Retail Price Strategy

The right price is one consumers are willing and able to pay and retailers are willing to accept in exchange for merchandise and services

The right price allows the retailer to make a fair profit while providing the consumer with value satisfaction before, during, and after the sale!

Gross Invoice Price – Trade Discounts – Quantity Discounts – Seasonal Discounts – Other Discounts = Net Invoice Price

Net Invoice Price – Cash Discounts + Transportation Charges + Workroom Expenses = Merchandise Cost

Price = Merchandise Cost + Profit

Different products have the ability to command different prices at different times and in different locations.
Must consider:
Perishability
Product quality
Product uniqueness

Retailers Compute Markup on Retail Selling Price for Several Reasons:

1.Psychological Reasons
Markup on selling price is always lower than a markup on cost
2.Comparison Reasons
Between store operations
With trade statistics
With expressions of financial operating ratios which are computed as a % of sales]
3.Inventory Reasons
Beginning-of-month, End-of-month and purchases are calculated at retail
4.Emphasis Reasons

Adjusting the Retail Price
Three Types
1.Discounts: reductions granted to employees and special customers
2.Markons: Markups taken after the initial price is set
3.Markdowns: Downward adjustments in the original selling price
Markdown % = (original price – reduced price) / reduced price
Remember: Retail Reductions = Markdowns + shortages + employee discounts + customer discounts

Causes of Markdowns
Buying related causes:
Assortment error
Timing error: late shipment or ordering too much
Misjudging quality
Supplier error: late, damaged or incorrect shipments

Selling related causes:
Pricing error: hence little consumer interest
Using markdowns to stimulate sales
Aggressive selling: trading customer up, misleading claims, returns





Markup
Initial Markup: What you hope to receive!
Maintained Markup: What you actually receive!
Gross Margin = Maintained markup
Initial Markup % is the key element in guiding retailer’s price setting decisions