thegreat.mukesh
Mukesh Singh
Retailing
Retailing involves all activities involved in selling goods or services directly to final consumers for personal, non-business use. A retailer or retail store is any business enterprise whose volume comes primarily from retailing. Any organization selling to final consumers – whether it is a manufacturer, wholesaler or retailer – is doing retailing. It does not matter how the goods or services are sold(by person, mail, telephone, vending machine or internet) or where they are sold (in a store, on the street, or in the consumer’s home).
Types of Retailers
Consumers today can shop for goods and services in a wide variety of retail organizations. There are small retailers, nonstore retailers, and retail organizations. Perhaps the best-known type of retailers is the department store.
Retail store types pass through stages of growth and decline that can be described as the Retail Life Cycle. A type emerges, enjoys a period of accelerated growth, reaches maturity, and then declines. Older retail forms took many years to maturity; newer retail forms reach maturity much more quickly. Department stores took 80 years to reach maturity, whereas warehouse retail outlets reached maturity in 10 years.
Levels of service
Retailers can position themselves as offering one of four levels of services.
1. Self – service : self service is the corner stone of all discount operations. Many customers are willing to carry out their own locate – compare – select process to save money.
2. Self – selection : customers find their own goods, although they can ask for assistance.
3. Limited service : These retailers carry more shopping goods, and customers need more information and assistance. The stores also offer services (such as credit and merchandise – return privileges).
4. Full service : sales people are ready to assist in every phase of the locate- compare – select process. Customers who like to be waited on prefer this type of store. The high staffing cost, along with higher proportion of specialty goods and slower moving items and the many services, results in high cost retailing.
Non store retailing falls into four major categories: direct selling, direct marketing(which includes telemarketing and internet selling), automatic vending, and buying services :
1. Direct selling : Direct selling is a $ 9 billion industry, with over 600 companies selling door to door or at home sales parties.
2. Direct marketing has roots in direct mail and catalog marketing; it includes telemarketing, television direct response marketing, and electronic shopping. Of these, electronic shopping experienced a major take off in the late 1990s as consumers flocked to dot-com sites to buy books, music, toys, electronics and other products.
3. Automatic vending is used for a variety of merchandise, including impulse goods like cigarettes, soft drinks, coffee, candy, newspapers, magazines and other products like hosiery, cosmetics, hot food and paperbacks.
4. Buying service is a storeless retailer serving a specific clientele – usually employees of large organizations – who are entitled to buy from a list of retailers that have agreed to give discounts in return for membership.
Corporate retailing
Although many retail stores are independently owned, an increasing number are a part of corporate retailing. Corporate retail organizations achieve economies of scale, greater purchasing power, wider brand recognition, and better-trained employees. The major types of corporate retailing --- corporate chain stores, voluntary chains, retailer cooperatives, franchises, and merchandising conglomerates.
Marketing decisions
In the past, retailers held customers by convenient location, special or unique assortments of goods, greater or better services than competitors, and store credit cards. All of this has changed. Today, national brands such as calvin klein, Izod, and levi’s are found in department stores, in their own shops, in merchandise outlets, and in price off discounts stores. In their drive for volume, national brand manufacturers have placed their branded goods everywhere. The result is that retail store assortments have grown more alike.
In the face of increased competition from discount houses and specialty stores, department stores are waging a comeback war. In addition to locations in the centers of cities, many have branches in the sub urban shopping centers, where packing is plentiful and family incomes are higher. Others run more frequent sales, remodel their stores, and experiment with mail orders and online marketing, and telemarketing. Supermarkets have opened large stores, carry a larger number of varieties of items, and upgrade facilities. Supermarkets have also increased their promotional budgets and moved heavily into private brands.
We will examine retailers’ marketing decision in the areas of target market, product assortment and procurement, services and store atmosphere and price
Target market
A retailer’s most important decision concerns the target market. Until the target market is defined and profiled, the retailer can not make consistent decisions on product assortment, store décor, advertising messages and media, price, and service levels.
Product assortment and procurement
The retailer’s product assortment must match the target market’s shopping expectations. The retailer has to decide on product assortment breadth and depth. Thus a restaurant can offer a narrow and shallow assortment , a narrow and deep assortment, a braoad and shallow assortment, or a broad and deep assortment. The real challenge begins after defining a store’s product assortment, and that is to develop a product differentiation strategy.
After deciding on the product assortment strategy, the retailer must establish procurement sources, policies, and practices.
Manufactures face a major challenge trying to get new items onto store shelves. They offer a nation’s supermarkets between 150 and 250 new items each week, of which store buyers reject almost 70% of it. Manufacturers need to know the acceptance criteria used by the buyers, buying committees, and store managers.
Retailers are rapidly increasing their skills in demand forecasting, merchandise selection, stock control, space allocation and display. They are using computers to stock inventory, compute economic order quantities, order goods, and analyze dollars spent on vendors and products. Supermarket chains are using scanner data to manage their merchandise mix on a store-by-store basis.
Stores are using direct product profitability to measure a product’s handling costs, from the time it reaches it warehouse until a customer buys it in their retail store. Retailers who have adopted DPP learn to their surprise that the gross margin on a product often has little relation to the direct product profit. Some high volume products may have such high handling cost that are less profitable and deserve less shelf space than low volume products. Clearly, vendors are facing increasingly sophisticated retailers.
Services and store atmosphere
Retailers must also decide on the service mix to offer customers:
Prepurchase services include accepting telephone and mail orders, advertising, window and interior display, fitting rooms, shopping hours, fashion shows, trade- inns.
Postpurchase services include shipping and delivery, gift-wrapping, adjustments and returns, alterations and tailoring, installations, engraving.
Ancillary services include general information, check cashing, parking, restaurants, repairs, interior decorating, credit, rest rooms, baby attendant service.
The service mix is a key tool for differentiating one store from another; so is atmosphere. Every store has a “look”. The store must embody a planned atmosphere that suits the target market and draws consumers towards purchase.
New models Of Success:
In the past retailers held the customers by offering them convenience location, variety of goods and better services than competitors. But in the face of the increased competition, discounted stores, specialty houses and departmental stores are emerging.
