Retail Pricing:
The sale of goods from fixed
points (malls, department stores, supermarkets and so on) to the consumer in
small quantities for his own consumption is called as retail. According to the
concept of retailing, a retailer doesn’t sell products in bulk; instead sells
the merchandise in small units to the end-users.
Factors influencing retail
pricing :
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 do
not vary depending upon the production volume. For example, property tax. The
variable costs include varying costs of raw material and costs depending upon
the volume of production. For example, labour.
• 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.
• 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 company may charge a lower price for it to attract new customers.
When the product is accepted and established in the market, the company
increases the price.
• Promotional Activity:
If the company is spending
high cost on advertising and sales promotion, then it keeps product price high
in order to recover the cost of investments.
External Factors
External prices that
influence retail prices include the following:
• Competition: In the 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 the setting price.
•Government Policies: Government rules and regulation about manufacturing and announcement of administered prices can increase the price of the product.
• Market Conditions: If the 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 a number of channels involved from manufacturing to retail and their expectations. The deeper the level of channels, the higher would be the product prices.
Different Types of Pricing strategies
1. Cost plus Pricing Mechanism
Every
organization runs to earn profits and so is the retail industry.
Cost
plus pricing works on the following principle:
- Cost
Price of the product + Profit (Decided by the retailer) = Final price of
the merchandise.
According
to cost plus pricing strategy the retailer adds some extra amount to the actual
cost price of the product to earn his share of profits. The final price of the
merchandise includes the profit as decided by the retailer.
2. Cost plus Pricing
- Cost
plus pricing strategy takes into account the profit of the retailer.
- Cost
plus pricing is an easy way to calculate the price of the merchandise.
- The
increase in the retailer price of the merchandise is directly proportional
to the increase in the cost price.
- The
customers however do not have a say in cost plus pricing.
Manufacturer Suggested Retail Price (Also
called List Price or Recommended retail price)
According
to manufacturer suggested retail pricing strategy the retailer sets the final
price of the merchandise as suggested by the manufacturer.
3. MSRP
- The
retailer sells his merchandise at a price suggested by the manufacturer.
Condition 1
- The
retailer sells the product at the same price as suggested by the
manufacturer.
Condition 2
- The
retailer sells the merchandise at a price less than what was suggested by
the manufacturer - Such a condition arises when the retailer offers “Sale”
on his merchandise.
Condition 3
- Retailers
initially quote an unreasonably high price and then reduce the price on
the customer’s request to make him realize that a favour has been done to
him. A condition of Bargain - where the customer negotiates with the
retailer to reduce the price of the merchandise.
4. Competitive Pricing
The cut throat competition in the current
retail scenario has prompted the retailers to guarantee excellent customer service
to the buyers for them to prefer them over their competitors.
- The
price of the merchandise is more or less similar to the competitor’s but
the retailers add on certain attractive benefits for the customers.
(Longer payment term, gifts etc.)
- The
retailers ensure that the customers leave their store with a smile to have
an edge over the competitors.
- He
tries his level best to offer better services to the customers for a
better business in future.
5. Pricing below Competition
According
to pricing below competition policy
- The
price of the merchandise is kept lesser than what is being offered by the
competitors.
6. Prestige Pricing (Pricing above competition)
According
to prestige pricing mechanism, the price of the merchandise is set slightly
above the competitors.
The
retailer can charge higher price than the competitors only under the following
circumstances:
Ø Exclusive
Brands at the store.
Ø Brand image
of the store
Ø Prime
location of the retail store
Ø Excellent
customer service
Ø Merchandise
not available at any other store
Ø Latest
Trends
7. Psychological Pricing
- Certain
price of a product at which the consumer willingly purchases it is called
psychological price.
- The
consumer perceives such prices to be correct.
- A
retailer sets a psychological price which he feels would meet the
expectations of the buyers and they would easily buy the merchandise.
8. Multiple Pricing
- According
to multiple pricing, the retailer sells multiple products (more than one)
for a single price.
- The
retailers combine few products to be sold for a single fixed price.
- 3
Shirts for $100/- or 3 Perfumes for $20/- and so on.
9. Discount Pricing
According
to discount pricing, the retailer sells his merchandise at a discounted price
during off seasons or to clear out his stock.
Retail promotion strategy:
With the economy still not
at peak performance, apparel retailers went to the old standby this past
holiday season, discounting. We all know that this promotions
strategy just erodes margins and adds little value to the customer, especially
loyal ones. For the online channel, free shipping (the oldest
promotion used in e-commerce) was still at the top of the heap this past holiday
season.
