Merchandise PricingLearning ObjectivesPricing Objective and PoliciesInteractive Pricing DecisionsSlide 5Slide 6Slide 7Slide 8Slide 9Interaction between a Retailer’s Pricing Objectives and Other DecisionsPricing ObjectivesPricing Objectives: Profit Oriented ObjectivesA Comparison of Skimming vs. PenetrationSlide 14Slide 15Question to PonderPricing PoliciesPricing Policies: Pricing Above the MarketPricing Policies: Pricing at Market LevelsPricing Policies: Pricing Below the MarketSpecific Pricing StrategiesFlexible PricingSlide 23Slide 24Slide 25Slide 26Slide 27Slide 28Using MarkupsCalculating MarkupsMarkup Conversion TableRelationship of Markups Expressed on Selling Price and CostBasic Markup FormulasSlide 34Slide 35Using Markup Formulas when Purchasing MerchandiseSlide 37Initial Versus Maintained MarkupDifferences Between Initial and Maintained MarkupsInitial versus Maintained MarkupSlide 41Planning Initial MarkupsSlide 43Slide 44Markup DeterminantsMarkdown ManagementSlide 47Markdown PolicySlide 49Slide 50Retailing Truism1Merchandise PricingMerchandise PricingChapter 10Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.2Learning ObjectivesLearning Objectives•Discuss the factors a retailer should consider when establishing pricing objectives and policies.•Describe the differences between the various pricing strategies available to the retailer.•Describe how retailers calculate the various markups. •Discuss why markdown management is so important in retailing and describe some of the errors that cause markdowns.3Pricing Objective and PoliciesPricing Objective and Policies•Interactive Pricing Decisions•Pricing Objectives•Pricing PoliciesLO 14Interactive Pricing DecisionsInteractive Pricing Decisions•Merchandise•Location•Promotion•Credit•Customer Services•Store Image•Legal ConstraintsLO 15Interactive Pricing DecisionsInteractive Pricing Decisions•Old Navy has set its prices to be consistent with its store image and design and promotion, which all communicate good value for casual clothing.LO 16Interactive Pricing DecisionsInteractive Pricing Decisions•Factory outlets are known for their low prices. However, the typical consumer will incur high travel costs to reach these outlets.LO 17Interactive Pricing DecisionsInteractive Pricing Decisions•When retailers offer free delivery, the cost of providing this service must be factored into the prices the retailer charges.LO 18Interactive Pricing DecisionsInteractive Pricing Decisions•Many retail experts believe that Meijer opened America’s first supercenter in 1962 with its food and general merchandise “Thrift Acres” store in Grand Rapids, Michigan. Today, the company is still able to offer discount prices in its merchandise despite being open 24/7.LO 19Interactive Pricing DecisionsInteractive Pricing Decisions•EDLP (everyday low prices) is when a retailer charges the same low price everyday throughout the year and seldom runs the product on sale.LO 110Interaction between a Retailer’sPricing Objectives and Other DecisionsInteraction between a Retailer’sPricing Objectives and Other DecisionsLO 1: Exhibit 10.1MerchandiseLegal ConstraintsLocationStore ImagePromotionCustomer ServiceCreditA Retailer’s Pricing Objectives Must Interact with These Other Decisions11Pricing ObjectivesPricing Objectives•Profit-Oriented Objectives•Sales-Orientated Objectives•Status Quo ObjectivesLO 112Pricing Objectives: Profit Oriented ObjectivesPricing Objectives: Profit Oriented Objectives•Target Return Objective is a pricing objective that states a specific level of profit, such as a percentage of sales or return on capital invested, as an objective.•Profit Maximization is a pricing objective that seeks to obtain as much profit as possible.•Skimming is a pricing objective where price is initially set high on merchandise to skim the cream of demand before selling at more competitive prices.•Penetration is a pricing objective where price is set at a low level in order to penetrate the market and establish a loyal customer base.LO 113A Comparison of Skimming vs. PenetrationA Comparison of Skimming vs. PenetrationLO 1ProfitDemandQuantityPricePQ0Price Skimming14A Comparison of Skimming vs. PenetrationA Comparison of Skimming vs. PenetrationDemandCostsQuantityPricePQ0Penetration PricingProfitLO 115Pricing ObjectivesPricing Objectives•Sales-Oriented Objectives seeks some level of unit sales, dollar shares, or market share, but do not mention profit.•Status Quo Objectives occurs when retailers who are happy with their market share and level of profits adopt status quo objective, or “don’t rock the boat” pricing policies. LO 116Question to PonderQuestion to Ponder•Should the pricing objectives of a retailer’s brick & mortar, catalog, and e-tailing operations be the same?17Pricing PoliciesPricing Policies•Pricing Above the Market•Pricing at Market Levels•Pricing Below the MarketLO 118Pricing Policies: Pricing Above the MarketPricing Policies: Pricing Above the Market•Above-Market Pricing Policy is a policy where retailers establish high prices because nonprice factors are more important to their target market than price. Some factor that allow above-market pricing include:•Merchandise offerings•Services provided•Convenient locations•Extended hours of operationLO 119Pricing Policies: Pricing at Market LevelsPricing Policies: Pricing at Market Levels•Price Zone is a range of prices for a particular merchandise line that appeals to customers in a certain market segment.LO 120Pricing Policies: Pricing Below the MarketPricing Policies: Pricing Below the Market•Below-Market Pricing Policy is a policy that regularly discounts merchandise from the established market price in order to build store traffic and generate high sales and gross margin dollars per square foot of retailing space.LO 121Specific Pricing StrategiesSpecific Pricing Strategies•Customary Pricing is a policy where the retailer sets prices for goods and services and seeks to maintain those prices over an extended period of time.•Variable Pricing is a policy that recognizes that differences in demand and cost necessitates that the retailer change prices in a fairly predictable manner.•Flexible Pricing is a policy that encourages offering the same products and quantities to different customers at different prices.LO 222Flexible PricingFlexible PricingLO 2Not Everybody
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