The two models of departmental stores are:
Strong Retail Brand Approach:
Typified by in U.S. by Kohl And in U.K. by Marks And Spencer, which recommended in-house brand feature as a part of this type of store. And also emphasized the role of managers as an integral part of the store. This sort of a store led to high operating cost but was also characterized by high operating profits, provided the in-house brands are the popular ones as well as fashionable ones.
Showcase Store:
This concept was brought in by Galaries Lafayette in Paris and Selfridges in London.Such stores not only sell the good and services but it also gets he vendor of the respective brands to take the responsibility of the sales,stock,staff and selling space.
In consideration of such activities the vendor of the brands give a percentage of sales revenue to the owner of such shops.
However these activities reduces the operating costs but facilitates the owner to get profits as well with lower margins.
These stores provide a display of goods and also arranges for entertainments for the visitors.
Price decision
Prices are key positioning factor and must be decided in relation to the targetr market, the product-and-service assortment mix, and competition. All retailers would like to achieve high volumes and high growth margins. They would like high turns x earns, but the two usually do not go together. Most of the retailers fall into the high mark up and lower volume group or the low mark up and high margin group. Within each of these groups are further gradations.
Retailers must also pay attention to pricing tactics. Most retailers will put low price on some items to serve as traffic builders or loss leaders. They will run short wide sales. They will plan markdowns on slower moving merchandise.
Trends in retailing
Retailers need to take into account the main developments before planning any competitive strategies.
New retail forms and combinations: Some supermarkets include bank branches. Bookstores feature coffee shops. gas stations include food stores, etc
Growth of intertype competition: Different types of stores – discount stores, catalog showrooms, department stores – all compete for the same consumers by carrying a same type of merchandise.
Growing investment in technology: Retailers are using computers to produce better forecasts, control inventory costs, order electronically from suppliers, send e-mail between stores, and even sell to customers within stores. They are adopting check out scanning systems, electronic funds transfer, in store television and improved merchandise handling systems.
Global presence of major retailers: Retailers with unique formats and strong brand positioning are increasingly appearing in other countries.
Selling an experience, not just goods: Retailers are now adding fun and community in order to compete with other stores and online retailers.
Wholesaling
Wholesaling includes all the activities involved in selling of goods or services to those who buy for resale or business use. Wholesalers differ from retailers in a number of ways: first, wholesalers pay less attention to promotion, atmosphere and location because they are dealing with business customers rather than final consumers. Second, wholesale transactions are usually larger than retail transactions, and wholesalers usually cover a large trade area than retailers. Third, the government deals differently with both in terms of legal rules and regulations.
Wholesalers are used when they are more efficient in performing the following functions:
Selling and promoting: Wholesalers’ sales force helps manufacturers to reach many small business customers at a relatively low cost. They have more contacts and often buyers trust more than they trust a distant manufacturer.
Buying and assortment building: wholesalers are able to select items and build the assortments their customer need, saving the customers considerable work.
Bulk breaking: wholesalers achieve savings for their customers through buying inlarge carload lots and breaking the bulk into smaller units.
Warehousing: wholesalers hold inventories, thereby reducing inventory costs and risk to suppliers and retailers.
Transportation: wholesalers can also provide quicker delivery to buyers because they are closer to buyers.
Financing: wholesalers finance customers by granting credit, and finance suppliers by orderly early and paying bills on time.
Risk bearing: wholesalers absorb some risk by taking title and and bearing the cost of theft, damage, spoilage and obsolescence.
Wholesaler Decision:
Wholesaler – distributor have faced mounting pressure in recent years from sources of competition, demanding customers, new technology and more direct buying programs by large industrial, institutional and retail buyers.
Target Markets:
Wholesalers need to define their target markets. They can choose a target group of customers by size (only large retailers), type of customers (convenience food store only), need for service (customers who need credit) or other criteria.
Product assortment and services:
The wholesaler’s product is their assortment. Wholesaler are under great pressure to carry a full line and maintain sufficient stock for immediate delivery, but the costs of carrying huge levels of inventories or stock of good may kill the profits.
Price Decision:
Wholesalers usually markup the cost of goods by a conventional percentagesay 20% to 25% of profits to cover their expenses or expenditures .
Promotion Decision:
Wholesalers rely on their sales force to achieve promotional objectives. Even here, most wholesalers see selling as a single sales person talking to a single customer, instead of a team effort to sell, build and service major accounts.
Place Decision:
Wholesalers are typically located in low rent, low tax areas and put little money into their physical setting and offices. Often the materials handling systems and order processing systems lagged behind the available technologies. Today progressive wholesalers have been improving materials handling procedures and costs by developing automated warehouses and improving their supply capabilities through information systems.
Market Logistics:
Market logistics involves planning the infrastructure to meet demand, then implementing and controlling the physical flows of materials and final goods from point of origin to points of use, to meet customer requirement at a profit.
Market logistics planning has four steps:
Deciding on the company’s value preposition to its customers.
Deciding on the best channel design and network strategy for reaching the customers.
Developing operational excellence in sales forecasting, warehouse management, transportation management and materials management.
Implementing the solution with the best information systems, equipment, policies and procedures.
Integrated Logistics Systems:
The market logistic task calls for Integrated Logistic Systems (ILS), involving material management, material flow systems, and physical distribution, supported by information technology. Third party suppliers such as FedEx Logistic services, Blue Dart, Gati, and ALF, offer such support to many clients.
Information systems play a critical role in managing market logistics, especially computers, point-of-sale terminals, uniform product bar codes, satellite tracking, electronic data interchange (EDI), and electronic fund transfer (EFT). These developments have shortened the order cycle time, reduced clerical labor, reduced the error rate in documents, and provided improved control of operations.
Market logistics involves several activities. The first is sales forecasting, on the basis of which the company schedules distribution, production and inventory levels.
Sales Forecasting, on the basis of which the company schedules distribution, production and inventory levels. Production plans indicate the materials the purchasing department must order. These materials arrive through inbound transportation, enter the receiving area, and are stored in raw material inventory. Raw material is converted into finished goods. Finished goods inventory is the link between customer orders manufacturing activity builds up. Finished goods flow off the assembly line and pass through packaging, in plant ware housing, shipping room processing, outbound transportation, field were housing and customer delivery and servicing.
