Retail Pricing Strategies Pricing Strategies Price is one of the most important elements for both buyers and sellers and maintaining an appropriate balance between the two is a crucial element of retailing. Customers are looking for greater value for their money in what they purchase. Arriving at the right price for a product or service is one of the most difficult tasks of marketing. Price is the value placed on what is exchanged. It is the point at which the exchange between buyer and seller takes place, where supply and demand are equal. Elements of Retail Price Fixed Costs Variable Costs The price of a product is the total of the fixed and variable expenses to manufacturer or offers your product or service. Price on the other hand is the selling price per unit customers pay for your product or service. For consumers, the price of a product is the most obvious indicator of cost – hence, the need to get product pricing right. The profit to be earned from the merchandise must be planned before fixing the retail price. Pricing Strategies EDLP (Every Day Low Price) Many retailers have adopted an every day low price strategy, which stresses continuity of retail prices at a level somewhere between the maximum printed price and the cost of the product. The term ‘everyday low price’ is therefore somewhat of a misnomer, as low does not necessarily mean the lowest. EDLP The importance of pricing cannot be more aptly proved anywhere in the world than by the fact that some of the larges and most successful retail chains around the world including Wal-Mart, Kmart,Home Depot, Office Depot,Toys “R” Us, Target and Tesco all adopt a deliberate policy of EDLP Having established their goodwill over many years, the retailers who have adpoted EDLP have been able to win over their customers by offering them good quality and durable products at reasonable prices throughout the year. Benefits of EDLP High / Low Pricing Many retailers around the world and in India as well have successfully maintained their market appeal by offering customers high quality merchandise and service without attempting to offer the lowest prices on a particular product category. Marks & Spencer’s, Harrods, and hundreds of other designer labels do cater to a very niche clientele and are good examples of retailers being able to hold their fort in this competitive market. High / Low Pricing Similarly in India popular garment retailers like Ritu kumar, J J Vallaya, Ravi Bajaj, Moan Pali, Sunit Verma and Rohit Bal, and manyother designer labels selling high fashion ladies garments in India, also offer high quality prducts and services without compromising on prices. The common factor that is common to all such retail formats in India and anywhere across the world is that they cater only to their limited markets and cannot expand beyond a certain point. Despite the vast benefits that it offers, the EDLP policy, however, is not for every retailer and for every market. In a high/low pricing strategy, retailers very often offer prices that are sometimes even lower than their competitor’s EDLP. A high/low strategy also has certain strengths, some of which are described below: Benefits of High/Low Pricing Can target many customer segments Merchandise moves Maximum emphasis on quality It is hard to maintain EDLP SPECIFIC PRICING STRATEGIES 1. Customary Pricing: is a policy in which the retailer sets prices for goods and services and seeks to maintain those prices over an extended period of time. Examples: Candy bars, newspapers, movies and vending machines. 2. Variable Pricing: is a policy that recognizes the differences in demand and cost necessitate the retailer change prices in a fairly predictable manner. Examples Flowers tend to higher priced when demand is greater around Mother’s Day and Valentines Day. SPECIFIC PRICING STRATEGIES 3.Flexible Pricing: is a policy that encourages offering the same products and quantities to different customers at different prices. Examples: Most jewelry stores and automobile dealerships. 4. One – Price Policy: is a policy that establishes the retailer will charge all customers the same price for an item. Examples: All people buying the same CD at a local retailer will pay the same price. 5. Odd Pricing: is the practice of setting retail prices that end in the digits 5,8,9 – such as 29.95, 99.99 etc. 6. Multiple – Unit Pricing: occurs when the price of each unit in a multiple – unit package is less than the price of each unit if it were sold individually. Examples: A convenience store may sell 3ltrs of soda for Rs. 200/- when the price per unit is Rs.75/- SPECIFIC PRICING STRATEGIES 7.Bundle Pricing: occurs when distinct multiple items, generally from different merchandize lines, are offered at a special price. The products are put together as a package deal and are charged one price. Examples: A computer hardware manufacturer selling the hardware and the printer and some software's at a particular price as a package 8. Leader Pricing: is the price where the retailer sells one or a few items at a deep discount to increase traffic and sales on complementary items. Examples: Bread, Eggs, Milk, etc. Price Adjustments Retail prices need to be many times adjusted to meet the conditions prevailing in the market. Adjustments to retail price can be done by way of Markdowns or by way of promotions. Markdowns are the reductions in the initial retail price. It is a type of second – degree price discrimination because the lower price induces price sensitive customer to buy more merchandize. Reasons for Markdowns Encourage customers to respond more satisfactorily to aline Sell off shopworn goods, remnants, broken lots, out – of – date, and end – of – season merchandize Increase sales by giving customers the incentive of lower – prices Mark downs are also taken to increase customer’s traffic flow Price Adjustments Mark downs due to buying errors: Lack of planning for demand Failure to buy experimentally in small quantities first Buying more than the current stock requirements Mark down due to Pricing Errors When the initial price has been set too high Failure to check competitor’s price. Differing price reductions too long Making the initial – mark down too small Mark down due to Selling Errors Failure to show & display merchandize properly Display of merchandize in wrong location Failure to inform sales people about the target customer market Poor stock- keeping Careless handling Promoting the Merchandise The overall objective of every retailer is to enhance sales and profits. It is necessary for the retailer to define the specific communications such as : Advertising Sales promotions Publicity Store atmosphere (architecture, design, layouts, interiors etc) Personal selling Word of mouth Implementing an Advertising Plan Deciding the objectives Identifying the Tasks Decreasing sales/profits Decreasing store loyalty Reducing usage for limited products Lack of customer interest Decreasing awareness Lack of customer satisfaction with prices The Target Clientele Choosing the communication medium Deciding the frequency and timing CONSIDERING THE BASIC PRINCIPLES OF ADVERTISING An eye – catching headline that lures the customer to store is an ideal beginning to a good advertisement The layout of the ad should be simple The information desired to be conveyed must be mentioned clearly If the ad is in a news paper which carries hundred of ads, your ad must be bold and distinct from the other ads The companies recognizable logo, the retailers name, address and phone numbers must be clearly mentioned.