retail final exam ch 14

Pricing decision is important because customers have alternatives to choose from and are better informed.

Customers are in a position to seek good value.

Customer Value = Benefits – Costs

High-Low Pricing

Everyday Low Price (EDLP)

Advantages Increases profits through price discrimination Sales create excitement Sells merchandise Increases traffic to the store (or website)

Trains customers to buy and wait on “deals”

Has an adverse effect on gross margins

Advantages: Assures customers of low prices Reduces advertising and operating expenses Better supply chain management  Reduces stockouts Improves inventory management

Disadvantages: Customers have access to pricing info for retailers anywhere (online) Lack excitement of deals and specials (cannot offer discounts) May have to sell a product at a loss Limited service

price sensitivity

competition

cost

legal constraint

as prices increases sales decrease

ELASTIC DEMAND – a situation in which consumer demand is sensitive to price changes.

INELASTIC DEMAND – an increase or decrease in price will not significantly affect demand for the product.

elastically = percentage change in quantity sold/ percentage change in price

Theoretically, retailers maximize their profits by setting prices based on the price sensitivity of customers and the cost of merchandise and considering the prices being charged by competitors.

In reality, retailers need to set price for over 50,000 SKUs many times during year Utilize merchandise cost and pre-determined markups Adjustments based on customer price sensitivity and competition

selling price - cost of merchandise

mark % on sp = sp-cost/sp

Mark up on % sp -cost/cost

Reductions in the retail selling price.

To clear out (or dispose of) merchandise

For promotional reasons (create excitement.

Initial markup – retail selling price initially set for the merchandise minus the cost of the merchandise.