RETAIL PRCING STRATEGIES

Submitted by: Viplav vinod

Introduction
Concept of retail pricing

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

Factors that need to be taken under considerations

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

ELEMENTS OF RETAIL PRICE

1.

Cost of goods

: Cost of Merchandise Expenses incurred towards transportation Taxes, duties levies etc. : Fixed expenses Variable expenses : Expenses that do not vary with quantum of business eg. Shop rent, Head Office costs etc : Level of sales directly effects variable expenses. eg. Merchandise margins, product mix costs Their Management either enhances or destroy profitability

2.

Expenses Incurred Fixed Expenses

3.

4.

Variable expenses

Pricing Strategies

Demand-oriented Cost-oriented Competition-oriented

Demand-Oriented

Estimate how much customers will buy at various price levels. Set prices to achieve sales goals Determine prices acceptable to target market Demand ceiling Demand floor Psychological Pricing Price/quality relationship Odd pricing

Cost-Oriented

Takes into account the cost of merchandise, retail operating expenses, and desired profits Markup covers operating expenses and profits Markup = Selling price (retail price) Cost of Goods

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.

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 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.