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RMG 200 (77)
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Chapter 12.pdf

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Retail Management
RMG 200
Ken Wong

Chapter 12 Approaches for setting prices - Cost of the merchandise and services - Demand, the price sensitivity of consumers - Competition because customers shop around and compare prices - Legal considerations A. Cost-Oriented – Set price at a fixed percent over cost of merchandise E.g., most FMCGs -Oriented – Charge as much a customers are willing to pay E.g., airline ticket, hotel room charges -Oriented – Set price in relation to competitor’s prices E.g., banking fees, gasoline, coffee - Seeks to determine the price that customers are willing to pay and that will maximize profits. - Price Tests - Setting different prices in a number of markets for the same product. - Pricing Experiments - Changing the price in a systematic manner to observe changes in purchases or intentions. How Retailers Reduce Price Competition - Adopt EDLP strategy - Charge the same price all the time - Set prices between regular non-sale price and deep discount sale prices of a high/low pricing competitor Benefits to Consumers - Every Visit - -of-Stock Benefits to Retailer - - High/Low Pricing - Regular prices are higher than EDLP competitors, but merchandise frequently on sale at lower prices - Most Department Stores (The Bay, Sears) Benefits to Consumer - Spend Time to Find Lowest Price Benefits to Retailer - Maximize Profits -- Price Discrimination - Price bundling – the practice of offering two or more different products or services for sales at one price - Multiple-unit pricing – practice of offering two or more similar products or services for sale at one price - Variable pricing/zone pricing – charging different prices in different stores, markets or zones - Problem: Trains People to Buy on Deal Price sensitivity (Wk12 s.23) – Price (P) – Variable Cost (VC) – Contribution Margin (CM) Old $CM ‒ New $CM ------------------------------ x 100% New $CM Price Adjustments - Markdowns - Coupons - Rebates - Price Bundling - Multiple-Unit Pricing - Variable Pricing Reasons for Markdowns 1. Get rid of slow-moving, o
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