1. Chapter 17 Dr. Pointer’s Notes
Pricing In Retailing
Chapter 17
Dr. Pointer’s Notes

2. Overview
Pricing is the value that is placed on something. That something is usually goods and service
Products must be priced in a way that both achieves profits and satisfies customers

3. Basic pricing Options
Discount orientation – low prices as competitive advantages
At the market orientation – uses average prices to offer solid value
Upscale orientation – using a prestigious image as competitive advantage

4. External Factors Affecting Retail Pricing
Consumers
Governmental issues
Manufacturers/wholesalers/suppliers
Current and potential competitors

5. Consumer Factors
Price elasticity of demand – Measures sensitivity of consumers to price changes.
A small change in prices results in a big change is quantity – very elastic
Change in prices does not result in significant change in quantity it is inelastic. Elasticity = ∆ Q/ ∆P

6. Consumer_2
Price sensitivity varies by market segment based on market orientation
1. Economic Consumers
2. Status-oriented consumers
3. Assortment oriented consumers
4. Personalizing consumers
5. Convenience oriented consumers

7. Government Issues
Horizontal pricing fixing – parties within the same level in channel agree to set prices
Vertical price fixing – when manufacturers or wholesalers seek to control the retail prices of their products
Price 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 different
Retailers paying different prices are not competitors
Competition is not injured
Price differences are due to differences in costs
Market conditions change

9. Government issues
Minimum price laws- can not sell certain items for less than costs
Predatory pricing- seeks to reduce competition by pricing products very low
Loss leaders - price products below costs to attract more store traffic
Unit 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 done
Price matching- legal in many states
Bait 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 merchandise
Private label is increasing – selling against the brand
Gray 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 similar
Administered pricing- seeks to attract consumers based on uniqueness of offering rather than price

13. Factors Affecting Retail Price Strategy
Price objectives
Broad price policy
Price strategy
Implementation of strategy
Price adjustments

14. Pricing objectives
Sales or market share – market penetration strategy – seek big revenues by reducing prices
Profit 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 image
Clear seasonal inventory
Provide good customer service
Encourage repeat business
Match competitors prices
Increase shopper traffic

16. Broad Price Policy
Broad price policy a retailer generates an integrated price plan with short and long run perspective
Price policy is integrated with target market, retail image, and other elements of retail mix
Example 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 price
Competition oriented – prices set to match competition

18. Demand Oriented
Use demand to estimate what consumers are willing to pay
Price- quality association – higher price the higher the quality
Prestige 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 price
Example: retailer cost for a shirt is $25
He sells shirt for $45
Markup - $45-25 = $20

20. Markup examples Continued
Markup percentage = price-cost/price
(30%) markup desired
$12.00 retailers costs
What will the selling price be?
.30 = X - $12.00/ X
12/1-.30= 12/.70 = $17.14
Retail 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) = .474
see examples in text page 426

22. Markup Initial markup Maintained markups Variable markup policy
Direct product profitability

23. Competition oriented pricing
Use competitions prices ONLY as a guide
can price above, below or at same level as competition

24. Integrated approaches to pricing strategy
Must consider many factors such as
1. if price reduces will revenues increase greatly
2. Will a given price, allow a traditional markup to be attained
3. Can above market prices lead to superior image

25. Implementation of Price Strategy
Customary and variable pricing
Customary pricing –sets price at one level and seek to keep them at these levels
Everyday low pricing (EDLP) sell goods at consistently low prices
Variable pricing – change prices as costs vary
Yield management pricing – determines price that yields the greatest profits for a given period.

26. Implementation of Price Strategy
One price policy and flexible pricing
One price policy – charge all customers the same price
Flexible pricing – let consumers bargain over prices
Contingency pricing -

27. Implementation of Price Strategy
Odd pricing- set prices below even dollar amt, , 99.99
Leader pricing
selling selected items at reduced price to build store traffic
Multiple –unit – 2 for .79
bundled pricing combines several products
Price lining- sell products at a limited price range.

28. Price Adjustments
Price adjustments let retailer use price as an adaptive mechanism
1. markdowns 2. additional markups
3. employee discount
Markdowns 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 markdowns
2. Staggered markdown –
- automatic markdown plan
4. storewide clearance

31. Problem set
Please prepare the following problems from your text page 439
Questions
4,5,6,7 and 12