Marketing bán hàng - Chapter 15: Pricing

Chapter 15PricingMerchandise Management BuyingSystems PlanningMerchandiseAssortments BuyingMerchandisePricing RetailCommunicationMix2Why is Pricing Important? Pricing decisions is important because customers have alternatives to choose from and are better informed Customers are in a position to seek good valueValue = perceived benefits price So, retailers can increase value and stimulate sales by increasing benefits or reducing price.3Considerations in Setting Retail Prices The four factors retailers consider in setting retail prices:The price sensitivity of consumersThe cost of the merchandise and servicesCompetitionLegal restrictions4Considerations in Setting Retail Prices5Price Setting Approach Used by Retailers Need to set price for 1000’s of products many times during yearSet prices based on pre-determined markup and merchandise costMake adjustments to markup price based on customer price sensitivity and competition6Price Sensitivity and DemandWhen increases can decreaseas fewer customers feel the product is a good valuepricesales7Types of Price DiscriminationFirst Degree – Set unique price for each customer equal to customer’s willingness to payAuctions, Personalized Internet PricesSecond Degree – Offer the same price schedule to all customers Quantity discountsCouponsMarkdowns Late in SeasonEarly Bird Special Over Weekend Travel DiscountThird Degree – Charge different groups different pricesKids MenuSeniors Discounts8Results of Price Experiments9Quantity Sold at Different Prices10Profit at Different Prices11Price ElasticityElasticity = percent change in quantity sold percent change in price12Price ElasticityElasticity = percent change in quantity sold percent change in price = (new quantity sold – old quantity sold)/old quantity sold (new price – old price)/(old price) = (1100-1500)/1100 (10-9)/9 = -0.2667 .1111 = -2.400513Price ElasticityFor products with price elasticities less than -1, the price that maximizes profits can be determined by the following formula:Profit maximizing price = price elasticity x cost price elasticity +114Competitive Price Data15How Can Retailers Reduce Price Competition?Develop lines of private label merchandiseNegotiate with national brands manufacturers for exclusive distribution rightsHave vendors make unique products for the retailerPhotoLink/Getty Images16Legal and Ethical Pricing IssuesPrice DiscriminationPredatory PricingResale Price MaintenanceHorizontal Price fixingBait and Switch tacticsScanned vs. Posted PricesPhotoDisc/Getty Images17Example of MarkupsRetail = Cost + Markup 100% = 70% + 30%Retail = $10.00 and markup = 30%Retail = Cost + Markup $ 10.00 = $7.00 + $ 3.0018Retail Price and MarkupRetail Price $125Cost of Merchandise $75Margin $50Markup as a Percent of Retail Price 40% = $50/$125Retail Price = cost + markup19Markup Percent Markup percent is a markup as a percentage of the retail price. Markup percent = retail price – cost of merchandise retail price = 125 – 75 125 = 40%20MarkupsInitial markup – retail selling price initially set for the merchandise minus the cost of the merchandise. Maintained markup – the actual sales realized for themerchandise minus its costsRob Melnychuk/Getty Images21Initial and Maintained MarkupInitial Retail Price $1.00Cost of Merchandise $.60Maintained Markup $.30Maintained Markup as a Percent of Retail Price 30% = $.30/$1.00Reductions $.1022Example of Setting theInitial Retail Price Cost = $100 Planned Initial Markup = 56.85%Retail Price = $100 + (56.85% x Retail Price) Solve for Retail Price.4315 x retail price = 100 Retail Price = $100/.4315 = 231.75Initial Retail Price = Cost of Merchandise (1-markup percentage)23Reasons for Taking MarkdownsGet rid of slow-moving, obsolete, uncompetitive priced merchandiseIncrease sales and promote merchandiseGenerate cash to buy additional merchandiseIncrease traffic flow and sale of complementary products generate excitement through a sale24Liquidating Markdown MerchandisePlace merchandise on Internet auction siteSell the remaining merchandise to another retailerConsolidate the unsold merchandiseGive merchandise to charityCarry the merchandise over to the next seasonPhotoLink/Getty Images25Breakeven AnalysisUnderstanding the Implication of Fixed and Variable Cost BEP quantity Fixed cost =Actual unit sales price - Unit variable costUnit SalesFixed CostsContribution/UnitBreakeven