1. Chapter 17 Pricing in Retailing RETAIL MANAGEMENT: A STRATEGIC
APPROACH

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 Amazon.com. 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 Walmart.ca v. Amazon.ca
Product
Walmart.ca
Amazon.ca
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