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Integral part of retail marketing mix Source of revenue for the retailer Communicate the image of the retail store
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
RETAIL PRICING
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
RETAIL PRICING
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
RETAIL PRICING
THE FOLLOWING FORMULA WOULD APPLY
Mark Up percentage can be expressed as Percentage of retail price or as a percentage of cost price
RETAIL PRICING
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
RETAIL PRICING
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
RETAIL PRICING
DEVELOPING A PRICING STRATEGY
1. 2.
3.
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
RETAIL PRICING
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
Understanding of the target market Value based proposition that they would look for
RETAIL PRICING
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
RETAIL PRICING
RETAIL PRICING
APPROACHES TO PRICING STRATEGY
Market Skimming Market Penetration Leader Pricing Price Bundling Multi-Unit Pricing Discount Pricing Everyday Low Pricing Odd Pricing
RETAIL 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
RETAIL PRICING
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
RETAIL PRICING
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
RETAIL PRICING
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: ??????