The four major decisions must be made with regard to market logistics:
How should the orded be handled while we consider this type of system ?
Most companies today are trying to shorten the order to payment cycle – that is, the elapsed time between an order’s receipt, delivery and payment. This cycle involves many steps, including order transmission by the sales person, order entry and customer credit check, inventory and production scheduling, order and invoice shipment and receipt of payment. The longer this cycle takes, the lower the customer’s satisfaction and the lower the company’s profits.
Where should the stocks be located under such systems ?
Every company has to store finished goods until they are sold, because production and consumption cycles rarely match. The storage function helps to smooth discrepancies between production and quantity desired by the market. To reduce warehousing and inventory duplication costs, the company might centralize its inventory in one place and use fast transportation to fulfill orders.
How much stocks of good or inventory must be handled here ?
Inventory levels represent a major cost. Sales people would like their companies to carry a enough stock to fill all customer orders immediately. However this is not cost effective. Inventory cost increase at an accelerating rate as the customer service level approaches 100 percent. Inventory decision -making involves knowing when to order and how much to order. As inventory draws down, management must know at what stock level to place a new order. This stock level is called the recorder point. An order point of 20 means recording when stock falls to 20 units. The order point should balance the risks of stock out
How should the goods be shipped or transported under such logistics system ?
Marketers need to be concerned with transportation decisions. Transportation choices will affect product pricing, on time delivery performance and the condition of the goods when they arrive, all of which affects customer satisfaction.
In shipping goods to its warehouses, dealers and customers, the company can choose among five transportation modes: Rail, Air, Truck, Waterway and pipeline. Shippers consider such criteria as speed, frequency, dependability, capability, availability, trace ability and cost. For speed, air and truck are the prime contenders. If the goal is low cost, then it is water and pipeline.
Organizational Lessons
Experience with market logistics has taught executives three major lessons:
Companies should appoint a senior vice president of logistics to be the single point of contract for all logistical elements. This executive should be accountable for logistical performance on both cost and customer satisfaction criteria.
The senior vice president of logistics should hold periodic meetings (weekly, biweekly) with sales and operations people to review inventory, operating costs, and customer service and satisfaction, as well as to consider market conditions and whether changes should be made in production schedules.
New software and systems are the key to achieving competitively superior logistics performance in the future.
Suppliers cannot say no to many of these requests, but at least they can set up different logistical programs with different service levels and customer charges. Smart companies will adjust their offerings to each major customer’s requirements. The company’s trade group will set up differentiated distribution by offering different bundled service programs for different customers.
Private Labels:
A private brand is the one which the retailers and the wholesalers develop.Such brands are a large portion of the super markets.Products of such markets are either sold under their own brand of under the other private brands.
House Brands:
Intermediaries search for manufacturers with excess of capacity who can produce private labels at a lower cost. This makes the other related expenses such as tha research and development. This results in the following:
1.This reduces the costs and accelerates the profits there on.
2.Retailers develop exclusive stores brand to differentiate them from among themselves and that of competitors.
UNDERSTANDING PRICING
Traditionally, price has been the major determinant of a buyer’s choice . This is still the case with the large segments of the buyers across the globe. Although the non pricing factors have become quite important in the last few decades, price still remains an important factor in determining sales and profitability.
How companies price
Companies do their pricing in variety of ways. In small companies prices are often set by the boss. In large companies pricing is handled by the division and product line managers. Even here, the top management sets general pricing objectives and policies and often approved the price proposed by lower levels of management. In industries where the pricing is the key factor companies will often establish a pricing department to set or assist others in determining the appropriate prices. Others who exert an influence on the pricing include sales manager, production managers finance managers, and accountants.
Consumer psychology and pricing
Many economis assume that the consumers are “price takers” and accept prices at “face value” or as given. Marketers recognize that consumer often actively process the price information, interpreting price in terms of their knowledge from prior purchasing experience, formal communication( advertising, sales calls and brochures ), informal communication( friends, colleagues or family members), and point of purchase or online resources.
Here we consider the three key topics – reference prices, price-quality inferences and price endings.
REFERENCE PRICE:- When examining the products, however , consumer often employ reference prices. In considering an observed prices, consumers often compare it to an internal reference price(pricing information from memory) or an external frame of reference(such as posted “regular retail price”).Reference price thinking is also encouraged by stating a high manufacturer’s suggested price, or by indicating that the product was priced much higher originally, or by pointing to a competitor’s high price.
PRICE QUALITY INFERENCES:- Many consumers use price as an indicators of quality. Image pricing is especially effective with ego-sensitive products such as perfumes and expensive cars. When alternative information about true quality is available, price becomes a less significant indicator of quality. When this information is not available, price act as a signal of quality. Some brands adopt scarcity as a means to signify quality and justify premium pricing.
PRICE CUES:- Consumer perceptions of prices are also affected by the alternative pricing strategies. Many sellers believe that price should end in the odd number. Many costumer see some products priced at Rs.2999 instead of Rs.3000 as a price in the Rs 2000 rather than Rs.3000 range. Explanation for ‘9’ endings is that the convey the notion of discount or the bargain, suggesting that if a company wants a high-price image, it should avoid the odd-ending tactic.Price that end with “0” and “5” are also common in marketplace as they are thought to be easier for the consumer to process and retrieve from memory.
SETTING THE PRICE
A firm must se a price for the first time when it develops a new product, when it introduces its regular product into a new distribution channels or geographical area, and when it enters bid omn the new contract work.
The firm has to consider many factors in setting its price policy. Here are describe the six step procedures.
STEP 1:- SELECTING THE PRICING OBJECTIVE
A company can pursue any of the five major objectives through pricing: survival, maximum current profit, maximum market share, maximum market skimming, or the product quality leadership.
SURVIVAL:- Survival is a short term objective; in the long run, the firm must learn how to add value or the face extinction.
MAXIMUM CURRENT PROFIT:- Estimating the demand and the costs associated with with alternative prices and choose the price that produces maximum current profit, cash flow, or the rate of return on investment. This strategy assumes that the firm has knowledge of its demand and cost functions.
