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Chapter 17 Pricing in Retailing RETAIL MANAGEMENT: A STRATEGIC

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Presentation on theme: "Chapter 17 Pricing in Retailing RETAIL MANAGEMENT: A STRATEGIC"— Presentation transcript:

1 Chapter 17 Pricing in Retailing RETAIL MANAGEMENT: A STRATEGIC

2 Agenda Newswatch Assignment Announcements
Minutes Presentation Sign-Up Finish Financial Merchandise Management questions from last day Discuss pricing concepts including short video Pricing calculations (answers will be posted on Moodle)

3 External Factors External factors can affect a retailer’s price strategy (to varying degrees). These include: Economy Value of the Canadian Dollar (2007 parity) and state of economy 2008 credit crisis, consumer confidence levels, etc Government Price regulations governed by Competition Act and enforced by the Competition Bureau (examples of violators: Forzani, Suzy Shier, Grafton-Fraser Inc.); tariffs; minimum wage; ‘end geographic price discrimination’ Customers Price sensitivity varies by market segment (economic, status, assortment, personalizing and convenience oriented customers) and depends upon the customer’s perception of value Suppliers Both goods suppliers and retailers seek control (consider distribution arrangements, vertical integration, private label) therefore power distribution becomes important All other retail expenses (resulting from other suppliers ,ad agencies, utilities) need to be offset and therefore considered in pricing Competitors Market pricing results when shoppers have a lot of choice Price wars (difficult to end) can erupt with drastic impact (Target v WalMart 2014)

4 Pricing Options for Retailers
Compare the price points on men’s jackets from Harry Rosen, Gap, Sears and Wal-Mart. Each provide an example one of the three general pricing options a retailer might pursue. Upscale orientation At-the-market orientation Discount orientation

5 A Framework for Developing a Retail Price Strategy
Skimming v. Penetration Retail Objectives can be sales oriented, profit driven, return on investment or early recovery of cash (penetration/skimming strategies) Broad Price Policy Relative to competitors (no competitor will have lower/higher prices) Relative to price leadership stance Relative to assortment (prices set for whole category or per individual items) Relative to time (constant, high/low) Remember: category management

6 Broad Price Policy Choices
Through a broad price policy a retailer generates an integrated price plan with short- and long-term perspectives and a consistent image. The broad price policy needs to be integrated with all other controllable elements of the retail strategy mix (merchandise, location, communication, operations). Moores Commercial Broad Price Policy Relative to competitors (no competitor will have lower/higher prices) Relative to price leadership stance Relative to assortment (prices set for whole category or per individual items) Relative to time (constant, high/low) Examples of broad price policies: No competitors will have lower prices; no competitors will have higher prices; or prices will be consistent with competitors Price leadership will be exerted; competitors will be price leaders and set prices first; or prices will be set independently of competitors All items will be priced independently; or the prices for all items will be interrelated to maintain image and ensure proper markups Prices will be constant over a year or season; or prices will change if costs change

7 Price Strategy Demand-Oriented Pricing Cost-Oriented Pricing
Demand ceiling Psychological pricing Cost-Oriented Pricing Price floor Initial mark-up, maintained mark-up Competition-Oriented Pricing

8 Implementation of Price Strategy
Need to consider importance of : Price Stability Customary pricing and variable pricing (includes yield management pricing) Price Consistency among customers One-price policy and flexible pricing Price Perception Odd pricing, leader pricing, multiple-unit pricing, price lining

9 Various price perception tactics
Customary pricing One price policy Various price perception tactics Variable pricing One price policy Various price perception tactics

10 Amazon: The Walmart of the Web, The Economist, Oct 1, 2011.
“A recent study by William Blair, an investment bank, underlines the price gap between Amazon and its rivals in the retailing world (see table). The report compared the prices of 100 randomly selected goods at each of 24 American retailers with those items that were also available on It found that almost half of the goods were listed on the online retailer's site too, and that Amazon's prices for individual products were on average 11% below those of the stores. The study also noted that Amazon's discounts were in many cases deeper than those offered by the retailers' own websites.”

11 Canadian Online Grocery Pricing Comparison v.
Product Kashi Go Lean Crunch $4.97 $4.99 Imagine Organic Tomato $2.97 $7.38 Campbell’s Condensed Light Homestyle Chicken soup $1.97 $2.98 Heinz Ketchup 1L $3.00 N/A


13 Black Friday What is it? Why do it? What kind of pricing strategy(ies) does this represent? Is extending Black Friday a good strategy? Friday after Thanksgiving sales event Has been extended to the week before thanksgiving/month of Fridays before Thanksgiving Demand/competitive pricing strategy featuring variable pricing with numerous loss leaders Done to generate excitement (it’s “hype”) Increase traffic Hopefully increase sales (particularly in intensely competitive market where consumers are not spending) Good strategy? Many risks: consumers becoming acclimated to sales, everyone does it so they get smarter and shop around only purchasing loss leaders while limiting impulse purchases

14 Black Friday in Canada 2014 1 million Canadians plan to take a sick day on Black Friday 4.1 million Cdns will take vacation days on Black Friday or Cyber Monday Absenteeism costs employers $16 billion annually Black Friday/Cyber Monday expected to generate $13 billion in revenue from Canadians Canadians will spend ~$5 billion cross-border that wknd Source: Huffington Post

15 Eddie Bauer Remembrance Day Sale
Timing Price Promos 2010 Eddie Bauer Remembrance Day Sale

16 Price Adjustments Price can be used as an adaptive mechanism to accommodate factors affecting the retailer like demand, seasonality, merchandise costs, competition and pilferage (markdowns and additional markups) Markdowns should be carefully controlled and their timing planned Although not an adaptive mechanism, employee discounts are also considered price adjustments

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