Description
Options contracts have been known for many centuries, however both trading activity and academic interest increased when, as from 1973, options were issued with standardized terms and traded through a guaranteed clearing house at the Chicago Board Options Exchange. Today many options are created in a standardized form and traded through clearing houses on regulated options exchanges, while other over-the-counter options are written as bilateral, customized contracts between a single buyer and seller, one or both of which may be a dealer or market-maker.
Chapter 17
Pricing in Retailing
Chapter Objectives
? To describe the role of pricing in a retail strategy and to show that pricing decisions must be made in an integrated and adaptive manner ? To examine the impact of consumers; government; manufacturers, wholesalers, and other suppliers; and current and potential competitors on pricing decisions ? To present a framework for developing a retail price strategy: objectives, broad policy, basic strategy, implementation, and adjustments
17-2
Pricing Options for Retailers
? Discount orientation ? At-the-market orientation ? Upscale orientation
17-3
Figure 17.1 Ross Dress for Less Means Value
17-4
Figure 17.2 Factors Affecting Retail Price Strategy
17-5
Price Elasticity of Demand
? The sensitivity of customers to price changes in terms of the quantities they will buy * Elastic – small percentage changes in price lead to substantial percentage changes in the number of units bought * Inelastic – large percentage changes in price lead to small percentage changes in the number of units bought
17-6
Table 17.1 A Movie Theater’s Elasticity of Demand
Price ($) Tickets Sold (Saturday Night) 1,000 Total Ticket Receipts 6,000 E = 0.68 7.00 900 6,300 Elasticity of Demand (E) 6.00
E = 0.79
8.00 810 6,480 E = 1.00 9.00 720 6,480
E = 2.54
10.00 550 5,500
17-7
Price Sensitivity Market Segments
? Economic consumers ? Status-oriented consumers ? Assortment-oriented consumers ? Personalizing consumers ? Convenience-oriented consumers
17-8
The Government and Retail Pricing
? Horizontal Price Fixing ? Vertical Pricing Fixing ? Price Discrimination (Robinson-Patman Act) ? Minimum Price Laws ? Unit Pricing ? Item Price Removal ? Price Advertising
17-9
Justifiable Price Discrimination
? Products are physically different ? The retailers paying different prices are not competitors ? Competition is not injured ? Price differences are due to differences in supplier costs ? Market conditions change – costs rise or fall or competing suppliers shift their prices
17-10
Competition and Retail Pricing
? Market pricing – retailers often price similarly to each other and have less control over price because consumers can easily shop around ? Administered pricing – firms seek to attract consumers on the basis of distinctive retailing mixes
17-11
Figure 17.3 A Framework for Developing a Retail Price Strategy
17-12
Objectives and Pricing
Market Skimming Market Penetration
17-13
Figure 17.4 A Marketing Skimming Approach
17-14
Figure 17.5 Specific Pricing Objectives from Which Retailers May Choose
17-15
Price Policy Choices
? No competitors will have lower prices; no competitors will have higher prices; or prices will be consistent with competitors ? All items will be priced independently or the prices for all items will be interrelated to maintain image and ensure proper markups ? Price leadership will be exerted; competitors will be price leaders and set prices first; or prices will be set independently of competitors ? Prices will be constant over a year or season; or prices will change if costs change
17-16
Price Strategy
? Demand-Oriented Pricing ? Cost-Oriented Pricing ? Competition-Oriented Pricing
17-17
Demand-Oriented Pricing
? Psychological pricing * Price-quality association * Prestige pricing
17-18
Table 17.4 Markup Equivalents
Percentage of Retail 10.0 20.0 30.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0
17-19
Percentage of Cost 11.1 25.0 42.9 42.9 66.7 100.0 150.0 233.3 400.0 900.0
Figure 17.6 How to Determine Direct Product Profitability
17-20
Integration of Approaches to Price Strategy
? If prices are reduced, will revenues increase greatly? (Demand orientation) ? Should different prices be charged for a product based on negotiations with customers, seasonality, and so on? (Demand orientation) ? Will a given price level allow a traditional markup to be attained? (Cost orientation) ? What price level is necessary for a product requiring special costs in purchasing, selling, or delivery? (Cost orientation) ? What price levels are competitors setting? (Competitive orientation) ? Can above-market prices be set due to a superior image? (Competitive orientation)
17-21
Figure 17.7 A Checklist of Selected Specific Pricing Decisions
17-22
Price Strategy Concepts
? Customary Pricing * Everyday Low Pricing ? Variable Pricing * Yield Management Pricing ? One-Price Policy ? Flexible Pricing * Contingency Pricing ? Odd Pricing ? Leader Pricing ? Multiple-Unit Pricing ? Price Lining
17-23
Figure 17.8 Ikea and Low Pricing
17-24
Figure 17.9 Odd Pricing: A Popular Retailing Tactic
17-25
Reasons to Use Multiple-Unit Pricing
? A firm could seek to have shoppers increase their total purchases of an item ? This approach can help sell slow-moving and end-of-season merchandise ? Price bundling may increase sales of related items
17-26
Price Adjustments
? Adaptive mechanism * Markdown * Additional markup * Employee discount
17-27
Figure 17.10 A Price Change Authorization Form
17-28
Timing Markdowns
? Early markdown policy ? Late markdown policy ? Staggered markdown policy ? Automatic markdown plan ? Storewide clearance
17-29
Figure 17.11 Promoting Markdowns
17-30
doc_185875314.ppt
Options contracts have been known for many centuries, however both trading activity and academic interest increased when, as from 1973, options were issued with standardized terms and traded through a guaranteed clearing house at the Chicago Board Options Exchange. Today many options are created in a standardized form and traded through clearing houses on regulated options exchanges, while other over-the-counter options are written as bilateral, customized contracts between a single buyer and seller, one or both of which may be a dealer or market-maker.
