Pricing and Small Retailers: Questions to Consider By Jason Mariner, Kelly McCrary, & Leah Clark

Developing a Price Strategy

• You are a local Corvallis Hardware dealer, Home Depot just moved in, what do you do?

• Small business opportunities.

• Offer what the Big Box can’t…

Part 1: Developing Your Pricing Strategy

• Do you have an overall pricing philosophy? What is it?

– High-end pricing philosophy– Low-end pricing philosophy– Medium pricing philosophy

Part 2: Pricing Philosophy and Setting Retail Prices

• What are people looking for when shopping at your store?

– Economic consumers – Status-oriented consumers – Assortment-oriented consumers – Personalizing consumers – Convenience-oriented consumers

Part 2: Pricing Philosophy and Setting Retail Prices

• How do you compute prices?– Suggested Market Price– Competitive pricing

• When setting prices, do you take all operating costs into account?– Salaries and Wages– Rent and maintenance – Credit card processing

Part 3: MSRP, Fair Pricing and the Competition, cont’d

• How often do small retailers change regular prices and run sales? Does this vary by product category? – There should be goals as to how often to change

prices and whether the frequency of changes should vary by category.

– Varies among different types of retailers like stationary stores, produce stores, and computer retailers.

– There should also be goals about the frequency of sales. Also varies among retailers like supermarkets, Wal-Mart, and Saks.

Part 4: Planning for Shrink, Price Lining and Advertising

• Do small retailers plan for stock shortages (due to shrinkage and clerical errors) when setting prices? How? – Yearly, $35 billion in

U.S. retail sales are lost due to inventory shrinkage (theft) and billions more are lost due to clerical errors by workers.

• Do you advertise prices? Where? – Every retailer,

regardless of positioning and size, is capable of some form of price advertising.

• Using price lining, yes or no? – A price floor and a

price ceiling are set for each product category, and then selected price points are set within the range.

Part 4: Planning for Shrink, Price Lining and Advertising, cont’d

• Do you let customers bargain over the prices of any items?– Depends on the type of firm, some have fixed prices

and permit absolutely no bargaining while others have fixed pricing but allow bargaining for other items or services.

– There are also firms that encourage customer bargaining.

Part 3: MSRP, Fair Pricing and the Competition

• How do small retailers use manufacturer suggested list prices? – More consumers expect regular

prices to be below those suggested by manufacturers; as a result, many retailers are not using list prices as their regular prices.

• Are prices "fair" to customers? What does "fair" mean to small retailers? – Within this analysis of

“fairness” there are two different perspectives: consumer perspective & retailer perspective

• Do small retailers visit competitors to check prices? Do they look at their competitors ads? If they check prices, how do they react to what they learn? – A "no" answer is myopic and

will lose customers. Pricing should encompass two concepts: Absolute prices & Relative prices

Part 5: Markups, Inventory Valuation and Odd Pricing

• How do you use prices in competing with larger retailers? – Run sales offer regular savings on

selected items

• Have you formed a buying group (cooperative) with other small retailers to get better terms on your purchases? – Small retailers can gain in their own

dealings with the suppliers by forming buying groups

Part 5: Markups, Inventory Valuation and Odd Pricing

• Do you use odd prices ($59.95) rather than even prices ($60)? – Most people do not consider a nickel off

to be much of a bargain

• Initial markup vs. maintained markup– Initial markups need to be higher than

maintained markups if a retailer is to meet revenue and profit goals.

Part 6: Everyday Low Pricing and Displaying Prices

• How are prices displayed in your store? – Exterior store windows – Interior store displays

• What payment method(s) do you accept?

– Are prices of individual items high?

– Is the total customer bill (the sum of the individual items bought on one shopping trip) high?

– Am I interested in increasing the impulse purchases shoppers make?

– Do competitors accept credit cards?

Part 6: Everyday Low Pricing and Displaying Prices

• What do you think about everyday low pricing? – Each retailer must strive to set its

REGULAR PRICES in a way that appeals to the chosen customer market and that fairly reflects the merchandise, customer service, ambience, etc. offered by that retailer.

Sources

• Article:– http://retailindustry.about.com/library/uc/

be/uc_be_pricing6.htm

• Shopping Mania Girl:– http://youtube.com/watch?v=rSXRNJ_DzA

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