Chapter 17 Pricing in Retailing RETAIL MANAGEMENT: A STRATEGIC APPROACH, 9th Edition BERMAN EVANS

Chapter Objectives To describe the role of pricing in a retail strategy and to show that pricing decisions must be made in an integrated and adaptive manner To examine the impact of consumers; government; manufacturers, wholesalers, and other suppliers; and current and potential competitors on pricing decisions To present a framework for developing a retail price strategy: objectives, broad policy, basic strategy, implementation, and adjustments

Pricing Options for Retailers Discount orientation At-the-market orientation Upscale orientation

Figure 17.1 Ross Dress for Less Means Value

Figure 17.2 Factors Affecting Retail Price Strategy

Price Elasticity of Demand The sensitivity of customers to price changes in terms of the quantities they will buy Elastic – small percentage changes in price lead to substantial percentage changes in the number of units bought Inelastic – large percentage changes in price lead to small percentage changes in the number of units bought

Table 17.1 A Movie Theater’s Elasticity of Demand Price ($) Tickets Sold (Saturday Night) Total Ticket Receipts Elasticity of Demand (E) 6.00 1,000 6,000 E = 0.68 7.00 900 6,300 E = 0.79 8.00 810 6,480 E = 1.00 9.00 720 E = 2.54 10.00 550 5,500

Price Sensitivity Market Segments Economic consumers Status-oriented consumers Assortment-oriented consumers Personalizing consumers Convenience-oriented consumers

The Government and Retail Pricing Horizontal Price Fixing Vertical Pricing Fixing Price Discrimination (Robinson-Patman Act) Minimum Price Laws Unit Pricing Item Price Removal Price Advertising

Justifiable Price Discrimination Products are physically different The retailers paying different prices are not competitors Competition is not injured Price differences are due to differences in supplier costs Market conditions change – costs rise or fall or competing suppliers shift their prices

Competition and Retail Pricing Market pricing – retailers often price similarly to each other and have less control over price because consumers can easily shop around Administered pricing – firms seek to attract consumers on the basis of distinctive retailing mixes

Figure 17.3 A Framework for Developing a Retail Price Strategy

Objectives and Pricing Market Skimming Market Penetration

Figure 17.4 A Marketing Skimming Approach

Figure 17.5 Specific Pricing Objectives from Which Retailers May Choose

Price Policy Choices No competitors will have lower prices; no competitors will have higher prices; or prices will be consistent with competitors All items will be priced independently or the prices for all items will be interrelated to maintain image and ensure proper markups Price leadership will be exerted; competitors will be price leaders and set prices first; or prices will be set independently of competitors Prices will be constant over a year or season; or prices will change if costs change

Price Strategy Demand-Oriented Pricing Cost-Oriented Pricing Competition-Oriented Pricing

Demand-Oriented Pricing Psychological pricing Price-quality association Prestige pricing

Table 17.4 Markup Equivalents Percentage of Retail Percentage of Cost 10.0 11.1 20.0 25.0 30.0 42.9 40.0 66.7 50.0 100.0 60.0 150.0 70.0 233.3 80.0 400.0 90.0 900.0

Figure 17.6 How to Determine Direct Product Profitability

Integration of Approaches to Price Strategy If prices are reduced, will revenues increase greatly? (Demand orientation) Should different prices be charged for a product based on negotiations with customers, seasonality, and so on? (Demand orientation) Will a given price level allow a traditional markup to be attained? (Cost orientation) What price level is necessary for a product requiring special costs in purchasing, selling, or delivery? (Cost orientation) What price levels are competitors setting? (Competitive orientation) Can above-market prices be set due to a superior image? (Competitive orientation)

Figure 17.7 A Checklist of Selected Specific Pricing Decisions

Price Strategy Concepts Customary Pricing Everyday Low Pricing Variable Pricing Yield Management Pricing One-Price Policy Flexible Pricing Contingency Pricing Odd Pricing Leader Pricing Multiple-Unit Pricing Price Lining

Figure 17.8 Ikea and Low Pricing

Figure 17.9 Odd Pricing: A Popular Retailing Tactic

Reasons to Use Multiple-Unit Pricing A firm could seek to have shoppers increase their total purchases of an item This approach can help sell slow-moving and end-of-season merchandise Price bundling may increase sales of related items

Price Adjustments Adaptive mechanism Markdown Additional markup Employee discount

Figure 17.10 A Price Change Authorization Form

Timing Markdowns Early markdown policy Late markdown policy Staggered markdown policy Automatic markdown plan Storewide clearance

Figure 17.11 Promoting Markdowns