WEEK 13

RETAIL PRICING
 RETAIL PRICING

• The retail price of a thing is the price at which it is sold to the final customer. The
retail price is the total of the production cost and the charges incurred by retailers
when billing the customer.

• Source: https://www.tutorialspoint.com/retail_management/retail_management_pricing.htm
 PRICING
3

• Consumer goods and services in developing

economies must be within the reach of the critical
mass of the population, most especially those at the
bottom of the economic pyramid.

• Consumers buys value for money.

 VALUE

• Quotient of benefit over cost, where benefit is the sum of functional and emotional
benefits, and cost is the sum of functional and emotional benefits.
 FACTORS INFLUENCING RETAIL PRICES

• Internal Factors
• Manufacturing Cost
• The Predetermined Objectives
• Image of the Firm
• Product Status
• Promotional Activity
• External Factors
• Competition
• Buying Power of Consumers
• Government Policies
• Market Conditions
• Levels of Channels Involved
 MANUFACTURING COST

• The retail company takes into account both the fixed and variable expenses of producing
the goods.

• The fixed costs are not affected by the volume of output. Consider the property tax.

• Variable costs include fluctuating raw material costs as well as expenditures based on
manufacturing volume. Take, for example, work.
 THE PREDETERMINED OBJECTIVES

• The retail company's goal changes depending on the period and market
conditions.
• If the company's goal is to enhance return on investment, it may charge a
higher price.
• If the goal is to expand market share, the price may be reduced.
 IMAGE OF THE FIRM

• The retail company may consider its own image in the market.

• For example, companies with large goodwill such as Procter & Gamble can demand a higher
price for their products
 PRODUCT STATUS

• The price of a product is determined by where it is in its life cycle.

• To entice new clients, the firm may offer a reduced price while launching the product to the
market.

• The firm raises the price of the product once it has been acknowledged and established in the
market.
 PROMOTIONAL ACTIVITY

• If a firm spends a lot of money on advertising and sales promotion, it will maintain the price
of its products high in order to recoup its investment costs.
 EXTERNAL FACTORS

• External prices that influence retail prices include the following :

• Competition
• When there is a lot of competition, you may set your pricing low to compete successfully, and
when there isn't a lot of competition, you can keep your prices high.
 BUYING POWER OF CONSUMERS

• Price setting is influenced by the customer's sensitivity to price fluctuation and purchasing
power.
 GOVERNMENT POLICIES

• Government rules and regulation about manufacturing and announcement of administered

prices can increase the price of product.
 MARKET CONDITIONS

• When the market is in a slump, customers' purchasing habits shift. Product prices are
reduced in order to influence their purchasing habits.
 LEVELS OF CHANNELS INVOLVED

• The retailer must examine the amount of channels involved from

manufacture to retail, as well as the customers' expectations.

• The greater the product prices, the deeper the degree of channels.
 DEMAND-ORIENTED PRICING STRATEGY

• The price charged is high if there is high demand for the product and low if the demand is low. The
methods employed while pricing the product on the basis of demand are −
• Price Skimming − Initially the product is charged at a high price that the customer is willing to
pay and then it decreases gradually with time.
• Odd Even Pricing − The customers perceive prices like 99.99, 11.49 to be cheaper than 100.
• Penetration Pricing − Price is reduced to compete with other similar products to allow more
customer penetration.
• Prestige Pricing − Pricing is done to convey quality of the product.
• Price Bundling − The offer of additional product or service is combined with the main product,
together with special price.
 COST-ORIENTED PRICING STRATEGY

• A method of determining prices that takes a retail company’s profit objectives and
production costs into account. These methods include the following −
• Cost plus Pricing − The company sets prices little above the manufacturing cost. For example, if
the cost of a product is Php 600 per unit and the marketer expects 10 per cent profit, then the
selling price is set to Php 660.
• Mark-up Pricing − The mark-ups are calculated as a percentage of the selling price and not as a
percentage of the cost price.
 BREAK-EVEN PRICING

• The retail company determines the level of sales needed to cover all the relevant fixed and
variable costs. They break-even when there is neither profit nor loss.

• The following formula is used to calculate the break-even point :

• Contribution = Selling price – Variable cost per unit

 TARGET RETURN PRICING

• The retail company sets prices in order to achieve a particular Return On Investment (ROI).

• This can be calculated using the following formula −

• Target return price = Total costs + (Desired % ROI investment)/Total sales in units
 COMPETITION-ORIENTED PRICING STRATEGY

• When a retail company sets the prices for its product depending on how much the
competitor is charging for a similar product, it is competition-oriented pricing.
• Competitor’s Parity − The retail company may set the price as close as the giant competitor in
the market.
• Discount Pricing − A product is priced at low cost if it is lacking some feature than the
competitor’s product.
 DIFFERENTIAL PRICING STRATEGY

• The company may charge different prices for the same product or service.
• Customer Segment Pricing − The price is charged differently for customers from different
customer segments. For example, customers who purchase online may be charged less as the cost
of service is low for the segment of online customers.

• Time Pricing − The retailer charges price depending upon time, season, occasions, etc. For
example, many resorts charge more for their vacation packages depending on the time of year.

• Location Pricing − The retailer charges the price depending on where the customer is located.
For example, front-row seats of a drama theater are charged high price than rear-row seats.
 REFERENCES:

• https://www.tutorialspoint.com/retail_management/retail_management_pricing.htm

• Retail Management: A Strategic Approach (13th Edition) Barry R. Berman, Joel R. Evans
• http://sim.edu.in/wp-content/uploads/2018/02/RETAIL-MANAGEMENT-Notes.pdf
• https://www1.udel.edu/alex/chapt6.html