

(ales representative will call upon a retail store brining samples of available merchandise In-store buying is done for reorders and late season purchases Ad6an!age1 /o travel e.penses of either time and money incurred by retailer <etailer has undivided attention of the seller All store records are close by in case something needs to be double checked such as the sales of a particular item for last year All appropriate store personnel may be included in the discussion if the store manager deems appropriate Disad6an!age1 /umber of available samples may be limited 3imit the ability of the retailer to know what other vendors will offer in terms of merchandise, prices, etc #any of the 6better7 vendors will not make in-store calls on smaller stores or stores in less favorable geographic locations

&% Merchandise Cen!ers

Take one or two forms:

h"lesale +ar0e! cen!ers -oncentration of many vendors in one area Man'#ac!'ring +ar0e! cen!ers -oncentration of various manufacturers in one area #erchandise centers develops where a great number of sales offices and'or display rooms are located to serve a concentration of potential customers. !enerally located in a particular part of ma,or cities or even in the same building in order to allow the retailer to shop and compare the available merchandise of many suppliers.

2% Trade Sh"8s

%sually occur once during each buying season. &urpose is to bring both the seller and buyer into contact with as many firms as possible. %sually held in large arenas such as &8T- @&utra 8orld Trade -entre, C3A or civic centers or large hotels if space requirements are not too great. Dendors will set up booths where the buyer can get 6hands-on7 e.perience with the merchandise. ace-to-face contact is made and merchandise orders can be taken on the spot

1isadvantage:

requent buying mistakes are made at trade shows especially retailer who has not done his or her homework @preparation of the merchandise budget and determination of the model stockA Tend buy what is seen first 3eads to inappropriate assortment of merchandise and very soon depleted open-to-buy *est not to buy anything during the first show visit.

3% S'))lier Ad6er!ise+en!s and Ca!al"gs

A

very important resource for last-minute or fill-in merchandise (erve additional function for small retailer who is located in a geographical isolated area in keeping them inform of what"s available 1isadvantage:

Cnowledge of quality of merchandise is limited Accuracy in the description Timeframe in the arrival of merchandise might be longer or delayed

*% Residen! B'(ing O##ices

Is

of great assistance to a store Its entire reason for e.istence is to assist in the buying function &rovide information about market trends, develop and maintain supplier contacts, and provide assistance to the store when the retailer does come to the market. Actual role is advisory in nature.

Residen! B'(ing O##ices

(ervice

provided by a resident buying office are twofold:

S"'rce "# in#"r+a!i"n

8ill provide data on current and new sources of supply

Information on quality level of suppliers 1oes new supplier appear to be reliableF

8ill provide information about the market 1aily and weekly newsletters tell of new items, price deals, promotional items.

Residen! B'(ing O##ices

B'(er assis!ance

-an arrange private showings of merchandise ,ust their member stores that may even include merchandise only shown to preferred customers Ceep abreast of all new items made available for sale 4nables them to have latest and most desirable items available for viewing during the client"s visit -an make reorder purchases for retailers Also give aid in the area of merchandise ad,ustments, misordered merchandise, and other similar problems

Residen! B'(ing O##ices

<esident buying office fall into : basic categories depending on type of ownership and method of compensation. -an either be store owned or independent Independent are divided further into salaried or broker:

Eas no direct support other than that to performance #ore aggressive on behalf of its clients 9 do a better ,ob than its store-owned competitors Individual store Associated store -hain store

(tore-owned offices are placed in ) categories:

Residen! B'(ing O##ices

a%

Inde)enden! Residen! B'(ing O##ice / salaried

!ets its name from its method of compensation %sually sign an annual contract providing for the store to pay up to appro.imately 0 percent of annual sales to the resident buying office in payment of services rendered or small store, a flat fee will be charge 1oes not benefit small store 9 outweigh the cost to the small store (erves as a negative inducement for a small firm to use a salaried resident buying office

