1. Chapter8 Pricing in Retailing RETAIL MANAGEMENT: A STRATEGIC APPROACH,
9th Edition
BERMAN EVANS

2. 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

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

4. Figure 17.1 Ross Dress for Less Means Value

5. Figure 17.2 Factors Affecting Retail Price Strategy

6. 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

7. 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

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

9. 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

10. 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

11. 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

12. Figure 17.3 A Framework for Developing a Retail Price Strategy

13. Objectives and Pricing
Market
Skimming
Market
Penetration

14. Figure 17.4 A Marketing Skimming Approach

15. Figure 17.5 Specific Pricing Objectives from Which Retailers May Choose

16. 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

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

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

19. 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

20. Figure 17.6 How to Determine Direct Product Profitability

21. 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)

22. Figure 17.7 A Checklist of Selected Specific Pricing Decisions

23. 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

24. Figure 17.8 Ikea and Low Pricing

25. Figure 17.9 Odd Pricing: A Popular Retailing Tactic

26. 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

27. Price Adjustments Adaptive mechanism Markdown Additional markup
Employee discount

28. Figure 17.10 A Price Change Authorization Form

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

30. Figure 17.11 Promoting Markdowns