Marketing Final Class Notes Chapter 16 4 retailing Institutions o Traditional Department stores Posted prices browsing encourages use of atmospherics free services departmental a BIG store Dominated till 1960 In the 90 s they shrank 3 market Several other stores began to capture merchandise territories from department stores Mall anchors but as malls declined so did department stores o Chain store organizations 2 or more stores with the same owner and format Completely dominate most retail categories Have steady growth in market share over independent mom and pop Cookie Cutter approach A standardized and centralized way to do business Cost advantage economies of scale especially in buying promotion and computers etc Have higher turnover and lower markups opposite of small independent stores Low prices because of low costs and they sell on volume Category Killer chain stores crush the competition with deep assortment and attractive prices These are the very large specialty stores Increased competition in American retailing o Within retail categories a smaller number of bigger competitors o Like the NCAA final four o At local level there is more competition then ever o Food Supermarkets radical change comes from outsiders Characteristics 1st discounter 1st self serve Wheel of retailing example store evolution o Start off lean and mean with low prices and cost then raise and expand as time goes on making them vulnerable to the next generation of low cost superstores Fighting to hold market share Scrambled merchandise o Intertype competition increase comp because of the overlap between all stores o Planned Shopping Centers Types Strip Centers 90 one large name feeds others customers Regional malls And 8 or 9 others 1946 74 was the Golden Era in Retail most profitable Clone store center approach cookie cutter field of dreams Now there is slow growth During 90 s most US markets were overstored and overmalled Columbus was an exception Owners were over optimistic How can Small independent compete o Potentially Unique identity o Personal Services o Flexibility o Tough Business Ways to deal with tough field o Franchised stores run your own but have resources Contractual vertical marketing systems A Dream Marriage between Successful standardized store format and ambitious local owners o OPM company s sell franchise stores and use other people s money to take risk off o What to consider about franchise like buying stock Strength Support Costs Retractions people who can follow step by step how to are successful military them Chapter 14 Price The price level is an average of a group of prices o Prices are 123 higher than in 82 o Rip off theory of inflation Since 1940 inflation and prices always increase So price competition and price consciousness remain very high But this was not always the case and is only in the US While inflation is increasing the rate of inflation has been trending downward People now have permanent price consciousness from the economic conditions Even if things get better people will stay thrifty Changes in consumer shopping behavior o Scrimp and splurge affordable indulgences o Less store and brand loyalty o Search for Value benefits cost o Increase in willingness to trade down o there is no status in overpaying everyone loves a bargain o Retailer response to increase price consciousness Formats distress merchants Wholesale clubs Off price stores Factory outlets Extreme Value Retailers Strategy Everyday low prices o Has only worked for a few Cost of business is less so they charge low but above sale price It loses customers in the short run and so most companies don t stick it out in the long run o Works in theory but not in practice Hi Lo pricing has trained people to wait for sales TREND increase of of products sold on sale o Determining the best price Need to know costs supply and demand Other complications managers do not have complete information Imperfect information about competition Multiple products and time periods Economist think profit maximization is the single objective for pricing BUT Business people also talk about goals market share sales goals and rate of return which all contribute to making higher profit However these goals are more measurable operational and sound better There are numerous influences on price Demand Value Supply Cost Competition Channel Partners Specific Company objectives etc most common o Commonly Used Pricing methods Cost Based supply side Reseller markups wholesalers and retailers Cost plus pricing o Used by gov t and ineffective because it is like a blank check There are thousands of things to price but once they set initial price it is affected by completion and demand Demand Based Pricing Peak load pricing Auction Pricing Competition Based Pricing Follow the leader pricing Off pricing o Conclusion on the surface you see 1 of the factors clearly but in practice all three factors S D competition plus others Choosing the Organizations OWN price level o At the market o Above the market o Below the market taking away things that the customer values but offering lower price in exchange o Strategies Price Skimming begin with high price and lower to satisfy demand fashion movies Penetration pricing initially low price and keep it low More likely to lower price when Competition expected larger economies of scale high elasticity of demand price sensitive Price discrimination different prices for the same product It is more profitable and economic and more common than you think Revenue yield maximization Ex Airlines 1 Windfall Book Says not charging high enough prices it s like fumbling at the goal line Their first reaction this is how we ve always done it they have a discomfort and reactive mode o But they are shortchanging themselves and leaving money on the table The bad news is a lot of companies are sacrificing a lot of profit but the good news is it s a small change of 1 without effecting demand 3 General Areas of Productive pricing activity o 1 Versioning Premium price possibilities for different versions Higher quality or service Guaranteed or priority access Faster or more convenient Broader Stripped Down Versions Less quality or service Added restrictions Unbundling Off Peak Private Label o 2 Differential Pricing hotels Yield management 3rd Party like priceline Bundles Partners AARP AAA Conferences Hurdles and obstacles things they use as potential to increase profits Rebates sales Coupons Price matching Limited distributing
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