MAXIMUM MARKET SHARE:- Some companies want to maximize their market share, believe that the higher sales volume will lead to the lower unit costs and higher long run profit. They set the lowest price assuming that the market is price sensitive.
MAXIMUM MARKET SKIMMING:- Market skimming makes the sense under following conditions: (1) A sufficient numbers of buyers have a high current demand; (2) The unit cost of producing a small volume is not so high that they cancel the advantage of charging what the traffic will bear; (3) The high initial price does not attract more competitors to the market; (4) The high price communicates the image of the superior product.
STEP 2:- DETERMINING DEMAND
Each price will lead to a different level of demand and therefore have a different impact on the company’s marketing objectives.If the prices is too high, the level of demand may fall.
PRICE SENSITIVITY:- Generally the customers are more price sensitive to the products that cost lot or are bought frequently. They are less price sensitive to the low cost items, the items that they buy infrequently, or when the price is only the small part of the total cost of the price than competitors.
ESTIMATING THE DEMAND CURVES:- Most companies make some attempt to measure their demand curves using several different methods as:
1) Statistical analysis of past prices, quantities sold, and other factors can reveal their relationship. The data can be longitudinal or cross- sectional.
2) Price experiments can be conducted.
3) Surveys can explore how many units can a consumers would buy at different proposed prices, although there is always the chance that they might understate their purchases intentions at higher price to discourage the company from setting the higher prices.
PRICE ELASTICITY OF DEMANAD:- Marketers need to know how responsive, or elastic, demand would be to a change in price. Demand is likely to be elastic under following conditions: (1) There are few or no substitutes or competitors; (2) Buyers do not readily notice the higher price; (3) Buyers are slow to change their buying habits; (4) Buyers think the higher prices are justified.
STEP 3:- ESTIMATING COSTS
The company wants to charge a price that covers its cost of producing, distributing, and selling the product, including a fair return for its effort and risk.
• Fixed costs are the cost that do not vary with the production or sales revenue.
• Variable costs vary directly with the level of production
• Total costs consist of the sum of the fixed and variable cost for any given level of production.
• Average cost is the cost per unit at that level of production; it is equal to total costs divided by production.
STEP 4:- ANALYZING COMPETITORS
Within the range of the possible prices determined by market demand and company costs, the firm must take competitors costs, prices and possible price reaction into account. The firm should first consider the nearest competitor’s price.
STEP 5:- SELECTING A PRICING MODEL
Companies select a pricing method that includes one or more of these three considerations. (1) Costs set a floor to the price. (2) Competitors prices and the price of the substitutes provides an orienting point. (3) Costumers assessment of unique features establishes the price ceiling. Six price setting methods are as follows:-
1) Markup pricing:- The most elementary pricing method is to add a standard markup to the product’s cost.
2) Target return pricing:- The firm determines the price that would yield its target rate of return on investment.
3) Perceived value pricing:- An increading number of companies now base their price on the customer’s perceived value. They must deliver the value promised by their value proposition, and the customer must perceive this value.
4) Value pricing:- An important type of value pricing is everyday low pricing , which take place at the retail level. A retailer who holds to an EDLP pricing policy charges a constant low price with little or low price promotions and special sales.These can be contrasted to high-low pricing, here the retailer charges higher prices on the everyday basis but then runs frequent promotions in which prices are temporarily lowered below the EDLP level.
5) Going rate pricing:- In going rate pricing, the firms bases its price largely on competitors prices. The firm might charge the same, more, or less than major competitors.
6) Auction :- type pricing:- This type of pricing have become more popular, especially with the growth of internet. Companies need to be aware of three major types of auction and their separate pricing procedures.
• English auctions:- One seller and many buyer. This auctions are being used today for selling antiques, cattle, real estate, and used equipment and vehicles.
• Dutch auctions :- One seller and many buyer or one buyer and many sellers. Each seller sees what the last bid is and decides whether to go lower.
• Sealed-bid auctions:- A variant of sealed-bid auctions involves a two stage bidding process. The first stage is the submission of technical bids. Only those who pre-qualify on technical bids are asked to submit the commercial bids. This typically followed for high-ticket items and projects.
7) Group pricing :- Consumers and business buyers can join groups to
avail a volume discount and other concession Housing and other cooperatives forming a consortium for joint negotiations in the purchase of critical raw¸ utilities or the purchase of the plant and equipment by small scale industries; neighbors pooling together to avail bulk discount in the purchase of agricultural produce from wholesale market fall in this category.
STEPS 6: SELECTING THE FINAL PRICE
In selecting the final price, the company must consider the additional factors as mentioned below.
1) IMPACT OF OTHER MARKETING ACTIVITIES
2) COMPANY PRICING POLICIES
3) GAIN AND RISK SHARING PRICING
4) IMPACT OF PRICE ON THE OTHER PARTIES
ADAPTING THE PRICE
Several price adaptation strategies are as follows.
1) Geographical pricing ( Cash, Countertrade, Barter )
Barter:- The direct exchange of goods, with no money and no third party involved.
Compensational deal:- The seller receives some percentage of the payment in cash and the rest in products.
Buy back arrangement:- The seller sells a plant, equipment, or technology to another country and agrees to accept as partial payment products manufactured with the supplied equipment.
Offset:- The seller receives full payment in cash but agrees to spend the substantial amount of the money in that country within a stated time period.
2) Price discounts and allowance
Discount pricing has become the modus operandi of a surprising number of companies offering both products and services. Most companies will adjust their list price and give discounts and allowance for early payment, volume purchase, and off season buying. Companies must do this carefully or find that their profits are much less than planned.
3) Promotional Pricing
Companies can use several pricing technique to stimulate the early purchase.
• Loss leader pricing:- Supermarkets and department stores often drop the price on well known brands to stimulate the additional store traffic.
• Special event pricing:- Sellers will establish the special price in certain season to draw in more customers. Every august there are back to school sales.
• Cash rebates:- Auto companies and other consumer goods companies offer cash rebates to encourage the purchase manufacturers products within the specified period.
• Low interest financing:- Instead of cutting its price, the company can offer its costumers low-interest financing.
