1. Retail: Theory and Practice
Retail pricing policies and practice

2. Learning outcomes
At the end of this session students should be able to:
Describe the various methods of determining retail pricing
Understand the theories and concepts relating to retail pricing
Discuss the relationships between pricing policies, positioning and customer demand
Apply pricing strategies and tactics
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3. Some influences on retail pricing decisions Environment influences
Political forces
Economic forces
Competitive forces
Supplier power
Cultural forces
Legal forces
Technological forces
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4. Some influences on retail pricing decisionsOrganisational influences
Target market selection (strategy)
Brand proposition
Differential advantage
Competitive edge
Retail (selling) costs
Merchandise costs
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5. Possible pricing objectives (not mutually exclusive!)
Long term profit maximisation
Short term profit maximisation
Market penetration
Market defence
Market stabilisation/disruption
Market image (Quality/value/societal?)
Pricing integrity
Clearance pricing
(adapted from McGoldrick, 2002, p370)
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6. Retail pricing policies
Three main categories:
Demand oriented pricing - price determined by what the customer will pay.
Cost oriented pricing - identify the cost of the product and add a mark-up to cover selling costs
Competitive pricing (but who are the competition supermarkets for electronics? E-retailers?)
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7. Pricing strategies and tactics
Strategic
Pricing above competitors
EDLP-eg Comet, ASDA, Primark
High-low (Hi-Lo) pricing
One-price policy
Variable pricing
Own brand pricing
Price lining
Odd pricing
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8. Pricing strategies and tactics
Tactical
Loyalty points/bonuses (&/or strategic?)
Loss leader pricing (and strategic?)
Multibuy and linked purchases (and strategic?)
Seasonal sales (tactical &/or strategic?)
Note: these strategies and tactics must be consistent with other elements of the marketing mix
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9. Pricing strategies in food retailing
ASDA: different approach from category to category with longer-term promotional prices (relying on supplier relationships). Promotes EDLP (McGoldrick argues that supermarket retailers really dont do EDLP!)
Tesco: takes the high ground onprice cuts, uses a mix of short term price promotions and flashes competitive pricing stance on shelf. For example- offers extra loyalty points as promotion
Sainsbury: focuses on quality, uses multibuy promotions
(but note success of bundling at M and S now copied by
Tesco, Waitrose)
(from The Grocer, 2000, Kent and Omar P357)
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10. Are shoppers insensitive to pricing changes?
They can be desensitised
Product differentiation
Multiple dimensions of quality, preferences
Loyalty to products, brands, stores
Local competitive situation and actions
Reduced levels of price awareness
But problems of measuring customer sensitivity!
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11. Dimensions of retail pricing
McGoldricks multi-dimensional framework
The comparative dimension of retail pricing represents
the manydifferences in price between those of the
retailer and those of direct and indirect, local and
national competitors using price, cost and mark-up
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12. Dimensions of retail pricing
The retail price affects:
Sales (short term)
Price image development (long term)
Positioning (long term)
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13. Dimensions of retail pricing
Comparative dimensions - price audits, subjective comparisons, multi-segment pricing
Geographic dimensions - differences between stores in same chain, local differences
Assortment dimensions - leader lines, key value items
Time dimensions - adjustments over time (eg EDLP v Hi-Low, Seasonal sales, mega days, temporary offers
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14. Retail Positioning
COMPARATIVE DIMENSION
Comparisons with rival companies
Price auditing
Subjective comparisons
Multi-segment pricing
GEOGRAPHICAL DIMENSIONS
Differences between stores in same chain
Area price differences
Local pricing
PRICE
COST
MARK-UP
ASSORTMENT DIMENSION
Mark-up differences within the range
Leader line and KVIs
Price awareness
Unit pricing
Price endings
Price lining
TIME DIMENSION
Price adjustments over time
Price images
Hi-Los vs EDLP
Temporary offers
Seasonal sales
Price Image Development
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15. Consider the difficulties
Comparativedimension
Information may be difficult to obtain
Price audits (e.g. Which?, trade audits (AC Nielsen),
retailers own comparison audits) But which goods? Which stores? Which regions? When monitored? Effect of own brand? Weightings? Objective or subjective?
Geographical
Assortment
Time
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16. Sales/clearance
Needed because of:
Fashion cycles
Seasonal changes
Competitor actions
Changing consumer confidence
Need for clearance of excess stock
BUT have become a strategy for some retailers
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17. Sales/clearance
Should sale be:
Seasonal clearance?
Long/short duration? Eg 24 hour, 3 day spectacular?
Perpetual?
Limited to specific items/departments?
Limited in depth (fashion norm in Europe is 30-40% impact on margin but Zara 15-20%)
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18. Are shoppers insensitive to pricing changes?
They can be desensitised
Product differentiation
Multiple dimensions of quality, preferences
Loyalty to products, brands, stores
Local competitive situation and actions
Reduced levels of price awareness
But problems of measuring customer sensitivity!
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19. Price audits-eg Which?, trade audits (AC Nielsen), retailers own comparison audits
But which goods?
Which stores?
Which regions?
When monitored?
Effect of own brand?
Weightings?
Objective or subjective?
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20. Seminar 1
Read the article Is the price right Retail Week (03.12.10) and add your views to the comments in the discussion forum.http://www.lexisnexis.com:80/uk/nexis/search/homesubmitForm.do
2. Search retail texts for information about seasonal sales in readiness for next week.
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21. Seminar 2 not for 2011
Case study: Supermarkets put 160% premiums on green groceries
Express your opinion on whether or not a premium price on organic food is justified
Suggest ways of applying the multidimensionalframework of retail pricing to supermarket organic foods at a supermarket of your choice
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