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.