Page 158 - DMGT550_RETAIL_MANAGEMENT

Unit 9: Merchandise Management

Notes

Note The price you assign will impact how consumers view your product and whether
they will purchase it.

9.6.2 Factors Influencing Pricing

Formulating price policies and setting the price are the most important aspects of managerial
decision making. Price is the source of revenue, which the firm seeks to maximize. It is the most
important device a firm can use to expand its market share. If the price is set too high, a seller
may price himself out. If it is too low, his income may not cover costs, or at best, fall short of
what it could have been.
The following are the general considerations for formulating pricing strategy:

Objectives of Business

Pricing is not an end in itself but a means to an end. The fundamental guide to pricing, therefore,
is the firm’s overall goals. The broadest of these is survival or assured continued existence. On
a more specific level, objectives relate to rate of growth, market share, maintenance of control or
ownership and finally profit. A pricing policy should never be established without full
consideration as to its impact on the other policies and practices of the firm.

The Competitive Environment

An effective solution to the pricing problem requires an understanding of the competitive
environment. Under the present competitive conditions, it is more important for the firm to
offer the product which best satisfies the wants and desires of the consumers than the one which
sells at the lowest possible price. As a result, pricing policy should be governed more by the
relative than by the absolute height of prices.

Product and Promotional Policies of the Firm

Pricing is only one aspect of marketing strategy and a firm must consider it together with its
product and promotional policies. Thus, before making a price change, the firm must be sure
that the price is at fault and not its sales promotion program or the quality of the product or
some other element.

Nature of Price Sensitivity

Businessmen often tend to exaggerate the importance of price sensitivity and ignore many
identifiable factors at work that tend to minimize its role. The various factors which may
generate insensitivity to price changes are variability in consumer behavior, variation in the
effectiveness of marketing effort, nature of the product, importance of after sales service, the
existence of highly differentiated products which are difficult to compare and multiple
dimensions of product quality.

Conflicting Interests Between Manufacturer and Intermediaries

The interests of manufacturers and middlemen (through whom the former often sell) are
sometimes in conflict. This is called vertical conflict. For instance, the manufacturer would
desire that the middleman should sell his product at a minimum markup, whereas the middleman

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