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OSU BA 495 - Pricing

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Merchandise Pricing & KSS’s PriceStrat to help companies optimize salesBooks Illustration on pricing constraints and how it interacts with various decisions.Pricing Decision cont.Profit OrientedPricing PoliciesSpecific Pricing StrategiesMarking Up PricesMarking Up EquationsMarking Down PricesMiller Oil Co. selects KSS’ PriceStrat to optimize merchandise salesWho are these people?What is PriceStratPriceStrat helps to…Miller Oil and PriceStratMiller Oil on PriceStratResourcesMerchandise Pricing &Merchandise Pricing &KSS’s PriceKSS’s PriceStratStrat to help to help companies optimize salescompanies optimize salesAnne HatlenAnne HatlenChapter 10Chapter 10Books Illustration on pricing constraints Books Illustration on pricing constraints and how it interacts with various and how it interacts with various decisions.decisions.MerchandiseLegal ConstraintsLocationStore ImagePromotionCustomer ServiceCreditA Retailer’s Pricing Objectives Must Interact with These Other DecisionsPricing Decision cont.Pricing Decision cont.Some stores set prices to Some stores set prices to match with their imagematch with their image. The . The book used the example of Old Navy matching its prices book used the example of Old Navy matching its prices to their promotions and casual clothing atmosphere. to their promotions and casual clothing atmosphere. •Other stores need to factor in how far a customer has Other stores need to factor in how far a customer has to go to get the merchandise. Outlet stores tend to be to go to get the merchandise. Outlet stores tend to be further way, costing more to travel, therefore they give further way, costing more to travel, therefore they give you lower prices as an you lower prices as an incentive for the long tripincentive for the long trip. . •Others offer extras like gift wrapping or delivery for Others offer extras like gift wrapping or delivery for “Free” but in reality that is later factored in to the pricing “Free” but in reality that is later factored in to the pricing of the merchandise.of the merchandise.Profit Oriented Profit Oriented •Target Return ObjectiveTarget Return Objective is a pricing objective that is a pricing objective that states a specific level of profit, such as a percentage of states a specific level of profit, such as a percentage of sales or return on capital invested, as an objective.sales or return on capital invested, as an objective.•When seeking to obtain as much profit as possible a When seeking to obtain as much profit as possible a firm is using firm is using Profit MaximizationProfit Maximization..•SkimmingSkimming is a pricing objective where price is initially is a pricing objective where price is initially set high on merchandise to skim the cream of demand set high on merchandise to skim the cream of demand before selling at more competitive prices.before selling at more competitive prices.•When a price is set at a low level in order to penetrate When a price is set at a low level in order to penetrate the market and establish a loyal customer base the the market and establish a loyal customer base the company is using company is using PenetrationPenetration..Pricing PoliciesPricing PoliciesAbove-Market pricing policyAbove-Market pricing policy is a policy where is a policy where retailers establish high prices because non-price retailers establish high prices because non-price factors are more important t their target market than factors are more important t their target market than price.price.Examples: Examples: Services provided, convenience of location, Services provided, convenience of location, merchandise, and hours of operation.merchandise, and hours of operation.Price ZonePrice Zone: is a range of prices for a particular : is a range of prices for a particular merchandise line that appeals to customers in a certain merchandise line that appeals to customers in a certain marketmarketBelow-Market pricing policyBelow-Market pricing policy: a policy that regularly : a policy that regularly discounts merchandise from the established market discounts merchandise from the established market price in order to build store traffic and generate high price in order to build store traffic and generate high sales and gross margin. sales and gross margin.Specific Pricing Specific Pricing StrategiesStrategiesOdd pricing:Odd pricing: setting retail prices that end in digits setting retail prices that end in digits like… 22.95, 30.99, or 43.98like… 22.95, 30.99, or 43.98Multi-Unit pricing:Multi-Unit pricing: when the price of each unit in a when the price of each unit in a multi-pack is less than the price of each unit sold multi-pack is less than the price of each unit sold individually.individually.Bundle pricing:Bundle pricing: multiple items from different multiple items from different merchandise lines are sold together at a special price merchandise lines are sold together at a special price offer.offer.Bait-and-Switch pricingBait-and-Switch pricing: : where a low-priced where a low-priced good is used to lure shoppers into the store, then a good is used to lure shoppers into the store, then a sales person tries to sell the customer a high-priced sales person tries to sell the customer a high-priced similar good.similar good.Marking Up PricesMarking Up PricesSome factors that go into marking up products Some factors that go into marking up products are:are:As a good in sold more in a retail outlet, the markup As a good in sold more in a retail outlet, the markup price decreasesprice decreasesThe more costs involved with the product, such as The more costs involved with the product, such as storage and handling, the more it will be marked up.storage and handling, the more it will be marked up.The higher the demand for the good, the higher the The higher the demand for the good, the higher the markup.markup.If the product is in season, the higher the markup If the product is in season, the higher the markup when in demand and the lower the markup when when in demand and the lower the markup when out of season.out of season.Marking Up EquationsMarking Up EquationsSelling Price = Cost of the merchandise Selling Price = Cost of the merchandise per unit + Markup per unitper unit + Markup per unitSP=C+M SP=C+M A percentage of markup on the selling A percentage of markup on the selling price:price:(SP-C)/SP=M/SP(SP-C)/SP=M/SPThe


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OSU BA 495 - Pricing

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