Residen! B'(ing O##ices

5%

Inde)enden! Residen! B'(ing O##ice / Merchandise Br"0er

&aid by the vendor or seller and not by the retailer #akes money buy selling merchandise 9 an.ious to sell those items which vendors offer good commissions. 3ittle or no commission being offered by a vendor usually means that the particular line of merchandise will never be mentioned by the merchandise broker:

!ood and profitable item may be missed completely by the retailer

Residen! B'(ing O##ices

c. S!"re7O8ned Residen! B'(ing O##ice / Indi6id'al

5wned and operated for the benefit of an individual store Ead become unfavorable competitive position where stores nowadays are spreading the costs of operation

Residen! B'(ing O##ices

d%

S!"re7O8ned Residen! B'(ing O##ice / Ass"cia!ed

A result of unfavorable position of individual buying office A buying office that is owned and operated by an association or group of stores %sually comprises of well-known group organisations Able to have more favorable arrangements with suppliers

Residen! B'(ing O##ices

e%

S!"re7O8ned Residen! B'(ing O##ice / Chain

Assists the buyers from each individual unit in selecting the best merchandise for each particular store 1ecision to buy would rest with the local buyer while the buying office would offer advice and information

9% Cen!ral B'(ing O##ices

Eas the responsibility for actually selecting and buying the merchandise for the individual stores

Cen!ral B'(ing O##ices

Advantages: $% S)eciali:a!i"n "# s0ills

Eave personnel to concentrate they efforts in various smaller areas of merchandise *uyer become knowledgeable about their own products as well those sold by the competition -oncentration of effort permits buyer to develop high level of e.pertise on the market for the product as well as on the possible resources for the item

Cen!ral B'(ing O##ices

&%

Be!!er Selec!i"n "# Merchandise

As central buyer usually represents many stores causes this specialiBed buyer to receive preferred treatment from vendors 4nd result 9 better choice of merchandise

2%

L"8er C"s!s

Typical buying in large quantities &ermit per unit cost to be lower due to quantity discount

Cen!ral B'(ing O##ices

1isadvantages: $% Mar0e! Varia!i"ns

A central buying office will find difficulties in determining what will be sold in other parts of the geographical location 1ifferences in culture, fashions, preferences and tastes <equires to serve the uniqueness of the individual location -an only be effective if central office is being provided with lots of information *uyers should visit stores as often as possible.

Cen!ral B'(ing O##ices

&%

Se)ara!i"n "# B'(ing and Selling

Accountability for merchandise performance of central buying office is rather difficult to ,ustify:

8hen merchandise sells well, central office will get the credit 8hen merchandise does not sell well, the store will be blamed for not providing them with accurate information, while store will blame them for making poor decisions

Cen!ral B'(ing O##ices

2%

S)eci#ica!i"n B'(ing
-reates product e.clusively by the particular group of stores -entral buying will determine the desired characteristics for a product with assistance from the member stores and then contract for its manufacture under store name &rovide improved quality, better product features and lower costs through volume purchases -ustomers might prefer manufacturer"s brand rather then private label 8ill have great difficulties in selling products of large volume

;% 4'll7Ser6ice Merchandising
Assumes

the role of co-responsibility with the

retailer 5ffers the retailer a source of merchandise plus promotional assistance, accounting systems, training programs and'or a host of other possible services In return, the retailer makes a commitment to purchase a significant amount of merchandise from the vendor

4'll7Ser6ice Merchandising
Darious types of ull-(ervice #erchandising: $% V"l'n!ar( Chains

<etail store voluntarily aligns itself with a particular wholesaler (tore will take on the name of the voluntary chain The burden of supply is on the wholesaler <etailer receives cheaper price since the benefit of quantity purchasing is present 3ess amount of time spend on resource relations and more time spend with customers: &rovided the wholesaler is doing an e.cellent ,ob

