Page 190 - DMGT550_RETAIL_MANAGEMENT

Unit 11: Retail Pricing and Communication Mix

this item if it is so cheap”! Didn’t you, as a customer, find yourself in similar situation when Notes
shopping?
On the other extreme, setting the price higher than the “proper” price position resulted from the
market research might increase the sells – people will associate the premium price positioning
with premium quality. Higher price position is a standard marketing strategy used by premium
and luxury brands; price do not necessary express the manufacturing cost trough their price tag,
but other benefits or values of the brand (exclusivity, prestige, social recognition, etc.). This
particular strategy has to be used carefully – the balance between getting a better sale via higher
price and “killing the product” it is very fragile! Moreover, it is a must that your product
appearance, benefits (in other words value perceived) is in alignment with your chosen price
point.

One mistake I noticed, especially on new retail businesses or junior buyers/assistant buyers, is
when the price is set using no more than a simple mathematical formula. Meaning: I have “x”
invoice price on this item, my target markup is 30%, so the final price will be x+30% (example,
invoice price is 30 $, then the tag price will be 30$ x 1, 30 = 39 $). Maybe, only maybe the 39 $ is
the right shelf price. Remember second rule of price setting? Market is deciding. So before
making a simple calculator operation, make the basic minimum research for the price. It is OK
to trust your vendor, however do the least confirmation with the market. You may find out that
you can make a much better markup than your initial 30% or sometimes that your buying price
is wrong, meaning with your targeted 30% markup you are way out of the normal price should
be. When the product is already sold by your competitors, you will have your confirmation
right away.
If your item is unique, let’s say a completely original and new invented device, better to apply
the first rule. You may found out either that you can generate an exceptional margin with your
product or this might be a flop: the market considers the right price at a level that will not even
cover your manufacturing costs.

Did u know? 50% of new products continue to fail, and poor knowledge of what price the
market will bear for a new product is a major contributor.

11.2 Pricing Techniques for Increasing Sales and Profits

A competitive strategy is what allows your business to successfully compete against other rivals
within the industry. Strategic analysts suggest only three types of competitive strategies exist;
namely, (1) Low Cost Producer Strategy, (2) Differentiation Strategy, and (3) Focus or Niche
Strategy. Below discusses each type of competitive strategy.

11.2.1 Low Cost Producer Strategy

As you might suspect, a low cost producer strategy is based on producing a product or service
for the lowest conceivable cost. Such a strategy provides the business with a cost advantage
relative to competitors. The cost advantage resulting from a business employing a low cost
producer strategy provides them with two options. (1) the business can “undercut” competitors
thus increasing their share of the market. Or (2) they may continue to sell the product or service
at a price similar to competitors, thus receiving a higher profit margin.
A low cost producer strategy tends to operate well in industries where consumers are sensitive
to prices. In addition, this strategy is generally successful in industries where the consumers can
easily switch to another supplier of product or service (i.e. it does not cost the consumer anything
to switch companies).

LOVELY PROFESSIONAL UNIVERSITY 185