Chapter 17
Pricing in Retailing
Chapter Objectives
? To describe the role of pricing in a retail strategy and to show that pricing decisions must be made in an integrated and adaptive manner ? To examine the impact of consumers; government; manufacturers, wholesalers, and other suppliers; and current and potential competitors on pricing decisions ? To present a framework for developing a retail price strategy: objectives, broad policy, basic strategy, implementation, and adjustments
17-2
Pricing Options for Retailers
? Discount orientation ? At-the-market orientation ? Upscale orientation
17-3
Figure 17.1 Ross Dress for Less Means Value
17-4
Figure 17.2 Factors Affecting Retail Price Strategy
17-5
Price Elasticity of Demand
? The sensitivity of customers to price changes in terms of the quantities they will buy * Elastic – small percentage changes in price lead to substantial percentage changes in the number of units bought * Inelastic – large percentage changes in price lead to small percentage changes in the number of units bought
17-6
Table 17.1 A Movie Theater’s Elasticity of Demand
Price ($) Tickets Sold (Saturday Night) 1,000 Total Ticket Receipts 6,000 E = 0.68 7.00 900 6,300 Elasticity of Demand (E) 6.00
E = 0.79
8.00 810 6,480 E = 1.00 9.00 720 6,480
E = 2.54
10.00 550 5,500
17-7
Price Sensitivity Market Segments
? Economic consumers ? Status-oriented consumers ? Assortment-oriented consumers ? Personalizing consumers ? Convenience-oriented consumers
17-8
The Government and Retail Pricing
? Horizontal Price Fixing ? Vertical Pricing Fixing ? Price Discrimination (Robinson-Patman Act) ? Minimum Price Laws ? Unit Pricing ? Item Price Removal ? Price Advertising
17-9
Justifiable Price Discrimination
? Products are physically different ? The retailers paying different prices are not competitors ? Competition is not injured ? Price differences are due to differences in supplier costs ? Market conditions change – costs rise or fall or competing suppliers shift their prices
17-10
Competition and Retail Pricing
? Market pricing – retailers often price similarly to each other and have less control over price because consumers can easily shop around ? Administered pricing – firms seek to attract consumers on the basis of distinctive retailing mixes
17-11
Figure 17.3 A Framework for Developing a Retail Price Strategy
17-12
Objectives and Pricing
Market Skimming Market Penetration
17-13
Figure 17.4 A Marketing Skimming Approach
17-14
Figure 17.5 Specific Pricing Objectives from Which Retailers May Choose
17-15
Price Policy Choices
? No competitors will have lower prices; no competitors will have higher prices; or prices will be consistent with competitors ? All items will be priced independently or the prices for all items will be interrelated to maintain image and ensure proper markups ? Price leadership will be exerted; competitors will be price leaders and set prices first; or prices will be set independently of competitors ? Prices will be constant over a year or season; or prices will change if costs change
17-16
Price Strategy
? Demand-Oriented Pricing ? Cost-Oriented Pricing ? Competition-Oriented Pricing
17-17
Demand-Oriented Pricing
? Psychological pricing * Price-quality association * Prestige pricing
17-18
Table 17.4 Markup Equivalents
Percentage of Retail 10.0 20.0 30.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0
17-19
Percentage of Cost 11.1 25.0 42.9 42.9 66.7 100.0 150.0 233.3 400.0 900.0
Figure 17.6 How to Determine Direct Product Profitability
17-20
Integration of Approaches to Price Strategy
? If prices are reduced, will revenues increase greatly? (Demand orientation) ? Should different prices be charged for a product based on negotiations with customers, seasonality, and so on? (Demand orientation) ? Will a given price level allow a traditional markup to be attained? (Cost orientation) ? What price level is necessary for a product requiring special costs in purchasing, selling, or delivery? (Cost orientation) ? What price levels are competitors setting? (Competitive orientation) ? Can above-market prices be set due to a superior image? (Competitive orientation)
17-21
Figure 17.7 A Checklist of Selected Specific Pricing Decisions
17-22
Price Strategy Concepts
? Customary Pricing * Everyday Low Pricing ? Variable Pricing * Yield Management Pricing ? One-Price Policy ? Flexible Pricing * Contingency Pricing ? Odd Pricing ? Leader Pricing ? Multiple-Unit Pricing ? Price Lining
17-23
Figure 17.8 Ikea and Low Pricing
17-24
Figure 17.9 Odd Pricing: A Popular Retailing Tactic
17-25
Reasons to Use Multiple-Unit Pricing
? A firm could seek to have shoppers increase their total purchases of an item ? This approach can help sell slow-moving and end-of-season merchandise ? Price bundling may increase sales of related items
17-26
Price Adjustments
? Adaptive mechanism * Markdown * Additional markup * Employee discount
17-27
Figure 17.10 A Price Change Authorization Form
17-28
Timing Markdowns
? Early markdown policy ? Late markdown policy ? Staggered markdown policy ? Automatic markdown plan ? Storewide clearance
17-29
Figure 17.11 Promoting Markdowns
17-30
doc_185875314.ppt