4'll7Ser6ice Merchandising
&%

Rac0 J"55ers
irms that provides all services for a particular type of merchandise not normally within the area of e.pertise of the retailer 4.g. health and beauty aids, or kitchen items in a clothing or food store, etc Gobbers may originate with a wholesaler Gobbers keep the merchandise up-to-date and well stocked in the store. <otate merchandise from store to store giving the appearance of new merchandise %sually provide the store on consignment or sold with a guaranteed-return provision 9 retailer assumes no risk

4'll7Ser6ice Merchandising
2%

Leased De)ar!+en!s

#erchandise carried by store with no knowledge would hire rack ,obbers 8hen item requires competent sales assistance, a lease department is the answer /ot a popular choice as such operations prevent retail management from having absolute management control #ust ensure that lease department do not cause customer dissatisfaction 9 require to terminate arrangement if store were to keep its image

4'll7Ser6ice Merchandising
+. Pr"gra++ed Merchandisers

Involves not only merchandise but also services such as assistance in promotion and training <etail management deals directly with ma,or suppliers of resources Agreement involves a commitment to buy particular items from a vendor for a predetermined period of time in return for the services offered by the vendor. <elationship between retailer and vendor is successful, arrangement may be continued over along period of time

hich Res"'rces !" Use

Its

at the disposal of the retailer #ay use all of the possibilities for various merchandise and different situations found at different stores or at different times of the year 5ptimum resource mi. is a management decision true test 9 end product of the buying process, the success or failure of the merchandise on the retailers shelf.

<'es!i"ns==
Thank you

4ACTORS A44ECTING PRICING POLICIES

De#ini!i"n "# Price

&rice

is the monetary value assigned by the seller to something purchased, sold or offered for sale, and on transaction by the buyer, as their willingness to pay for the benefits the product and channel service delivers.

 Re!ailer>s

6ie81

Treats pricing as a cash flow or income generating function

C's!"+er>s

6ie81

(ees price as more than money Includes the comple.ity of emotional and functional benefits derived from the product and the brand #eans that value for the customer is a comple. set of perceptions

4ac!"rs In#l'encing Re!ail Price

Targe! Mar0e!

Merchandise C"s!

C"+)e!i!i"n

R"le "# Price in Re!ail Mi.

Merchandise Charac!eris!ics

Legal C"nsidera!i"ns l
e

PRICE

$% Targe! Mar0e! / Price Sensi!i6i!(

-onsumer view price as a communication of quality and related product attributes from the pricemaker. &rice elasticity of demand is a concept that determines the effect of a given price change on demand. If price is elastic, a change in price will influence consumer demand. An inelastic situation would find a change in price having little or no influence in demand.

 Amount

of the price shift can also influence consumer reaction:

A slight change in price may have little influence of the target market A price that represents a significant change from the market price will result in some change in consumer demand if the item"s price ad,ustment is though to be significant when measured against the consumer"s purchasing power

4ac!"rs In#l'encing Price Sensi!i6i!(

a.

&erceived (ubstitutes effect

*uyers are more sensitive the higher the product"s price is in relation to another product or substitute they could purchase -onsumer will choose a substitute or forgo the purchase if they believe the overall value is unacceptable 4.g. local residents may avoid an area with higher priced shops frequented by tourists who are unaware of the alternatives

b.

%nique Dalue 4ffect

*uyers are less sensitive to a product"s price the more they value any of its attributes that differentiate it from competing products 4.g. many customers are loyal to /estle products because they perceive them to offer superior benefits

c.

Importance of &urchase 4ffect

If the risk of the purchase increases then the price will be the most important aspect of the purchase 5ccurs when the item is an important present or when there is the need to purchase medicine. The greater the importance of the product, the less price sensitive @more inelasticA the purchase will be

d.

1ifficult -omparison 4ffect

*uyers are less sensitive to price when they find it more difficult to compare alternatives. 3ead to a demand for the more established brands, or greater store loyalty, in order to reduce the perception of risk.

e.