point26Illustration of Breakeven Analysis American Eagle Outfitter is interested in developing private label cargo pants that will sell for $24.99. The cost of developing the pants is $400,000. This includes the cost of salaries, benefits, space for the members of the design team. The variable cost of manufacturing the pants is $13.00. How many cargo pants does American Eagle Outfitter have to sell to breakeven on its $400,000 investment?27Cargo Pants Illustration of Breakeven AnalysisBreakeven Quantity = Fixed Cost Unit Price – Variable Cost 40,040 units = $400,000 $24.99 - $15.00 RubberBall Productions/Getty Images28Making a Profit on Cargo Pants Illustration of Breakeven Analysis What if American Eagle Outfitter does want to just break even. It wants to make a profit of $100,000 on the cargo pants. How many units does American Eagle Outfitter need to sell then?PhotoLink/Getty Images29Making a Profit on Cargo Pants Illustration of Breakeven AnalysisBreakeven Quantity = Fixed Cost Unit Price – Variable Cost 50,050 units = $500,000 $24.99 - $15.00 30Percent Sales Increase Needed to Breakeven on a Price Decrease The Gap has bought 60,000 women’s tee shirts at $5 a unit. It was originally going to price the tee shirts at $12.00, but is considering reducing the retail price to $10.00 – a 16.67% price reduction. How much does sales have to increase for The Gap to make the same profit at the lower price?© Digital Vision31The Gap Considers a Price Cut of 16.67% Breakeven % = 100 x (-%price change) Sales Change % initial margin -% price change 39.78% = 100 x – (-16.67) (7/12) + (-16.6) The McGraw-Hill Companies, Inc/Ken Karp photographer32Using Breakeven Analysis for Other Retail Investment Decisions An independent retailers with one store is using breakeven analysis to consider several options. The retailer wants to know what the breakeven sales she will needs if she: Move to a new location with higher rent Reduces prices by 5% Wants to make a $50,000 profit33Retailer’s Income StatementNet Sales $1,000,000COGS 800,000 80%Gross Margin 200,000 20%Operating ExpensesVariable 100,000 10%Fixed 80,000 8%Profit 20,000 2%34Retailer’s Variable and Fixed Operating Expenses Variable FixedWages & Salaries Manager 20,000 20,000 Sales 60,000 Clerical 20,000 10,000 Rent 20,000 Maintenance 10,000 Total 100,000 60,00035Retailer’s AssetsCurrent Assets Inventory $300,000 Accounts Receivable 75,000 Cash 25,000Fixed Assets 100,000Total $500,000 36Sales $ Retailer Needs to Break EvenProfit = Sales - COGS-Var Cost - Fixed Cost0 = Sales - COGs% * Sales - VC%*Sales - FCBreak-even Sales * (1-COGS% -VC%) = FCBreak-even Sales = FC/(1-COGS% -VC%)Break-even Sales = FC/(GM%-VC%) = $80,000/(.2-.1) = $888,88837What Is the Breakeven Sales To Move To New Location? Rent Increases to $50,000 Break-even Sales = FC/(GM%-VC%)Digital Vision / Getty Images38What Is the Breakeven Sales To If the Retailer Wants to Reduce Prices? Reduce Prices By 5% Break-even Sales = FC/(GM%-VC%)39What Is the Breakeven Sales If the Retailer Wants to Make a Specific Income?Make $50,000/Year Break-even Sales = FC/(GM%-VC%)40Maximize Profits through Price Discrimination Want Charge Every Customer the Maximum They Are Willing to Pay ProblemDon’t know willingness to payWith list prices, can’t prevent high willingness to pay customers from buying at low price41Solution to Problems in Implementing Price DiscriminationSet prices based on customer characteristics related to willingness to payFashion sensitive customers will pay more so charge higher prices when fashion first introduced – reduce price later in seasonPrice sensitive customers will expend effort to get lower prices – couponsElderly customers eat earlier and are more price sensitive so offer early bird specials42Types of Price DiscriminationFirst Degree – Set unique price for each customer equal to customer’s willingness to payAuctionsSecond Degree – Offer the same price schedule to all customers, but customers have to do something to get lower price Third Degree – Charge different groups different pricesMarkdowns Late in SeasonSeniors Discounts43Price Discrimination through Coupons Documents that entitle the holder to a reduced price or X cents off a product or service. Purpose Reduce price to price sensitive customers who will spend the effort to clip couponsInduce customer to try products for first timeConvert first time users to regularsEncourage large purchasesIncrease usageProtect market shareC. Borland/PhotoLink/Getty Images44Markdowns Are a Form of Price Discrimination Occurs when a firm sells the same product to two or more customers at different prices. Generally illegal with a vendors sells to retailers except:costs are differentquantity and functional discountschanging market conditions Generally legal when retailer sells to consumers. 