RETAILING MANAGMENT

CHAPTER ELEVEN

RETAIL PRICING

PREPARED BY:

LAMESGN ANILEY

4th TAM
 Introduction

 “The bitterness of poor quality remains a long after low price is

forgotten.” Leon M. Cautillo
We as customers, often get to read advertisements from various retailers
saying, “Quality product for right price!”
This leads to following questions such as
 what is the right price and who sets it?
 What are the factors and strategies that determine the price for what
we buy?

The core capability of the retailers lies in pricing the products or services
in a right manner to keep the customers happy, recover investment for
production, and to generate revenue.
 What is Retail Pricing?

The price at which the product is sold to the end customer is called the
retail price of the product.
 Retail price is the summation of the manufacturing cost and all the
costs that retailers incur at the time of charging the customer.
Factors Influencing Retail Prices
Internal Factors
Internal factors that influence retail prices include the following:
 Manufacturing Cost:
 The retail company considers both, fixed and variable costs of manufacturing the
product.
 The fixed costs does not vary depending upon the production volume. For example,
property tax.
 The variable costs include varying costs of raw material and costs depending upon
volume of production. For example, labor.
 The Predetermined Objectives:
 The objective of the retail company varies with time and market situations.
 If the objective is to increase return on investment, then the company may charge a
higher price.
 If the objective is to increase market share, then it may charge a lower price.
 Contd.

 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 stage at which the product is in its product life cycle determines its
price.
 At the time of introducing the product in the market, the
 EXTERNAL FACTORS
Competition:
 In case of high competition, the prices may be set low to face the competition
effectively, and if there is less competition, the prices may be kept high.
 Buying Power of Consumers:
 The sensitivity of the customer towards price variation and purchasing power of the
customer contribute to setting price.
 Government Policies:
 Government rules and regulation about manufacturing and announcement of
administered prices can increase the price of product.
 Market Conditions:
 If market is under recession, the consumers buying pattern changes. To modify their
buying behavior, the product prices are set less.
 Levels of Channels Involved:
 The retailer has to consider number of channels involved from manufacturing to retail
and their expectations. The deeper the level of channels, the higher would be the product
prices
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 Rs. 600 per unit and the marketer expects 10 per cent
profit, then the selling price is set to Rs. 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.
 The formula used to determine the selling price is:

Selling Price = Average unit cost/Selling price

 Contd.
 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.
 For example, Fixed cost = Rs. 2, 00,000, Variable cost per unit = Rs. 15, and Selling price
= Rs. 20.

 In this case, the company needs to sell (2,00, 000 / (20-15)) = 40,000 units to break even
the fixed cost. Hence, the company may plan to sell at least 40,000 units to be profitable.
If it is not possible, then it has to increase the selling price. The following formula is used
to calculate the break-even point:
 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

For example, Total investment = Rs. 10,000, Desired ROI = 20 per cent,
Total cost = Rs.5000, and
Total expected sales = 1,000 units
Then the target return price will be Rs. 7 per unit as shown below:
Target Return Price = (5000 + (20% * 10,000))/ 1000 = Rs. 7
This method ensures that the price exceeds all costs and contributes to
profit.
 Early Cash Recovery Pricing:
 When market forecasts depict short life, it is essential for the price
sensitive product segments such as fashion and technology to
recover the investment.
 Sometimes the company anticipates the entry of a larger company in
the market.
 In these cases, the companies price their products to shorten the
risks and maximize short-term profit.
Competition-Oriented Pricing Strategy

o 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.
o Competitor’s Parity: The retail company may set the price as close as the giant
competitor in the market.
o 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.
RETAILING MANAGMENT

CHAPTER TWELVE

EMERGING TRENDS IN RETAIL

PREPARED BY:

LAMESGN ANILEY

4th TAM
 Introduction

 “Retail is a pretty simple business, but what adds complexity is the

size and scale. We couldn’t do it without technology.” Bob Nardelli
(American businessman)

In today’s era, the places in the cities have become congested,
infrastructure has changed, transport facilities have increased, and the
speed of exchanging information has become extremely fast.
 Retailers are adopting new technology.
Society is changing, consumers are changing and so are the retailers.
Retailing has managed to keep itself paced with the changing times.
 MIS and Emerging Trends in Retail
• What is MIS?
• A system that helps retailers collect, manage, and analyze data to make
informed decisions and improve efficiency.
• Key Emerging Trends:
• Omnichannel Retailing: Unified customer experience across online and
offline channels.
• E-Commerce Growth: The expansion of online shopping and need for
real-time data management.
• AI & Personalization: Leveraging customer data for personalized
experiences and automated services.
• IoT Integration: Using connected devices for smarter inventory and
supply chain management.
 Role & Future of MIS in Retail

Role of MIS

• Data-Driven Insights: Helps with inventory management, sales forecasting,

and customer behavior analysis.
• Omni-channel Support: Ensures consistent data across platforms,
enhancing customer experience.
• AI and Automation: Optimizes operations and enhances customer
interactions (e.g., personalized recommendations).

Challenges & Future

• Data Privacy & Integration: Ensuring security and merging new systems
with existing infrastructure.
• Future Trends:
• Cloud-based MIS for flexibility and scalability.
• Advanced analytics and AI for deeper insights and improved decision-
making.
Changing Nature of Retailing
Retailers are changing their business formats, store designs, modes of
communication with customers and ways of handling commercial dealings.
Modern retailers are adapting new technology for marketing, retail operations, and
business transactions.
Forward-thinking retailers are using social media to communicate with the
consumers.
With the space crunch, modern retailers have learnt how to use every inch of the
floor constructively.
Apart from opening online retail store, the retailers take the help of Augmented
Reality such as 3D mock-ups to let the customer try the products on themselves.
Retailers are working progressively on delivery of orders that customers placed
through online shopping.
Retailers are bringing something new now and then to charm the customers. Those
places where internet is still not accessible, retailers are exploiting the power of
 Modern Retail Formats

 Today, the Internet has changed the way products are advertised and the manner of selling-
buying transactions.

Here are some modern innovations in retail:

Modern retail businesses such as malls, specialty stores, and hypermarkets are using micro
development and contemporary technology to increase customers’ shopping experience and
in turn generate business revenue.
Around the year 2000, online retail startups started changing the face of retail businesses
around the world.
Social media websites such as Face book changed consumer behavior as well as made
retailers sweat out to take the benefits and develop their brands.
Modern e-commerce facilities enable faster transactions and allow purchase on a simple 30-
day credit facility.
 E-Tailing

 It is nothing but E-Retailing.

 It is the process of selling or purchasing the products using Internet for B2B or
B2C transactions.
 E-tailing process includes the customer’s visit to the website, purchasing
products by choosing a mode of payment, product delivery by the retailer and
finally, the customer’s review or feedback.
E-tailing Benefits
• It does not require floor space to display products.
• It allows the customer having internet access to shop any
time, any place.
• It saves time of the customer otherwise spent travelling to a
shopping place in the real world.
It creates a platform for products from around the world, which
are imported by the e-tailer when the customer places an
order.
Thank you!