&rice Huality 4ffect

A higher price may signal that the product is of superior quality 9 less sensitive to price 5nly applicable to some products 4.g. 8hisky at a higher price may signal improved quality but very few people would think higher priced petrol offered any quality advantage.

f.

4.penditure 4ffect

*uyers become more price sensitive when the e.penditure is larger, either in absolute money amounts or as a percentage of their income #ost prevalent in low income households in which all e.penditure is carefully controlled 4ffect is also stronger and more likely to occur in times of recession

#%

4airness and Trans)arenc( E##ec!

If buyers believes the price falls beyond reasonable and fairness level then they become more price sensitive (ome types of products it is relatively easy to ,udge the offer of alternative brands and products and therefore easy to switch demand to cheaper alternatives (ome alternatives are difficult to find and consumer will perceive retailers or the brand they stock as Iripping-off" customers 4.g. street vendors are often seen to be selling drinks or ice creams at highly inflated prices when the temperature is e.tremely high.

&% C"+)e!i!i"n
-onsumers

tend to compare stores

&rice

is a popular measure of comparison

(tore

may choose to price above the going price or below

a%

Pricing A5"6e !he C"+)e!i!i"n

#ust offer the customer something in return for the higher price (omething e.tra must be clear in the customer"s mind even if such a store differential does not actually e.ist:

a. b. c. d.

4.g. if a customer feels that service is better at the more e.pensive store, that is what counts &restige Image 3ocation (ervices #erchandise Assortment

5%

Pricing Bel"8 !he C"+)e!i!i"n

& reas"ns1 Mar0e! Pene!ra!i"n

1ropping price or entering a market with lower price 1raws attention and high degree of interest in the product and'or store

B( de#a'l!
<esults when others raise prices and the retailer in question retains the status quo 3ittle attention is generated for this retailer In some situation, its better to raise the price along with competitors and then after a period of time retreat to the prices of the good old days. The impact will generally be more positive than achieving the same position by default

c.

&ricing with the -ompetition

Implies selling a the going price (hould not imply followership The retailer is making the decision to remove the price from the list of variables that gives the store its uniqueness when compared with the competition.

2% C"s! "# Merchandise

-ost is important in determining price, but does not alone determine price <etailer should be concern with what an item is worth is what it sells for, not its cost 1anger against too cost conscious 9 refuse to sell below cost since he or she desires to recover such costs on a per product basis. Also caution not to price a particular item too high, since a going price may be three time the cost

 <etailer

should base the retail price partially on how good a negotiator the retailer is with suppliers /o direct relationship between what the customer perceives as retail value and the cost of the item. -ost should be considered:

Trade, quantity, cash and other discounts, as well as workroom @alterations, carpet installation, etcA and transportation charges are all involved

3% R"le "# Price in Re!ailing Mi.

<etailing mi. consist of five I&"s:

&roduct &lace &romotion &ersonality &rice Influence of place on price, such as having a store near a campus provides conveniences &ersonality of the store is also influenced through price, since customer equates higher prices with a higher-class or prestige store &roduct and promotion work hand-in-hand with price in many ways

&rice should be coordinated with the other variables

*% Merchandise Charac!eris!ics
#erchandise itself can affect the method of pricing an item Seas"nal Merchandise must be price according to season and reduced in price in order to sell before the end of the season unless storage of the merchandise is planned 4ashi"n and #ad +erchandise and i!e+s calls for premium price, when fashion is out, pricing should change to relieve retailer of the merchandise

Ph(sical Charac!eris!ics

The )erisha5le na!'re "# s"+e )r"d'c!s like durians, water melon can hold for a certain period of time: Initial pricing is keep to a reasonable level to avoid customer running away and leaving unsaleable products A regular price reduction schedule is also planned to ma.imiBe the sales of the products Uni?'eness and Scarci!( "# Pr"d'c!s 8ater-melon sold in /ew Jork -ity fetch a premium price when it first came. (ubsequent arrival of the ne.t melon will not bring a premium price

9% Legal C"nsidera!i"ns
#any

laws and regulations affecting retailing either directly or indirectly influence price %nit &ricing

<egulations where in effect, require a price to be quoted in particular ways that are felt to hinder the merchandising of the product. or e.ample:

+ for <#0.$$ must also show 2: cent for each can +? cent for a K bag must also show a price of ?> cent per kg.

