Page 157 - DMGT550_RETAIL_MANAGEMENT

Retail Management

Notes 5. Premium items like diamond jewelry, perfumes, show pieces etc. are generally put in
............................ displays.
6. Grouping of similar products together or close to each other, in a retail store, is referred to
as ............................ .

9.6 Retail Pricing

Price has always been one of the most important variables in retail buying decision. It is the
factor which makes or mars a retail organization. It is also the easiest and quickest element to
change. In this unit, you will learn about techniques of pricing of products. You will learn how
pricing helps an organization to achieve its objectives. This is particularly significant for new
market entrants that need to first establish a brand, and then enjoy increasing profits as the
brand gets market acceptability. For a customer, price is the main reason to visit a particular
store. In this unit, you will learn about the implications of the pricing decision which a retailer
should consider while deciding the pricing for the retail sales.

9.6.1 Objectives of Pricing

Pricing decisions are usually considered a part of the general strategy for achieving a broadly
defined goal. While setting the price, the firm may aim at one or more of the following objectives:

1. Maximization of profits for the entire product line: Firms set a price, which would enhance
the sale of the entire product line rather than yield a profit for one product only. In this
process it is possible to maximize the profit for the entire product line.
2. Promotion of the long-range welfare of the firm can also influence the pricing decision:
The firm may decide to set a price, which looks unattractive to competitors, and hence, the
entry of competitors can be discouraged for a long period of time. In this way the firm can
take a decision for the long-term welfare of the firm rather than the short-term profit
maximization.
3. Adaptation of prices to fit the diverse competitive situations: The company may decide to
go for different kinds of pricing strategies depending on individual product’s product-
market situation. The company will try to maximize the profit from a market where it has
cash cows and invest in other markets where it has to stay put for long term benefits. It
may decide to follow different kinds of product strategy for product portfolio members.
4. Flexibility to vary prices in response to changing market condition: One cannot decide
about prices in isolation, as the firm is only a member of the market. So it has to decide on
prices in response to changing economic conditions. The macro economic conditions also
influence the pricing decision.
5. Stabilization of prices and margins: The firm may decide to stabilize the prices and
margins for long term goals and price the products in a different way than they would
have done with a profit maximization objective.
6. Market Penetration: The firm may decide in favor of a lower price to penetrate deeper
into the market and to stimulate market growth and capture a large market share.
7. Market Skimming: The firm may decide to charge high initial price to take advantage of
the fact that some buyers are willing to pay a much higher price than others as the product
is of high value to them. The skimming pricing is followed to cover up the product
development cost as early as possible before competitors enter into the market.

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