Retail Marketing Notes
(Pricing)

What is a Price?
Something that is valued and given in exchange for something else
It can be currency, things, or some combination of value
It can be adjusted in many ways: e.g. coupons, discounts, giveaways
What is price discrimination? Is it ever legal?
What types of governmental influences affect pricing?
 

Price Elasticity
Let’s consider price elasticity:
It is high if a small % change in prices results
    in a substantial % change in the number of units purchased.
    Many substitutes typically exist.
It is low if a large % change in price yields a relatively small % change in
    the no. of units bought
How can retailers use this simple concept?
Suppose we are setting prices for the an entertainment venue?  For textbooks?
 

Let’s Look at at New Types of E-Commerce Pricing Information - a Wealth of Comparisons are Possible

One example of a Price/Merchandise Comparison web site
It includes comparative information from a respected third party
It includes comparative information from other consumers
It greatly expands the consideration set of stores and of brands to include other options that the consumer may not have had available in the past
Aggregator information is also provided by grouping specific categories of items, such as wedding supplies
    Rather than shopping at specific stores near one's geographic trading area, the constraint is relaxed.
http://www.mysimon.com
 

Priceline - Will it continue? Can all categories by covered profitably by this strategy?
From the Priceline Site:
             If you like to save money, you've come to the right place! Since we
             opened for business in April, 1998, we've sold over 6 million airline
             tickets, 2 million hotel room nights, and 2 million rental car days. In
             the process, we've saved our customers millions and millions of
             dollars! Here's the inside scoop on how our revolutionary Name Your
             Own PriceSM service works.

              It's a simple concept, but by "shielding the brand" from you until
               your price is accepted, our partners can now offer you prices not
               available to the general public. Our brand-name partners will
               accept your price based on their availability at the time you
               Name Your Own Price. Of course, this requires some flexibility
               on your part, but this is what allows you to save up to 40% on
               brand-name products every day.
http://www.priceline.com

E-bay:  from their web site:
                      Founded in September 1995, eBay is a powerful marketplace for the
                      sale of goods and services by a passionate community of individuals
                      and small businesses.

                      Today, the eBay community includes 18.9 million registered users, and
                      is the number one most popular shopping site on the Internet when
                      measured by total user minutes according to the Media Metrix
                      September 2000 web report.

                      OUR MISSION
                      We help people trade practically anything on earth. eBay was founded
                      with the belief that people are basically good. We believe that each of
                      our customers, whether a buyer or a seller, is an individual who
                      deserves to be treated with respect.

                      We will continue to enhance the online trading experiences of all -
                      collectors, hobbyists, dealers, small business, unique item seekers,
                      bargain hunters, opportunistic sellers, and browsers. The growth of the
                      eBay community comes from meeting and exceeding the expectations
                      these special people.
http://www.ebay.com/
 
 

Pricing Decisions
These include a firm's pricing position in the market:
     (above the market, with the market, or below the market),
Profit maximization, volume maximization, market share goals, meeting
      competition, prestige objectives, growth goals, and so forth.
 

Formation of Objectives
These objectives are linked in many ways to the understanding of
      a target market, the choice and maintenance of store image, and the
       composition of the retail mix (what makes up the assortment).
Penetration pricing
Skimming pricing
Other goals:  fair pricing
“We will not be undersold”
Liquidation of stale merchandise
 

Pricing Policies
Management decides whether pricing will be based on demand, costs,
          or competitive forces (of some combination of these)
Mgt. relates these decisions to the overall plan for buying - that is, when and
           how much reductions are taken, and how much additional stock must
           be sold (in dollar value - retail reductions) to compensate for the sales dollars
           which are lost when markups are taken.
Thus these issues work together, both the big picture of the firms finances,
           down to the pricing strategy per product.
 

Methods of Pricing
There are many ways to implement pricing strategies
Mathematical versus psychological
Discounted prices - what is the basis for the discount?
Minimum price laws and loss leaders
Bait and switch
Unit-Pricing - is it really  useful to consumers?
Customary pricing: prices which are meaningfully related to
       some time period of relevance to the target market)
Odd-even pricing - how does it work?
Leader pricing
Everyday Low Pricing (EDLP)
 

A Simple Relationship
The simplest formula which I like to use is as follows:

Selling Price =   Merchandise Cost
                          1 -  Markup Percent

We can look at it in ways that are useful to the retail planner
 

Examples
If I know the competitive selling price which I want to set
       for my product, and I know the markup which I have
   computed into my retail objectives
I can simply determine the maximum merchandise cost which my
     buyers can comfortably spend on that merchandise.
 

 Markups
Relate the issue of markup to consider the relationship between initial markup
      and the average markup which is maintained through a period of
      increasing price reductions
Have we kept "enough"  markup which allows us to meet our profitability
       goals, while we are gradually lowering our initial markup through "sales"?
Start initial markup high enough to be able to reduce price in ways which meet
        consumers' responses to price reductions.
Know the differences between the Initial markup and maintained markup formulas.