9. Retai Pricing Flashcards
The process can be outlined as follow:
- Retail objectives
- Broad price policies
- Price strategy.
- Implementation of price strategy.
- Price adjustments.
• Price strategy.
Note the various price strategies, namely demand-oriented pricing, cost-
oriented pricing and competition-oriented pricing.
Demand-oriented pricing uses price-quality association (low pricing means low quality and higher pricing means good quality) and prestige pricing (customers will not buy goods if they are priced too low). Nine West (a prestigious handbag and shoe retailer throughout the world) never has low prices, because it does not want its customers to think that its products are inferior.
Cost-oriented pricing requires the retailer to compute all its expenses at cost and then add its desired pro t. This is called a markup. For example, a local furniture manufacturer can sell its product at a higher price than the initial manufacturing cost. Thus the profit to be made can be determined by the manufacturer. Note that markups depend on several factors which are discussed in detail in the prescribed book. You must be able to differentiate between the suggested list price, inventory turnover, competition and rent and other overhead costs.
Lastly, competition-oriented pricing is used at, say, Checkers, Pick n Pay and Spar, which are all in the same retailing industry. These retailers generally use one another’s prices as a guide.
• Implementation of price strategy.
The following pricing strategies are discussed in detail in the prescribed book:
customary and variable pricing (generally used in products such as newspapers). The price stays the same because retailers want consumers to take advantage of the price.
Variable pricing refers to retailers that make their merchandise more expensive at a certain time of year. Valentine’s Day is a case in point when orists sell their merchandise at more expensive prices.
Odd pricing means, for example, that the cost of a product is advertised as R4.99 instead of R5.00. The consumer automatically assumes that this is a discounted price. In leader pricing, retailers such as Clicks will sell products such as perfumes at a discounted price to ensure that the regularly priced goods are sold.
An example of multiple unit pricing would be Foto-First having a promotion, whereby the rst 50 photos you develop are at R2.30 each, and the next 50 photos will be at R2.10 each).
An example of price lining would be South African retailers displaying and pricing a brand of toothpaste according to its popularity and quality. Aquafresh, for example, is more expensive than Close-Up. Sensodine, however, is more expensive than both the aforementioned products.
• Price adjustments. Here you need to focus on the following subaspects of price adjustments:
(1) Computing markdowns and additional markups.
(2) Markdown control.
(3) Timing markdowns.
• Price adjustments. (1) Computing markdowns and additional markups.
Markdowns can be used to compete against other retailers. For example, Lewis can provide a lower price for the same product than Game in order to gain a competitive advantage. During the rugby season, for instance, the cost of a rugby jersey may increase because of demand. This is an example of a price markup.
• Price adjustments.
(2) Markdown control.
When products are discounted, a database or inventory should be kept to ensure that the organisation does not run a financial loss.
• Price adjustments.
(3) Timing markdowns.
Christmas shopping in November/ December is far more expensive than earlier in the year. However, after Christmas, decorations are marked down because of the lower demand for them.
