Page 161 - DMGT550_RETAIL_MANAGEMENT

Retail Management

Notes To conclude, in many cases, price is used by the prospective customer as a clue for sizing up the
quality of the product. Thus price-quality association is well established.
1. With an improvement in incomes, the average consumer becomes quality-conscious. An
improvement may, therefore, lead to an increase in demand. If this is so, a time may come
when a rise in price results in an increase in demand. This extreme situation may arise if
price in increasingly affluent societies comes to serve merely as an indicator of quality.
2. Consumers may be persuaded to pay more for heavily advertised goods. Consumers
perceive a firm’s size, financial power and age as measures of quality. Well-known firms
very often assert that by virtue of their reputation they are able to charge 5 to 10 per cent
higher than other firms.
3. Whether the price is considered a bargain or not would depend upon the average market
price of the item, the gender of the potential consumer, and the value of the item to the
purchaser. Price reductions tend to be perceived absolutely rather than relatively. This
means that the percentage reduction decreases for the item to be considered a bargain as
the usual price increases. If a packet of potato chips is considered a bargain by a reduction
of 20 per cent, a bargain electric fan may be only 15 per cent cheaper than the standard
price. As regarding the gender, it is noticed that men on an average require a greater
reduction in prices to be persuaded to believe in the bargain.
In a comprehensive survey of consumer consciousness, it was revealed that the basic postulate
of the demand theory, i.e. the consumer has appropriate knowledge of market prices, is not
fundamentally wrong.

9.6.7 Pricing Strategies

Price is a highly sensitive and visible part of retail marketing mix and has a bearing on the
retailer’s overall profitability. Further, pricing itself is an essential part of marketing mix and
has its own place in the strategic decision-making process.

Demand-oriented Pricing

In demand-oriented pricing, prices are based on what customers expect or may be willing to
pay. It determines the range of prices affordable to the target market. In this method, retailers
not only consider their profit structure but also calculate the price-margin effect that any price
will have on sales volume.
Demand-oriented Pricing focuses on the quantities that the consumer would buy at various
prices. It largely depends on the preceded value attached to the product by the consumer. An
understanding of the target market and the value proposition that they intend to seek is the base
to this form of pricing.

Table 9.1 illustrates the working of the demand-oriented pricing method by taking a hypothetical
example of Koutons summer launch of T-shirt for teenagers.

Table 9.1: Unit Price, Market Demand and Profits (Amount in `)

Market demand Total revenue Total cost of Total profit
Market region Unit price
(in units) (C1 × C2) unit sold (C3 – C4)
1 8 2,00,000 16,00,000 13,00,000 3,00,000
2 10 1,50,000 15,00,000 10,50,000 4,50,000
3 12 1,00,000 12,00,000 8,00,000 4,00,000
4 14 50,000 7,00,000 5,50,000 1,50,000

Source: Levy and Weitz (2006) p. 487

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