 &rice

reduction sales

5f great concern to many governmental agencies &rice reductions that are fictitious are now scrutiniBed by the #inistry of Trade and -onsumer Associations &repriced merchandise with sale tags already attached when received at the store are also now prohibited unless the original retail on the item is a legitimate price for the item

A))r"aches !" Pricing !he Re!ail Pr"d'c!

Darious types of &ricing Available for 1ifferent (ituation or (tore Type

$% Price Lines

Is a particular price level or price point that is set for merchandise that would normally sell around that price @price BoneA. 8ill eliminate the infinite number of prices in the store or department and replace them with a series of prices set at certain intervals:

4.g. instead of having shoes that sell at <#22.?:, <#2).$:, <#2).;?, <#2+.0;, <#2+.==, <#2:.0: etc all shoes in this price Bone may sell at <#2).?:. The ne.t higher price Bone may be a price line of <#2?.?:


a%

Advantages:
The decisi"n7+a0ing )r"cess #"r c's!"+ers is si+)li#ied

Ceeps customers from being confused and losing the sales because they cannot make up their mind #ore confident when working with price lines. #ore sure of the price and use it in suggesting merchandise to customers

5%

Sales )ers"n 8"r0 8ell 8i!h )rice lines

c%

Ad6er!ising and sales )r"+"!i"n is +"re e##ec!i6e

Impact of placing all shoes in a price line 6on sale7 is greater than featuring one particular item

d%

e%

Grea!er de)!h and 5e!!er ass"r!+en! are )"ssi5le *y having ) price lines as opposed to )$$ different prices 9 greater concentration on the optimum assortment of merchandise is possible. 4limination of items no longer a problem due to price lining will permit greater depth in the popular items Trading7') "# !he c's!"+er is +ade easier &rice lines of good 9 better 9 best may serve as an encouragement for the customer to trade up if the price differential is not too great <etailer run an advertisement featuring the lowest price line. 8hen customer comes to the store, efforts are made to move the customer up to the middle price line.

#%

Merchandise 5'(ing is si+)li#ied

*y knowing the selling price of the merchandise will be, the merchandise buyer can concentrate on those sources of supply that sell products in the appropriate cost range. Also the buyer can use the established price point as an initial negotiating point with buyers


a.

1isadvantages:
&rice reduction are made difficult

%nless all lines of a merchandise group are simultaneously reduced

b.

Too few price lines may give the impression of limited offerings

A store with the image of offering a wide and varied selection may confuse this image by going too heavily into limited price lines.

&% Ps(ch"l"gical Pricing

&sychological pricing techniques take many forms:

a%

M'l!i)le Pricing

#ost consumers are conditioned to think that a multiple-product price means a cheaper price although this may not always be the case. 4.g. four cans of anything for a ringgit sounds better than 2: cents each. 1oes not imply a bargain to many customers

5%

Odd Pricing

&rice level that gives the impression of a cheaper price 4.g. for :$ cents or +? centsL <#2.$$ or <#0.?>L <#>$ or <#=>F *ased on studies made, consumers do not universally distort odd price ending downward to lower perceived prices 5dd pricing may not always give the impression of lower prices to a given market. #ost stores do not use odd pricing:
4.g. a high-fashion image store would not wish to sell a dress for <#22?.?: when <#2)$.$$ would be more desirable in terms of image.