• Longer payment terms:- Sellers, especially mortgage banks and companies, stretch loans over long period and thus lower the monthly payments.
• Warranties and service contracts:- Companies can promate sales by by adding a free or low cost warranty or service contract.
• Psycological discounting:- This strategy involves setting an artificially high price and then offering the product at substantial savings.
4) Differentiated Pricing
Price discrimination occurs when a company sells a product or services at two or more prices that do not reflect a proportional difference in costs.
In first degree price discrimination the seller charges a separate price to each customer depending on the intensity of his or her demand.
In second degree price discrimination the seller charges less to buyers who buy a large volume.
In third degree price discrimination the seller charges different amounts to different classes to buyers.
INITIATING AND RESPONDING TO PRICE CHANGES
1) Initiating Price Cuts
A price cutting strategies involves the following possible traps.
• Low quality trap:- Consumer will assume that the quality is low.
• Fragile market share trap:- A low price buys market share but not market loyalty.
• Shallow pockets trap:- The higher priced competitors may cut their prices and may have longer staying power because of deeper cash reserves.
2) Initiating price increases
The price can be increased in following ways.Each has a different impact on buyers.
• Delayed quotation pricing:- the company does not sell a final price until the product is finished or delivered.
• Escalator clauses:- The company require the customer to pay today’s price and all or part of any inflation increases that take place before delivery.
• Unbundling:- The company maintains its price but removes or prices separately one or more element that were part of the former offer, such as free delivery or installation.
• Reduction of discounts:- The company instructs its sales force not to offer its normal cash and quantity discounts.
3) Reaction to price changes
Any price change can provoke a response from customers, competitors, distributors, supplier, and even government.
• Customers Reaction:- Price cut can be interpreted in many ways: the firm is in financial trouble; the item is to replace by the new model; the price will come down even further the quality has been reduced.
• Competitors Reactions:- Competitors are most likely to react when the numbers of firms are few, the product is homogeneous, the buyers are highly informed.
4) Responding to competitor’s price changes
Brand leaders respond in several ways.
• Maintain prices:- The leader might maintain its price and profit margin, believing that 1) it would lose too much profit if it reduced its price, 2) it would not loose much market share,3)it could regain market share when necessary.
• Maintain price and add value:- The firm may find it cheaper to maintain price and spend money to improve perceived quality than to cut price and operate ay lower margin.
• Reduce price:- The leader might drop its price to match the competitor’s price.It might do so because 1) its cost fall with volume, 2) it would lose market share because market is price sensitive, 3) it would hard to rebuild market share once it is lost. This action will cut profits in short run.
• Increase price and improve quality:- The leader might raise its price and introduce new brands to bracket the attacking brand.
• Launch a low price fighter line:- It might add lower priced items to the line or create a separate, lower priced brand.
Advertisement
Retailing involves all activities involved in selling goods or services directly to final consumers for personal, non-business use. A retailer or retail store is any business enterprise whose volume comes primarily from retailing. Any organization selling to final consumers – whether it is a manufacturer, wholesaler or retailer – is doing retailing. It does not matter how the goods or services are sold(by person, mail, telephone, vending machine or internet) or where they are sold (in a store, on the street, or in the consumer’s home).
Types of Retailers
Consumers today can shop for goods and services in a wide variety of retail organizations. There are small retailers, nonstore retailers, and retail organizations. Perhaps the best-known type of retailers is the department store.
Retail store types pass through stages of growth and decline that can be described as the Retail Life Cycle. A type emerges, enjoys a period of accelerated growth, reaches maturity, and then declines. Older retail forms took many years to maturity; newer retail forms reach maturity much more quickly. Department stores took 80 years to reach maturity, whereas warehouse retail outlets reached maturity in 10 years.
Levels of service
Retailers can position themselves as offering one of four levels of services.
1. Self – service : self service is the corner stone of all discount operations. Many customers are willing to carry out their own locate – compare – select process to save money.
2. Self – selection : customers find their own goods, although they can ask for assistance.
3. Limited service : These retailers carry more shopping goods, and customers need more information and assistance. The stores also offer services (such as credit and merchandise – return privileges).
4. Full service : sales people are ready to assist in every phase of the locate- compare – select process. Customers who like to be waited on prefer this type of store. The high staffing cost, along with higher proportion of specialty goods and slower moving items and the many services, results in high cost retailing.
Non store retailing falls into four major categories: direct selling, direct marketing(which includes telemarketing and internet selling), automatic vending, and buying services :
1. Direct selling : Direct selling is a $ 9 billion industry, with over 600 companies selling door to door or at home sales parties.
2. Direct marketing has roots in direct mail and catalog marketing; it includes telemarketing, television direct response marketing, and electronic shopping. Of these, electronic shopping experienced a major take off in the late 1990s as consumers flocked to dot-com sites to buy books, music, toys, electronics and other products.
3. Automatic vending is used for a variety of merchandise, including impulse goods like cigarettes, soft drinks, coffee, candy, newspapers, magazines and other products like hosiery, cosmetics, hot food and paperbacks.
4. Buying service is a storeless retailer serving a specific clientele – usually employees of large organizations – who are entitled to buy from a list of retailers that have agreed to give discounts in return for membership.
Corporate retailing
Although many retail stores are independently owned, an increasing number are a part of corporate retailing. Corporate retail organizations achieve economies of scale, greater purchasing power, wider brand recognition, and better-trained employees. The major types of corporate retailing --- corporate chain stores, voluntary chains, retailer cooperatives, franchises, and merchandising conglomerates.
Marketing decisions
In the past, retailers held customers by convenient location, special or unique assortments of goods, greater or better services than competitors, and store credit cards. All of this has changed. Today, national brands such as calvin klein, Izod, and levi’s are found in department stores, in their own shops, in merchandise outlets, and in price off discounts stores. In their drive for volume, national brand manufacturers have placed their branded goods everywhere. The result is that retail store assortments have grown more alike.
In the face of increased competition from discount houses and specialty stores, department stores are waging a comeback war. In addition to locations in the centers of cities, many have branches in the sub urban shopping centers, where packing is plentiful and family incomes are higher. Others run more frequent sales, remodel their stores, and experiment with mail orders and online marketing, and telemarketing. Supermarkets have opened large stores, carry a larger number of varieties of items, and upgrade facilities. Supermarkets have also increased their promotional budgets and moved heavily into private brands.
