PR C NG
PRICING
Pricing in general, and price promotions in particular, have always been an important marketing instrument in retailing and, up to the present, price has played a very important role in retail marketing.
However, it is precisely this focus on price reductions, often based more on belief and intuition on the part of the retailer than on facts and knowledge about its effects, that makes pricing a field of considerable strategic importance today.
Methods of Price Setting
There are three major methods for setting product prices in retailing: cost-oriented, competition-oriented and demand-oriented
1)Cost-oriented Pricing
The most commonly used method for determining retail prices is the cost-oriented method, also called cost-plus pricing.
Here, a mark-up is added to the cost of products to determine the final retail price.
The mark-up percentage is usually calculated as a percentage of the retail price:
Markup in %(at retail price)=(retail price – merchandise cost) / retail price
Usually, the cost used in the formula is the purchasing price for the retailer, while other variable and fixed costs are estimated in order to calculate the mark-up necessary to cover them.
The mark-up percentage also includes the planned profit per unit.
2)Competition-oriented Pricing
In competition-oriented pricing, the retailer identifies its main competitors and sets its prices accordingly.
Many retailers systematically monitor prices in their competitors’ out-lets. Depending on the pricing strategy, prices for certain products are then established at or below competitors’ prices.
It has even become a common marketing instrument in different retail sectors to give price guarantees, i.e. to guarantee to the customer that he not find the same product cheaper in a competitor’s store within a certain distance.
Competition must be considered in many retailing industries because retailing is often characterised by
oligopolistic
Pricing in general, and price promotions in particular, have always been an important marketing instrument in retailing and, up to the present, price has played a very important role in retail marketing.
However, it is precisely this focus on price reductions, often based more on belief and intuition on the part of the retailer than on facts and knowledge about its effects, that makes pricing a field of considerable strategic importance today.
Methods of Price Setting
There are three major methods for setting product prices in retailing: cost-oriented, competition-oriented and demand-oriented
1)Cost-oriented Pricing
The most commonly used method for determining retail prices is the cost-oriented method, also called cost-plus pricing.
Here, a mark-up is added to the cost of products to determine the final retail price.
The mark-up percentage is usually calculated as a percentage of the retail price:
Markup in %(at retail price)=(retail price – merchandise cost) / retail price
Usually, the cost used in the formula is the purchasing price for the retailer, while other variable and fixed costs are estimated in order to calculate the mark-up necessary to cover them.
The mark-up percentage also includes the planned profit per unit.
2)Competition-oriented Pricing
In competition-oriented pricing, the retailer identifies its main competitors and sets its prices accordingly.
Many retailers systematically monitor prices in their competitors’ out-lets. Depending on the pricing strategy, prices for certain products are then established at or below competitors’ prices.
It has even become a common marketing instrument in different retail sectors to give price guarantees, i.e. to guarantee to the customer that he not find the same product cheaper in a competitor’s store within a certain distance.
Competition must be considered in many retailing industries because retailing is often characterised by
oligopolistic