Page 165 - DMGT550_RETAIL_MANAGEMENT

Retail Management

Notes Self Assessment

State whether the following statements are true or false:
7. The level of sensitivity to prices would remain same for each customer of a specific retail
brand.
8. Price can have a negative effect on demand, in both cases– when it is too high and too low.
9. The reductions in prices are perceived relatively rather than absolutely.
10. Demand based pricing largely depends on the preceded value attached to the product by
the consumer.
11. Initial mark up is based on the selling price assigned to the merchandise plus the costs of
the merchandise sold.

Notes Costs and operating prices also need to be considered while establishing the retail
price. The pricing strategy adopted by a retailer can be cost-, demand- or competition-
oriented.

Task Analyze the EFT & NEFT transactions of a particular bank.

9.9 Psychological Pricing

Psychological pricing is used when prices are set to a certain level where the consumer perceives
the price to be fair. The most common method is odd-pricing using figures that end in 5, 7 or 9.
It is believed that consumers tend to round down a price of $9.95 to $9, rather than $10.

Ultimately, you must take into consideration the consumer’s perception of your price, figuring
things like:
1. Positioning: If you want to be the “low-cost leader”, you must be priced lower than your
competition. If you want to signal high quality, you should probably be priced higher
than most of your competition.
2. Popular price points: There are certain “price points” (specific prices) at which people
become much more willing to buy a certain type of product. For example, “under $100” is
a popular price point. “Enough under $20 to be under $20 with sales tax” is another
popular price point, because it’s “one bill” that people commonly carry. Meals under $5
are still a popular price point, as are entree or snack items under $1 (notice how many fast-
food places have a $0.99 “value menu”). Dropping your price to a popular price point
might mean a lower margin, but more than enough increase in sales to offset it.
3. Fair pricing: Sometimes it simply doesn’t matter what the value of the product is, even if
you don’t have any direct competition. There is simply a limit to what consumers perceive
as “fair”. If it’s obvious that your product only cost $20 to manufacture, even if it delivered
$10,000 in value, you’d have a hard time charging two or three thousand dollars for it –
people would just feel like they were being gouged. A little market testing will help you
determine the maximum price consumers will perceive as fair.

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