or the store that chooses to use odd pricing, several rules of thumb may be applied:

%nder :$cent: drop 0 cent @+?cent, )?cent, etcA !reater than :$ cent but less than <#0: drop 2 cent @?>cent, >> cent, etcA !reater than <#0 but less that <#:$: drop : cent @<#0.?:, <#2+.?:, <#)?.?:, etcA !reater than <#:$: drop <#2 @<#?>, <#0+>, <#0;), etcA

2% L"ss Leader Pricing

Is

pricing an item below the market price, or even below cost, for purposes of generating store traffic %se for well-known branded merchandise that have a high level of demand among the store"s target customers

ood store that features bread, soft drinks, coffee and sugar as loss leader items hopes to use such items to draw people to the store so that they buy other items

 3oss

leader items should be placed strategically throughout the store so that customers are e.posed to many other items while taking advantage of the bargains. 1isadvantage:

Tendency for the leader items not generating sales of additional items.

To solve this problem, retailers offer leaders to customers with minimum purchases which create another disadvantage 9 customer irritation of having to meet the minimum purchases.

3% Bai!7and7S8i!ch Pricing
Identical

to loss leader advertisements:

*oth emphasiBe great savings to customers

The

difference would be:

<etailer had no intention to sell the featured items

The

purpose of *ait-and-(witch &ricing is to get the customer to the store so that the customer can be traded up to a more e.pensive item. -onsider as deceptive pricing

*% 4le.i5le 6ers's Rigid Pricing

4le.i5le Pricing

4ntails selling an item for different prices under different circumstances I/egotiate" with customers and offering of Igood deals" to customers are some e.amples of fle.ible pricing Is what its name implies 9 fi.ed. A prestige store may have such a policy for image purposes. ollow the practice of rigid prices due to its simplicity: /o haggling over the price (ales personnel are required to make pricing decisions (elf-service is also possible along with its accompanying possible reduction in needed sales personnel.

Rigid Pricing

Pricing and The Rela!i"nshi) !" Val'e

8hatever pricing policy is adopted, a company has to take into consideration the potential consumer"s perceptual assessment In deciding to buy a product a consumer has to be willing to give up something in order to en,oy the satisfactions of the benefits the product will deliver. #a,ority of consumers are looking for value when they buy a product and value is derived from the functions of quality and price, as well as the added value of the image or brand.

 This

may be e.pressed as:

<'ali!( Val'e @ Price

A IMAGE

I# a c"ns'+er 5elie6es !he i+age and ?'ali!( "# a )r"d'c! is g""d !he( 8ill 5e illing !" +a0e grea!er sacri#ice in "rder !" )'rchase !ha! )r"d'c!%

Val'e can 5e gr"')ed in!" 3 ca!eg"ries

0.

Dalue as low price Dalue as whatever is wanted from a product Dalue as the quality one gets for the price paid Dalue as what one gets for what one gives

2.

).

+.

Mar0d"8ns
In !he 'se "# )rice !" increase de+and +ar0d"8n red'c!i"n "# !he "riginal )rice +a( 5e necessar( d'e !" a n'+5er "# reas"ns

0. 2. ). +. :. ;.

-ompetitor activity affecting demand Inadequate original pricing policy #erchandise did not meet consumer needs or preferences 4conomic or seasonal problems 5verstocking of merchandise or poor stock keeping Huality of merchandise inferior due to manufacture or damage

=. >. ?. 0$.

&roblems of seasonality and poor timing of offer #erchandise became shop-soiled or damaged on the shop floor /eed to release the display space for other merchandise The selling space or display of the merchandise had been inadequate or in the wrong location

00.

02.

0).

0+.

A policy decision taken to develop improved customer goodwill through markdowns An error by the buyer with regard to style, fashions, research of markets, etc An initial markdown being too small to achieve desired sales results (ales staff not being briefed properly or encouraged to sell old as well as new lines

<'es!i"ns=
Thank you