Merchandise Pricing & KSS’s PriceStrat to help companies optimize sales Anne Hatlen Chapter 10

Books Illustration on pricing constraints and how it interacts with various decisions. Merchandise Legal Constraints Location Store Image Promotion Customer Service Credit A Retailer’s Pricing Objectives Must Interact with These Other Decisions

Pricing Decision cont.  Some stores set prices to match with their image. The book used the example of Old Navy matching its prices to their promotions and casual clothing atmosphere. Other stores need to factor in how far a customer has to go to get the merchandise. Outlet stores tend to be further way, costing more to travel, therefore they give you lower prices as an incentive for the long trip. Other stores need to factor in how far a customer has to go to get the merchandise. Outlet stores tend to be further way, costing more to travel, therefore they give you lower prices as an incentive for the long trip. Others offer extras like gift wrapping or delivery for “Free” but in reality that is later factored in to the pricing of the merchandise. Others offer extras like gift wrapping or delivery for “Free” but in reality that is later factored in to the pricing of the merchandise.

Profit Oriented Target Return Objective is a pricing objective that states a specific level of profit, such as a percentage of sales or return on capital invested, as an objective. Target Return Objective is a pricing objective that states a specific level of profit, such as a percentage of sales or return on capital invested, as an objective. When seeking to obtain as much profit as possible a firm is using Profit Maximization. When seeking to obtain as much profit as possible a firm is using Profit Maximization. Skimming is a pricing objective where price is initially set high on merchandise to skim the cream of demand before selling at more competitive prices. Skimming is a pricing objective where price is initially set high on merchandise to skim the cream of demand before selling at more competitive prices. When a price is set at a low level in order to penetrate the market and establish a loyal customer base the company is using Penetration. When a price is set at a low level in order to penetrate the market and establish a loyal customer base the company is using Penetration.

Pricing Policies  Above-Market pricing policy is a policy where retailers establish high prices because non-price factors are more important t their target market than price.  Examples: Services provided, convenience of location, merchandise, and hours of operation.  Price Zone: is a range of prices for a particular merchandise line that appeals to customers in a certain market  Below-Market pricing policy: a policy that regularly discounts merchandise from the established market price in order to build store traffic and generate high sales and gross margin.

Specific Pricing Strategies  Odd pricing: setting retail prices that end in digits like… 22.95, 30.99, or  Multi-Unit pricing: when the price of each unit in a multi-pack is less than the price of each unit sold individually.  Bundle pricing: multiple items from different merchandise lines are sold together at a special price offer.  Bait-and-Switch pricing: where a low-priced good is used to lure shoppers into the store, then a sales person tries to sell the customer a high-priced similar good.

Marking Up Prices  Some factors that go into marking up products are:  As a good in sold more in a retail outlet, the markup price decreases  The more costs involved with the product, such as storage and handling, the more it will be marked up.  The higher the demand for the good, the higher the markup.  If the product is in season, the higher the markup when in demand and the lower the markup when out of season.

Marking Up Equations  Selling Price = Cost of the merchandise per unit + Markup per unit  SP=C+M  A percentage of markup on the selling price:  (SP-C)/SP=M/SP  The percentage of markup on the cost:  (SP-C)/C=M/C

Marking Down Prices  Any reduction in the price of an item from its initially determined price.  Happens a lot with retailers who want a high turnover. Marking down helps the products sell faster  Markdown percentage=Amount of reduction/Original selling price.

Miller Oil Co. selects KSS’ PriceStrat to optimize merchandise sales March 24, 2005

Who are these people?  KSS Inc. is the leading provider of pricing solution to the petroleum/convenience, chain drug and grocery sectors. They sell software that can fully integrate your system with a group of every experienced consultants.  Miller Oil is a chain of convenience stores in Virginia that has become the leader in its industry. They provide high quality products, great services to their customers and brand name gasoline.

What is PriceStrat  It is a retail application that was created to help create and support the pricing and promotion process faced by many retailers.  Takes the nuisance of data management off of managers and automatically comes up with different strategies of how to price items based the item, other categories and price sensitivity.

PriceStrat helps to…  Allows you to get the maximum value from promotions.  Has a distinctive look into the consumer demand and what each item has to offer.  Keeps pricing consistent… keeping customers happy.  Monitors items on how they are being demanded, what promotions work, and how to draw more attention to the lesser demanded.

Miller Oil and PriceStrat  Miller Oil is using PriceStrat to help manage their convenience store pricing activities and hopefully build on their continual success.  With thorough support and analysis using “what-if” models and price optimization, Miller Oil will be able to better develop, test and execute more efficient pricing tactics which will hopefully lead to an higher gross profit.  Miller Oil has already had success in using KSS’s PriceNet, so they are confident the addition of PriceStrat will be smooth and beneficial.

Miller Oil on PriceStrat  "We are excited by the opportunities PriceStrat offers us to gain better insights into our merchandise business and help manage our pricing tactics more efficiently. KSS has proven the value of their approach and solution capabilities in our fuels business and we see PriceStrat as a key tool to help us improve business efficiency and profitability in merchandise and to effectively respond to the ever-changing market conditions we face." -Jeff Miller, President of Miller Oil comments,

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