Presentation on theme: "Chapter 17 Dr. Pointer’s Notes"— Presentation transcript:
1 Chapter 17 Dr. Pointer’s Notes Pricing In RetailingChapter 17Dr. Pointer’s Notes
2 OverviewPricing is the value that is placed on something. That something is usually goods and serviceProducts must be priced in a way that both achieves profits and satisfies customers
3 Basic pricing OptionsDiscount orientation – low prices as competitive advantagesAt the market orientation – uses average prices to offer solid valueUpscale orientation – using a prestigious image as competitive advantage
5 Consumer FactorsPrice elasticity of demand – Measures sensitivity of consumers to price changes.A small change in prices results in a big change is quantity – very elasticChange in prices does not result in significant change in quantity it is inelastic. Elasticity = ∆ Q/ ∆P
6 Consumer_2Price sensitivity varies by market segment based on market orientation1. Economic Consumers2. Status-oriented consumers3. Assortment oriented consumers4. Personalizing consumers5. Convenience oriented consumers
7 Government IssuesHorizontal pricing fixing – parties within the same level in channel agree to set pricesVertical price fixing – when manufacturers or wholesalers seek to control the retail prices of their productsPrice discrimination –occurs when retailers sell same product at different prices to different consumers under same conditions.Robinson- Patman act bars price discrimination
8 Justifiable reasons to price discriminate Products are physically differentRetailers paying different prices are not competitorsCompetition is not injuredPrice differences are due to differences in costsMarket conditions change
9 Government issuesMinimum price laws- can not sell certain items for less than costsPredatory pricing- seeks to reduce competition by pricing products very lowLoss leaders - price products below costs to attract more store trafficUnit pricing- must provide total price and price per a certain unit such as price per oz. or price per lb
10 Government issues Item price removal – some states ban this Price advertising – cannot advertising a price reduction unless it has actually been donePrice matching- legal in many statesBait and switching – illegal practice of advertising a low price but then try to switch customers to another product when they enter the store or say the product is not available.
11 Manuf, wholesalers and Other Suppliers May have conflicts between manuf, wholesalers regarding the pricing of merchandisePrivate label is increasing – selling against the brandGray market goods are sold by retailers and not liked by manufacturers
12 Competition and retail Pricing Market pricing- many retailers are in market and consumers have many to chose from which makes prices of products very similarAdministered pricing- seeks to attract consumers based on uniqueness of offering rather than price
14 Pricing objectivesSales or market share – market penetration strategy – seek big revenues by reducing pricesProfit objectives – market skimming strategy. Sets premium prices and attracts customers who are less price senstitive. Objective is recovery of cash quicker.
15 Examples of Specific pricing Objectives (Fig. 17-5) Maintain a proper imageClear seasonal inventoryProvide good customer serviceEncourage repeat businessMatch competitors pricesIncrease shopper traffic
16 Broad Price PolicyBroad price policy a retailer generates an integrated price plan with short and long run perspectivePrice policy is integrated with target market, retail image, and other elements of retail mixExample of policy: no competitors will have lower prices
17 Price Strategy Demand Oriented –price set based on consumers desire Cost Oriented – costs are calculated and profits are added to set priceCompetition oriented – prices set to match competition
18 Demand OrientedUse demand to estimate what consumers are willing to payPrice- quality association – higher price the higher the qualityPrestige pricing – higher the price the better, consumers preferences
19 Cost Oriented Adding a $ amount to costs to set price Markup pricing Markup – difference between merchandise costs and selling priceExample: retailer cost for a shirt is $25He sells shirt for $45Markup - $45-25 = $20
20 Markup examples Continued Markup percentage = price-cost/price(30%) markup desired$12.00 retailers costsWhat will the selling price be?.30 = X - $12.00/ X12/1-.30= 12/.70 = $17.14Retail selling price is $17.14
21 Markup examples Continued Desire a 40% markup , if the candy retails for .79, what costs should a retailer pay for the candy.79 (1-.40)= .79 (.60) = .474see examples in text page 426
23 Competition oriented pricing Use competitions prices ONLY as a guidecan price above, below or at same level as competition
24 Integrated approaches to pricing strategy Must consider many factors such as1. if price reduces will revenues increase greatly2. Will a given price, allow a traditional markup to be attained3. Can above market prices lead to superior image
25 Implementation of Price Strategy Customary and variable pricingCustomary pricing –sets price at one level and seek to keep them at these levelsEveryday low pricing (EDLP) sell goods at consistently low pricesVariable pricing – change prices as costs varyYield management pricing – determines price that yields the greatest profits for a given period.
26 Implementation of Price Strategy One price policy and flexible pricingOne price policy – charge all customers the same priceFlexible pricing – let consumers bargain over pricesContingency pricing -
27 Implementation of Price Strategy Odd pricing- set prices below even dollar amt, , 99.99Leader pricingselling selected items at reduced price to build store trafficMultiple –unit – 2 for .79bundled pricing combines several productsPrice lining- sell products at a limited price range.
28 Price AdjustmentsPrice adjustments let retailer use price as an adaptive mechanism1. markdowns 2. additional markups3. employee discountMarkdowns are taken because of competition, seasonality, demand patterns, merchandise costs and pilferage.
29 Price Adjustments Markdown percentage = Dollar markdown/net sales Off-retail markdown percentage =original price – new price/original price
30 Price Adjustments Markdown control Timing markdowns 1. Early markdowns – may results in selling out quicker than late markdowns2. Staggered markdown –- automatic markdown plan4. storewide clearance
31 Problem setPlease prepare the following problems from your text page 439Questions4,5,6,7 and 12