We will examine retailers’ marketing decision in the areas of target market, product assortment and procurement, services and store atmosphere and price
Target market
A retailer’s most important decision concerns the target market. Until the target market is defined and profiled, the retailer can not make consistent decisions on product assortment, store décor, advertising messages and media, price, and service levels.
Product assortment and procurement
The retailer’s product assortment must match the target market’s shopping expectations. The retailer has to decide on product assortment breadth and depth. Thus a restaurant can offer a narrow and shallow assortment , a narrow and deep assortment, a braoad and shallow assortment, or a broad and deep assortment. The real challenge begins after defining a store’s product assortment, and that is to develop a product differentiation strategy.
After deciding on the product assortment strategy, the retailer must establish procurement sources, policies, and practices.
Manufactures face a major challenge trying to get new items onto store shelves. They offer a nation’s supermarkets between 150 and 250 new items each week, of which store buyers reject almost 70% of it. Manufacturers need to know the acceptance criteria used by the buyers, buying committees, and store managers.
Retailers are rapidly increasing their skills in demand forecasting, merchandise selection, stock control, space allocation and display. They are using computers to stock inventory, compute economic order quantities, order goods, and analyze dollars spent on vendors and products. Supermarket chains are using scanner data to manage their merchandise mix on a store-by-store basis.
Stores are using direct product profitability to measure a product’s handling costs, from the time it reaches it warehouse until a customer buys it in their retail store. Retailers who have adopted DPP learn to their surprise that the gross margin on a product often has little relation to the direct product profit. Some high volume products may have such high handling cost that are less profitable and deserve less shelf space than low volume products. Clearly, vendors are facing increasingly sophisticated retailers.
Services and store atmosphere
Retailers must also decide on the service mix to offer customers:
Prepurchase services include accepting telephone and mail orders, advertising, window and interior display, fitting rooms, shopping hours, fashion shows, trade- inns.
Postpurchase services include shipping and delivery, gift-wrapping, adjustments and returns, alterations and tailoring, installations, engraving.
Ancillary services include general information, check cashing, parking, restaurants, repairs, interior decorating, credit, rest rooms, baby attendant service.
The service mix is a key tool for differentiating one store from another; so is atmosphere. Every store has a “look”. The store must embody a planned atmosphere that suits the target market and draws consumers towards purchase.
New models Of Success:
In the past retailers held the customers by offering them convenience location, variety of goods and better services than competitors. But in the face of the increased competition, discounted stores, specialty houses and departmental stores are emerging.
The two models of departmental stores are:
Strong Retail Brand Approach:
Typified by in U.S. by Kohl And in U.K. by Marks And Spencer, which recommended in-house brand feature as a part of this type of store. And also emphasized the role of managers as an integral part of the store. This sort of a store led to high operating cost but was also characterized by high operating profits, provided the in-house brands are the popular ones as well as fashionable ones.
Showcase Store:
This concept was brought in by Galaries Lafayette in Paris and Selfridges in London.Such stores not only sell the good and services but it also gets he vendor of the respective brands to take the responsibility of the sales,stock,staff and selling space.
In consideration of such activities the vendor of the brands give a percentage of sales revenue to the owner of such shops.
However these activities reduces the operating costs but facilitates the owner to get profits as well with lower margins.
These stores provide a display of goods and also arranges for entertainments for the visitors.
Price decision
Prices are key positioning factor and must be decided in relation to the targetr market, the product-and-service assortment mix, and competition. All retailers would like to achieve high volumes and high growth margins. They would like high turns x earns, but the two usually do not go together. Most of the retailers fall into the high mark up and lower volume group or the low mark up and high margin group. Within each of these groups are further gradations.
Retailers must also pay attention to pricing tactics. Most retailers will put low price on some items to serve as traffic builders or loss leaders. They will run short wide sales. They will plan markdowns on slower moving merchandise.
Trends in retailing
Retailers need to take into account the main developments before planning any competitive strategies.
New retail forms and combinations: Some supermarkets include bank branches. Bookstores feature coffee shops. gas stations include food stores, etc
Growth of intertype competition: Different types of stores – discount stores, catalog showrooms, department stores – all compete for the same consumers by carrying a same type of merchandise.
Growing investment in technology: Retailers are using computers to produce better forecasts, control inventory costs, order electronically from suppliers, send e-mail between stores, and even sell to customers within stores. They are adopting check out scanning systems, electronic funds transfer, in store television and improved merchandise handling systems.
Global presence of major retailers: Retailers with unique formats and strong brand positioning are increasingly appearing in other countries.
Selling an experience, not just goods: Retailers are now adding fun and community in order to compete with other stores and online retailers.
Wholesaling
Wholesaling includes all the activities involved in selling of goods or services to those who buy for resale or business use. Wholesalers differ from retailers in a number of ways: first, wholesalers pay less attention to promotion, atmosphere and location because they are dealing with business customers rather than final consumers. Second, wholesale transactions are usually larger than retail transactions, and wholesalers usually cover a large trade area than retailers. Third, the government deals differently with both in terms of legal rules and regulations.
Wholesalers are used when they are more efficient in performing the following functions:
Selling and promoting: Wholesalers’ sales force helps manufacturers to reach many small business customers at a relatively low cost. They have more contacts and often buyers trust more than they trust a distant manufacturer.
Buying and assortment building: wholesalers are able to select items and build the assortments their customer need, saving the customers considerable work.
Bulk breaking: wholesalers achieve savings for their customers through buying inlarge carload lots and breaking the bulk into smaller units.
Warehousing: wholesalers hold inventories, thereby reducing inventory costs and risk to suppliers and retailers.
Transportation: wholesalers can also provide quicker delivery to buyers because they are closer to buyers.
Financing: wholesalers finance customers by granting credit, and finance suppliers by orderly early and paying bills on time.
Risk bearing: wholesalers absorb some risk by taking title and and bearing the cost of theft, damage, spoilage and obsolescence.
