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Unit 12: Merchandise Pricing

checking and replacing damaged or missing shelf tags and signs helps ensure that consumers Notes
can get the correct price.
In summary, retailers, wholesalers, and manufacturers should be aware that whenever they
decide to sell the same merchandise for different prices at different locations, or to sell
merchandise at extraordinarily low prices to attract customers, they may be susceptible to
federal and state prosecution and to lawsuits from competitors. But as a practical matter, the
length of time and the expense of acquiring sufficient data and legal assistance to prove injury
by a competitor may be so great that the injured party may still lose its business.

Manufacturers, Wholesalers, and Other Suppliers – and Retail Pricing

There may be conflicts between manufacturers (and other suppliers) and retailers in setting final
prices since each would like some control. Manufacturers usually want a certain image and to let
all retailers, even inefficient ones, earn profits. In contrast, most retailers want to set prices
based on their own image, goals, and so forth. A supplier can control prices by using an exclusive
distribution system, not selling to price-cutting retailers, or being its own retailer. A retailer can
gain control by being vital as a customer, threatening to stop carrying suppliers lines, stocking
private brands, or selling gray market goods.
Many manufacturers set their prices to retailers by estimating final retail prices and then
subtracting required retailer and wholesaler profit margins. In the men apparel industry, the
common retail markup is 50 percent of the final price. Thus, a man shirt retailing at $50 can be
sold to the retailer for no more than $25. If a wholesaler is involved, the manufacturer wholesale
price must be far less than $25.
Retailers sometimes carry manufacturers brands and place high prices on them so rival brands
(such as private labels) can be sold more easily. This is called selling against the brand and is
disliked by manufacturers since sales of their brands are apt to decline. Some retailers also sell
gray market goods, brand-name products bought in foreign markets or goods transshipped
from other retailers. Manufacturers object to gray market goods because they are often sold at
low prices by unauthorized dealers. Some of them limit gray market goods on the basis of
copyright and trademark infringement.

When suppliers are unknown or products are new, retailers may seek price guarantees. For
example, to get its radios stocked, a new supplier might have to guarantee the $30 suggested
retail price. If the retailers cannot sell the radios for $30, the manufacturer pays a rebate. Should
the retailers have to sell the radios at $25, the manufacturer gives back $5. Another guarantee is
one in which a supplier tells the retailer that no competitor will buy an item for a lower price.
If anyone does, the retailer gets a rebate. The relative power of the retailer and its suppliers
determines whether such guarantees are provided.
A retailer also has other suppliers: employees, fixtures manufacturers, landlords, and outside
parties (such as ad agencies). Each has an effect on price because of their costs to the retailer.

12.3.7 Competition and Retail Pricing

Market pricing occurs when shoppers have a large choice of retailers. In this instance, retailers
often price similarly to each other and have less control over price because consumers can easily
shop around. Supermarkets, fast-food firms, and gas stations may use market pricing due to
their competitive industries. Demand for specific retailers may be weak enough so that some
customers would switch to a competitor if prices are raised much. With administered pricing,
firms seek to attract consumers on the basis of distinctive retailing mixes. This occurs when
people consider image, assortment, service, and so forth to be important and they are willing to
pay above-average prices to unique retailers. Upscale department stores, fashion apparel stores,

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