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Transcript
Chap 5..The Retail Price What is Price? Price is the amount of money which customer can pay in a given product. The right price is that which consumers are willing and able to pay and retailers are willing to accept in exchange for merchandise and services Determinants of Pricing Strategy Target Market Type of Merchandise Costs to the firm Target Market How sensitive are consumers to changes in price? (price elasticity) Does the target market use price as a replacement for quality? Type of Merchandise Convenience goods Products consumers want but are not willing to spend much time/effort, or money to purchase. Little product differentiation. Generally low-price, low mark-up, Shopping goods Products that consumers are willing to expend considerable time and effort in evaluting and comparing various attributes and price/quality. Costs to the Firm Merchandise Costs Fixed Costs (e.g. insurance, equip., salaries, lights, heat) Variable Costs (e.g. promotional expenditures, delivery costs, seasonal employees) Semi-Variable Costs (e.g. gift , credit) Tips for Pricing Decisions identify of averaging total variable costs to estimate cost of a single unit. identify of accounting depreciation formulas – more important to know the actual value of the asset for future use Effective pricing must be approached holistically Sales forecasts Market share Break-even point Expenditures on advertising, packaging, gift , etc. Pricing Objectives Sales Objectives(to increase sales of the business) Market-Share Objectives(increasing customer) Growth Profit Objectives Profit maximization Competitive Objectives (meet, stop, Price Setting Methods Mark-up Method Competitive Pricing Method Vendor Pricing Method Mark-up Method of Pricing Mark-up is the difference between the cost of the merchandise and its retail price. May be expressed as a % of cost or retail price. Competitive Pricing Method The retailer sets retail prices in relation to competitors’ prices. No reaction to changes in demand or costs unless reflected in competition’s prices. Largely a judgmental pricing method whereby the retailer uses competitor’s prices as reference points for price-setting decisions. Vendor Pricing Method vendor pricing method manufacture or wholesaler determine the retail price. Vendors can suggest prices by providing a pricing list, printing the price and with the help of detail information. Retailer is not required to use suggested retail price, but many retailers believe it represents a fair estimate of the going market price. Price Setting Policies One-Price Policy Variable-Price Policy Multiple-Price Policy Odd Pricing Policy Unit Pricing Policy One-Price Policy Business charged the same price for the same customer but in those product which have the same features. Advantages: Facilitates speed of transactions, simplifies accounting records, limits need for sales personnel, reduces customers’ uncertainty Disadvantages: Lack of flexibility , failure to meet some consumers’ desire to “knock down the price” Variable-Price Policy Policy which allows the customer to negotiate the final selling price. Usually implemented when: products have high price need for personal selling Advantage: flexibility Disadvantages: increased costs (personnel, time), customer dissatisfaction Multiple-Price Policy Attempts to increase both unit and dollar sales volume by giving customers a reduced price or discount for making quantity purchases. Odd Pricing Policy Form of psychological pricing where consumers will perceive odd prices as lower than even prices ($2.95 is less than $3.00) Unit-Pricing Policy Practice of posting prices on a per unit measurement basis in order to facilitate price comparisons between various package sizes, shapes, brands, etc.