Wholesaler Decision:
Wholesaler – distributor have faced mounting pressure in recent years from sources of competition, demanding customers, new technology and more direct buying programs by large industrial, institutional and retail buyers.
Target Markets:
Wholesalers need to define their target markets. They can choose a target group of customers by size (only large retailers), type of customers (convenience food store only), need for service (customers who need credit) or other criteria.
Product assortment and services:
The wholesaler’s product is their assortment. Wholesaler are under great pressure to carry a full line and maintain sufficient stock for immediate delivery, but the costs of carrying huge levels of inventories or stock of good may kill the profits.
Price Decision:
Wholesalers usually markup the cost of goods by a conventional percentagesay 20% to 25% of profits to cover their expenses or expenditures .
Promotion Decision:
Wholesalers rely on their sales force to achieve promotional objectives. Even here, most wholesalers see selling as a single sales person talking to a single customer, instead of a team effort to sell, build and service major accounts.
Place Decision:
Wholesalers are typically located in low rent, low tax areas and put little money into their physical setting and offices. Often the materials handling systems and order processing systems lagged behind the available technologies. Today progressive wholesalers have been improving materials handling procedures and costs by developing automated warehouses and improving their supply capabilities through information systems.
Market Logistics:
Market logistics involves planning the infrastructure to meet demand, then implementing and controlling the physical flows of materials and final goods from point of origin to points of use, to meet customer requirement at a profit.
Market logistics planning has four steps:
Deciding on the company’s value preposition to its customers.
Deciding on the best channel design and network strategy for reaching the customers.
Developing operational excellence in sales forecasting, warehouse management, transportation management and materials management.
Implementing the solution with the best information systems, equipment, policies and procedures.
Integrated Logistics Systems:
The market logistic task calls for Integrated Logistic Systems (ILS), involving material management, material flow systems, and physical distribution, supported by information technology. Third party suppliers such as FedEx Logistic services, Blue Dart, Gati, and ALF, offer such support to many clients.
Information systems play a critical role in managing market logistics, especially computers, point-of-sale terminals, uniform product bar codes, satellite tracking, electronic data interchange (EDI), and electronic fund transfer (EFT). These developments have shortened the order cycle time, reduced clerical labor, reduced the error rate in documents, and provided improved control of operations.
Market logistics involves several activities. The first is sales forecasting, on the basis of which the company schedules distribution, production and inventory levels.
Sales Forecasting, on the basis of which the company schedules distribution, production and inventory levels. Production plans indicate the materials the purchasing department must order. These materials arrive through inbound transportation, enter the receiving area, and are stored in raw material inventory. Raw material is converted into finished goods. Finished goods inventory is the link between customer orders manufacturing activity builds up. Finished goods flow off the assembly line and pass through packaging, in plant ware housing, shipping room processing, outbound transportation, field were housing and customer delivery and servicing.
The four major decisions must be made with regard to market logistics:
How should the orded be handled while we consider this type of system ?
Most companies today are trying to shorten the order to payment cycle – that is, the elapsed time between an order’s receipt, delivery and payment. This cycle involves many steps, including order transmission by the sales person, order entry and customer credit check, inventory and production scheduling, order and invoice shipment and receipt of payment. The longer this cycle takes, the lower the customer’s satisfaction and the lower the company’s profits.
Where should the stocks be located under such systems ?
Every company has to store finished goods until they are sold, because production and consumption cycles rarely match. The storage function helps to smooth discrepancies between production and quantity desired by the market. To reduce warehousing and inventory duplication costs, the company might centralize its inventory in one place and use fast transportation to fulfill orders.
How much stocks of good or inventory must be handled here ?
Inventory levels represent a major cost. Sales people would like their companies to carry a enough stock to fill all customer orders immediately. However this is not cost effective. Inventory cost increase at an accelerating rate as the customer service level approaches 100 percent. Inventory decision -making involves knowing when to order and how much to order. As inventory draws down, management must know at what stock level to place a new order. This stock level is called the recorder point. An order point of 20 means recording when stock falls to 20 units. The order point should balance the risks of stock out
How should the goods be shipped or transported under such logistics system ?
Marketers need to be concerned with transportation decisions. Transportation choices will affect product pricing, on time delivery performance and the condition of the goods when they arrive, all of which affects customer satisfaction.
In shipping goods to its warehouses, dealers and customers, the company can choose among five transportation modes: Rail, Air, Truck, Waterway and pipeline. Shippers consider such criteria as speed, frequency, dependability, capability, availability, trace ability and cost. For speed, air and truck are the prime contenders. If the goal is low cost, then it is water and pipeline.
Organizational Lessons
Experience with market logistics has taught executives three major lessons:
Companies should appoint a senior vice president of logistics to be the single point of contract for all logistical elements. This executive should be accountable for logistical performance on both cost and customer satisfaction criteria.
The senior vice president of logistics should hold periodic meetings (weekly, biweekly) with sales and operations people to review inventory, operating costs, and customer service and satisfaction, as well as to consider market conditions and whether changes should be made in production schedules.
New software and systems are the key to achieving competitively superior logistics performance in the future.
Suppliers cannot say no to many of these requests, but at least they can set up different logistical programs with different service levels and customer charges. Smart companies will adjust their offerings to each major customer’s requirements. The company’s trade group will set up differentiated distribution by offering different bundled service programs for different customers.
Private Labels:
A private brand is the one which the retailers and the wholesalers develop.Such brands are a large portion of the super markets.Products of such markets are either sold under their own brand of under the other private brands.
House Brands:
Intermediaries search for manufacturers with excess of capacity who can produce private labels at a lower cost. This makes the other related expenses such as tha research and development. This results in the following:
1.This reduces the costs and accelerates the profits there on.
2.Retailers develop exclusive stores brand to differentiate them from among themselves and that of competitors.
UNDERSTANDING PRICING
Traditionally, price has been the major determinant of a buyer’s choice . This is still the case with the large segments of the buyers across the globe. Although the non pricing factors have become quite important in the last few decades, price still remains an important factor in determining sales and profitability.
