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Lecture 8

RMG 200 Lecture 8: Retail Pricing and Loyalty
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Department
Retail Management
Course
RMG 200
Professor
Janice Rudkowski
Semester
Winter

Description
Lecture 8 – Retail Pricing and Loyalty (CRM)  Pricing: Value: o Relationship of what a customer gets (goods/services) to what he or she has to pay for it. o Value = perceived benefits/price o Different for consumers and can be based on quality, price, service, convenience.  Considerations in Setting Price: o Price sensitivity, competition, legal constraint, cost.  Methods in Setting Price: 1. Cost-Oriented – set price at a fixed percent over cost of merchandise (keystone pricing). o Retail price = cost of merchandise + markup o An appropriate markup is needed to cover all of the retailer’s operating expenses (labour costs, rent, etc.).  Initial markup = retail selling price initially placed on the merchandise – cost of goods sold.  Maintained markup = actual sales that you get for the merchandise – cost of goods sold. 2. Demand-Oriented – charge as much as customers are willing to pay. o Seeks to determine the price that customers are willing to pay and that will maximize profits. o Price Tests – setting different prices in a number of markets for the same product. o Pricing Experiments – changing the price in a systematic manner to observe changes in purchases or intentions. 3. Competitor-Oriented – set price in relation to competitor’s prices. o Everyday Low Prices (EDLP):  Charge the same price all the time.  Set prices between regular non-sale price and deep discount sale prices.  May consider it as “Everyday Stable Prices”. o High/Low Pricing:  Regular prices are higher than EDLP competitors, but merchandise frequently on sale at lower prices.  Makes the consumer’s purchase decision time-dependent.  Break-Even Quantity: o A technique that evaluates the relationship between total revenue and total cost to determine profitability at various sales levels (new product launches). o BEP quantity = fixed cost/unit price – unit variable cost.  Price Adjustments: o Markdowns  A price reduction from the initial retail price.  It gets rid of slow-moving, obsolete merchandise.  Increases sales and/or profits through price discrimination.  Generate cash to buy better selling merchandise.  Increase traffic flow and sale of complementary products  Generate excitement through a sale. o Coupons  Documents that entitle the holder to a reduced price or X cent off a product or service.  It reduces price to price sensitive customers who will spend the effort to clip coupons.  Induce customer to try products for the first time.  Convert first time users to regulars.  Encourage large purchases.  Increase usage.  Protect market share, track promotion effectiveness. o Rebates  Money returned to the customer based on a portion of the purchase price.  Retailers’ perspective: more advantageous than coupons since hey increase demand, but retailer has no handling costs.  Manufacturers like rebates because:  Many customers don’t redeem (50%)  They can offer price cuts to customers directly. o Price Bundling  Practice of offering two or more different products or services at on price.  DSLR body = $1000, Lens = $1500, Together = $1500 $989 o Multiple-Unit Pricing  Similar to price bundling except products or services are similar rather than different.  2 for 1 Philadelphia cheese products. o Variable Pricing  Application of price discrimination:  By location – zone pricing.  Early bird special/time discount.  Student/seniors discounts.  Quantity discounts.  Employee discounts.  Pricing Techniques: o Pr
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