Customers have come to
expect free shipping, especially for orders of significant value (over
$100). If you’re like many retailers, you’d like to stop this
practice of giving customers free shipping all together. Free shipping
decreases margins and, in many cases, it can’t be used alongside other more
attractive promotions for both the retailer and the customer. Avoid offering
free shipping as a site wide promotion; it limits your options due to
double-dipping on promotions that will ultimately shave your margins.
Moving forward, retailers
must implement a comprehensive promotions strategy to maintain a high level of
consumer satisfaction toward their brand. Savvy retailers know their promotions
strategies must be innovative, creative and customized to meet the shopping
habits of specific consumer segments. When building a comprehensive
Omni channel promotions strategy, it is important to create offers targeted at
acquiring new customers, increasing average order size, moving excess
inventory, and satisfying customers. Without a well-thought-out strategy, and
the systems to deliver and measure success, it is impossible to know whether or
not the promotions are generating true return on investment.
Five Actions for Successful Retail Promotions
Using today’s available
tools and technology such as e-commerce platforms, mobile devices, and order
management systems, omni channel retailers can create customized promotions
plans that deliver offers to consumers based on the segmentation of their
preferences and shopping behavior. To execute a winning promotions
strategy, retailers should follow these five essential actions:
1. Segment your
customers.
Segment customers into
groups, particularly if your products attract a diverse group of shoppers. By
collecting customer data, merchandisers can better understand the triggers that
make a consumer react to a specific type of promotion. Tracking consumers by
these behavior groups allows retailers to introduce specialized promotional
programs and communicate to consumers with relevant offers. Online capabilities
facilitate the collection of information provided by consumers when they
register on a site and by their shopping habits. Consumers can then be grouped
by price sensitivity, product class, order size, number of visits and other
relevant characteristics.
2. Try new types of
promotions.
The goal of promotions is
to cut through the noise created by the market, and ultimately inspire a
consumer to make purchase through a designated call to action. For this reason,
promotions must be creative, offer real value, and go beyond
discounting. New promotional concepts – such as shipping
destination, shipping methods, x first customers, every nth customer, every x
order, items per promotion, apply offer to nth item, returns-based, payment
method, free product choice, rebates, multiple bonus products and many others –
are starting to be used by some innovative apparel retailers on their
e-commerce sites. Retailers are even starting to use stock-level
based promotions to move excess inventory. Although there is a lot of diversity
in online promotions, a word to the wise — be sure to have rules in place for
managing promotions to avoid pitfalls, such as giving away double offers or
unintentionally not providing a consumer with the best available promotion.
3. Test and track
promotions.
Once customers are
organized into relevant groups and the lists of promotions have been created,
retailers can better determine the effectiveness of specific promotions by
performing A/B tests. A/B tests are a comparative form of testing that allows
merchants to test several promotion types against a typical offer to determine
which option will yield the best results. For example, different promotions can
be offered to a single group of consumers to find out which promotion is most
effective. This can be as simple as offering a 20 percent discount versus a 30
percent discount to determine discount thresholds or as complex as offering 10
unique promotion types. Since this form testing delivers real-time results, A/B
is the best vehicle for gathering data on time-sensitive offers. Testing is
also an import measurement tool for safeguarding against over promotion and
protecting margins.
4. Synchronize
omnichannel promotions through the order management system (OMS).
Over the years, consumers
have been trained that they can shop through any channel, and thereby get the
same promotions no matter where they shop. Synchronizing promotions across
channels has been a significant issue for retailers especially between the
website and store. Order management systems that offer a diverse set
of promotions can provide the unification of offers across
channels. Unfortunately, too many e-commerce platforms and order
management systems do not offer the same promotion types therefore creating a
disconnect and weakening creative offer-based strategies. Review
your systems to make sure these software tools offer a diverse set of
promotions to maximize your ROI.
5. Go beyond
Discounting to Connect with Customers.
Deep discounting across the
board used to be the norm in the apparel industry. However, retailers are
getting hip to the fact that offering deep discounts to all customers is
serving only to lower margins and cheapen the value of the products among many
customers who would probably have purchased anyway. Armed with more precise
promotions technology to track effectiveness, today’s retailing strategies are
moving towards loyalty-based promotions, such as a “surprise and delight”
giveaway. Time has shown that customers appreciate receiving something for
free, especially when they are not expecting it. Using these promotions create
repeat customers. Little things can go a long way, such as sending the customer
a thank-you message after the purchase has been made, and then send out a loyal
customer offer for their next purchase to seal the deal.
