Page 159 - DMGT550_RETAIL_MANAGEMENT

Retail Management

Notes would like his margin to be large enough to stimulate him to push up the product. The
manufacturer may like to control the middleman’s prices and even the retail prices; but the
middlemen may seek to expand their sales through price-cuts or obtain larger margin than
allowed by the suggested prices.

Active Entry of Non-business Groups in Pricing Decisions

The government, acting on behalf of the public, seeks to prevent the abuse of monopolistic
power and collusion among businessmen. There is a complex body of regulation and even more
confusing series of judicial decisions guiding pricing principles in every country. Very often,
the government elects to control certain prices. Collective bargaining and strikes by the labor
unions, attempt to raise wages. The entry of the government into the pricing process, in alliance
with farmers and labor interests, tends to inject policies in price determination.
9.6.3 Routine Pricing Decision

Pricing in practice is often routinized though its extent may differ from company to company
and from product to product. For example, the management may prefer to depend on suggested
prices, which is a mechanical formula for pricing decisions. The degree of routinization depends
on the following factors:
Number of Pricing Decisions: A firm may have to take thousands of pricing decisions on a wide
range of products, none of which provides a substantial proportion of sales. In this case it will
find that the costs of separate analyses on each product are too high. It would, therefore, find it
economical to adopt relatively mechanical routine for pricing.
Speed in Making a Pricing Decision: Mechanical formulae, such as a predetermined markup on
full cost, have the advantage of speed, though flexibility and adaptability to special conditions
is lost.
Quality of Available Information: If the data on demand and costs are highly conjectural, the
best the firm may be able to do is to rely on some mechanical formula such as cost plus formulation.
Competitive Market: If a firm is selling its product in a highly competitive market, it will have
little scope for pricing discretion. This will pave the way for routinized pricing.

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Caution 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.

9.6.4 Cost Factors in Pricing

Costs have to be taken into consideration like many other important factors. In fact, in the long
run, prices must cover costs. If, in the long run, costs are not covered, manufacturers will withdraw
from the market and supply will be reduced which, in turn, may lead to higher prices. The point
that needs emphasis here is that cost is not the only factor in setting prices. Cost must be
regarded only as an indicator of the price, which ought to be set after taking into consideration
the demand and the competitive situation. It must be noted, however, that cost at any given time
represents a resistant point to lowering of price. Again, costs determine the profit consequences
of the various pricing alternatives. Cost calculations also help in determining whether the
product whose price is determined by its demand is to be included in the product line or not.

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