RETAIL PRICING

FACTORS INFLUENCING PRICING DECISIONS

1. Nature of Merchandising
- Merchandise strategy
- Premium price based on nature of the product
- Ex: Silk Saree depends on weave / handmade, design
2. Merchandise Promotions
- Based on product promotions during the season
3. Credit offers
- Ex: consumer durables / Electronics when offered with EMI facility
4. Zone / Location Capability
- Service retailer – Hotel chain / Salon chain / CCD
5. Service Rendering
- Warranty contract
- Level of service or after-sales-service required to be extended may influence the merchandise
pricing decision
- Ex: Croma offering service contracts
 FACTORS INFLUENCING PRICING DECISIONS
6. Store Positioning
- Positioning and the image of a retail store
- Big Bazaar selling merchandise below MRP as it is a no-frills discount
format stores
7. Supply / Demand Factors
- Ex: Fruits and Vegetables sold in supermarkets
8. Competition
- When the retailers get first mover advantage in a marketplace – full
price
9. Legal Framework
- MRP
- Tax like VAT
 FACTORS INFLUENCING PRICING DECISIONS
Pricing Objectives:
• To attract footfalls into the store
• To overcome competition
• To maximize gross margins and thus increase profits
• To increase the customers’ basket size
 PRICING STRATEGIES
1. Price Signaling and Loss Leader Pricing
- Keeping low price purposely to signal value paradigm of the store
called price signaling
- Ex: Staples price at Supermarkets
- Loss Leader Pricing: - Intentionally selling few staples at loss to gain
footfalls
Reasons to do so:
1. Hoping for more footfalls and purchase of other products by the
consumers
2. To create psychological feeling that the prices of all items are low in
the store
 PRICING STRATEGIES
2. Everyday Low Pricing (EDLP)
- Selling a merchandise every day at low prices.
- Ex: Flavor for the day at Naturals ice cream
3. High-Low Pricing
- It’s not an everyday affair like EDLP
- Running a promotion for a week
4. Predatory Pricing
- Pricing with an objective of driving competition to death
5. Psychological Pricing and Odd Pricing
- Price points that have a psychological impacts in the minds of customers
- Bata Price – Rs. 199
 PRICING STRATEGIES
6. Single Denomination Pricing
- Dollar store

7. Bundle Pricing
- The items are grouped and bundled to arrive a pricing that may be
less than the sum total of the individual prices of all items

8. Price Discrimination
- Charging customers different prices for the same product or service
- CCD based on location
- Hair dressing service in Salon
 PRICING STRATEGIES

• STORE-LEVEL PRICING STRATEGIES

- In-store pricing decisions taken by retailers as a strategic
move with various objectives, considering factors like
1. Stock-Holding
Stock-holding
Low High

Low
Close-out Clearance
Price
High Buoyance Brash
 STORE-LEVEL PRICING
STRATEGIES
2. Competition

Competition
Low High

Low
Economy Penetration
Price
High Skimming Premium
 STORE-LEVEL PRICING STRATEGIES

3. Features and Benefits

Features & Benefits

Low High

Low
Cheap Value-for-Money
Price
High Rip-off Luxury
 PRICING STRATEGIES
Price Elasticity:

Elasticity = % change in quantity sold / % change in Price

- Price sensitive (elastic) = 1% decrease in price produces more than 1% increase in sales
- Price insensitive (inelastic) = 1% decrease in price results in less than 1% increase in
quantity sold
Factors affecting price sensitivity of the product:
1. More substitutes a product/ service – price-elastic (sensitive)
2. Luxury goods – price-inelastic (insensitive)
3. Product or services that are necessary – Gasoline / medical care
4. Products that are expensive relative to consumers income – price-elastic
Ex: Cars (Price elastic); Books & movie tickets (price-inelastic)
 PRICING STRATEGIES
SETTING RETAIL PRICES:
Setting price based on Costs:
1. Retail Price and Markup
Retail price = Cost of Merchandise + Mark up
Mark up % = Retail Price – Cost of merchandise / Retail Price

Retail Price = Cost / 1 – Markup %

MARKDOWNS
- Reasons for Taking markdowns
1. Clearance sale
2. Promotions (to generate sale)
THANK YOU