45Advantages of the Hi/low Pricing StrategyIncreases profits through price discriminationSales create excitementSells merchandisePhotoLink/Getty Images46Hi-Lo PricingMost Department Stores, Publix, KmartBenefits to ConsumerSpend Time to Find Lowest PriceBenefits to RetailerMaximize Profits -- Price DiscriminationProblem: Trains People to Buy on Deal47Advantages of EDLP Pricing StrategyAssures customers of low pricesReduces advertising and operating expensesReduced stockouts and improved inventory managementThe McGraw-Hill Companies, Inc./Luke David, photographer48Wal-Mart, Category Specialists, Dillards, Food Lion Benefits to ConsumersAssured of Low Price on Every VisitLess StockoutsBenefits to RetailerLower Advertising ExpenseLower Labor CostsEveryday Low Pricing49Pricing StrategiesEDLPBuilds loyalty – guarentees low prices to customersLower advertising costsBetter supply chain managementFewer stockoutsHigher inventory turnsHi-LoHigher profits – price discriminationMore excitementBuild short-term sales and generates traffic50Determining Service QualityCustomers are likely to use price as an indicator of both service costs and service quality. This can depend on several factors:Royalty-Free/CORBISOther information available to the customerWhen service cues to quality are readily accessibleWhen brand names provide evidence of a company’s reputationWhen the level of advertising communicates the company’s belief in the brandThe risk associated with the service purchase51Variable PricingApplication of price discriminationBy location – zone pricingEarly Bird Special Seniors DiscountsOver Weekend Travel DiscountQuantity DiscountElectronic channel has potential for charging a different price to each customer52Using Price to Stimulate SalesLeader Pricing might attract cherry pickersPrice LiningOdd Pricing53Certain items are priced lower than normal to increase customers traffic flow and/or boost sales of complementary products.Best items: purchased frequently, primarily by price-sensitive shoppers.Examples: bread, eggs, milk, disposable diapers.Leader PricingAllan Rosenberg/Cole Group/Getty ImagesDennis Gray/Cole Group/Getty ImagesRyan McVay/Getty Images54Price LiningA limited number of predetermined price points.Ex: $59.99 (good), $89.99 (better), and 129.99 (best)Benefits:Eliminates confusion of many prices.Merchandising task is simplified.Gives buyers flexibility.Can get customers to “trade up.”55Benefits of Price LiningConfusion that arises from multiple price choices is eliminatedThe merchandising talk is simplifiedIt gives buyers greater flexibilityIt gives can be used to get customers to “trade up” to a more expensive model56Guidelines for Price-ending Decisions When the price sensitivity of the market is high, it is advantageous to raise or lower prices so they end in high numbers like 9. When the price sensitivity of the market is NOT high, the risk to one’s image of using 9 is likely to outweigh the benefits. Even dollar prices and round numbers are appropriate. Upscale retailers appeal to price-sensitive segments of the market through periodic discounting. Combination strategy works best: break from standard of using round number endings to use 9 endings when communicating discounts and special offers.57Odd PricingA price that ends in an odd number ($.57)or just under a round number ($98).Retailers believe practices increases sales, but probably doesn’t.Does delineate:Type of store (downscale store might use it.)Sale58Internet and Price CompetitionThe Internet offers unlimited shopping experience.Seeking lowest price? Use shopping bots or search engines.These programs search for and provide lists of sites selling what interests the consumer.Retailers using the electronic channel can reduce customer emphasis on price by providing services and better information.(c) image100/PunchStock59The Three Most Important Things in RetailingLocation, location, locationNow, it is more :Information, information, information!!60