How companies price
Companies do their pricing in variety of ways. In small companies prices are often set by the boss. In large companies pricing is handled by the division and product line managers. Even here, the top management sets general pricing objectives and policies and often approved the price proposed by lower levels of management. In industries where the pricing is the key factor companies will often establish a pricing department to set or assist others in determining the appropriate prices. Others who exert an influence on the pricing include sales manager, production managers finance managers, and accountants.
Consumer psychology and pricing
Many economis assume that the consumers are “price takers” and accept prices at “face value” or as given. Marketers recognize that consumer often actively process the price information, interpreting price in terms of their knowledge from prior purchasing experience, formal communication( advertising, sales calls and brochures ), informal communication( friends, colleagues or family members), and point of purchase or online resources.
Here we consider the three key topics – reference prices, price-quality inferences and price endings.
REFERENCE PRICE:- When examining the products, however , consumer often employ reference prices. In considering an observed prices, consumers often compare it to an internal reference price(pricing information from memory) or an external frame of reference(such as posted “regular retail price”).Reference price thinking is also encouraged by stating a high manufacturer’s suggested price, or by indicating that the product was priced much higher originally, or by pointing to a competitor’s high price.
PRICE QUALITY INFERENCES:- Many consumers use price as an indicators of quality. Image pricing is especially effective with ego-sensitive products such as perfumes and expensive cars. When alternative information about true quality is available, price becomes a less significant indicator of quality. When this information is not available, price act as a signal of quality. Some brands adopt scarcity as a means to signify quality and justify premium pricing.
PRICE CUES:- Consumer perceptions of prices are also affected by the alternative pricing strategies. Many sellers believe that price should end in the odd number. Many costumer see some products priced at Rs.2999 instead of Rs.3000 as a price in the Rs 2000 rather than Rs.3000 range. Explanation for ‘9’ endings is that the convey the notion of discount or the bargain, suggesting that if a company wants a high-price image, it should avoid the odd-ending tactic.Price that end with “0” and “5” are also common in marketplace as they are thought to be easier for the consumer to process and retrieve from memory.
SETTING THE PRICE
A firm must se a price for the first time when it develops a new product, when it introduces its regular product into a new distribution channels or geographical area, and when it enters bid omn the new contract work.
The firm has to consider many factors in setting its price policy. Here are describe the six step procedures.
STEP 1:- SELECTING THE PRICING OBJECTIVE
A company can pursue any of the five major objectives through pricing: survival, maximum current profit, maximum market share, maximum market skimming, or the product quality leadership.
SURVIVAL:- Survival is a short term objective; in the long run, the firm must learn how to add value or the face extinction.
MAXIMUM CURRENT PROFIT:- Estimating the demand and the costs associated with with alternative prices and choose the price that produces maximum current profit, cash flow, or the rate of return on investment. This strategy assumes that the firm has knowledge of its demand and cost functions.
MAXIMUM MARKET SHARE:- Some companies want to maximize their market share, believe that the higher sales volume will lead to the lower unit costs and higher long run profit. They set the lowest price assuming that the market is price sensitive.
MAXIMUM MARKET SKIMMING:- Market skimming makes the sense under following conditions: (1) A sufficient numbers of buyers have a high current demand; (2) The unit cost of producing a small volume is not so high that they cancel the advantage of charging what the traffic will bear; (3) The high initial price does not attract more competitors to the market; (4) The high price communicates the image of the superior product.
STEP 2:- DETERMINING DEMAND
Each price will lead to a different level of demand and therefore have a different impact on the company’s marketing objectives.If the prices is too high, the level of demand may fall.
PRICE SENSITIVITY:- Generally the customers are more price sensitive to the products that cost lot or are bought frequently. They are less price sensitive to the low cost items, the items that they buy infrequently, or when the price is only the small part of the total cost of the price than competitors.
ESTIMATING THE DEMAND CURVES:- Most companies make some attempt to measure their demand curves using several different methods as:
1) Statistical analysis of past prices, quantities sold, and other factors can reveal their relationship. The data can be longitudinal or cross- sectional.
2) Price experiments can be conducted.
3) Surveys can explore how many units can a consumers would buy at different proposed prices, although there is always the chance that they might understate their purchases intentions at higher price to discourage the company from setting the higher prices.
PRICE ELASTICITY OF DEMANAD:- Marketers need to know how responsive, or elastic, demand would be to a change in price. Demand is likely to be elastic under following conditions: (1) There are few or no substitutes or competitors; (2) Buyers do not readily notice the higher price; (3) Buyers are slow to change their buying habits; (4) Buyers think the higher prices are justified.
STEP 3:- ESTIMATING COSTS
The company wants to charge a price that covers its cost of producing, distributing, and selling the product, including a fair return for its effort and risk.
• Fixed costs are the cost that do not vary with the production or sales revenue.
• Variable costs vary directly with the level of production
• Total costs consist of the sum of the fixed and variable cost for any given level of production.
• Average cost is the cost per unit at that level of production; it is equal to total costs divided by production.
STEP 4:- ANALYZING COMPETITORS
Within the range of the possible prices determined by market demand and company costs, the firm must take competitors costs, prices and possible price reaction into account. The firm should first consider the nearest competitor’s price.
STEP 5:- SELECTING A PRICING MODEL
Companies select a pricing method that includes one or more of these three considerations. (1) Costs set a floor to the price. (2) Competitors prices and the price of the substitutes provides an orienting point. (3) Costumers assessment of unique features establishes the price ceiling. Six price setting methods are as follows:-
1) Markup pricing:- The most elementary pricing method is to add a standard markup to the product’s cost.
2) Target return pricing:- The firm determines the price that would yield its target rate of return on investment.
3) Perceived value pricing:- An increading number of companies now base their price on the customer’s perceived value. They must deliver the value promised by their value proposition, and the customer must perceive this value.
4) Value pricing:- An important type of value pricing is everyday low pricing , which take place at the retail level. A retailer who holds to an EDLP pricing policy charges a constant low price with little or low price promotions and special sales.These can be contrasted to high-low pricing, here the retailer charges higher prices on the everyday basis but then runs frequent promotions in which prices are temporarily lowered below the EDLP level.
5) Going rate pricing:- In going rate pricing, the firms bases its price largely on competitors prices. The firm might charge the same, more, or less than major competitors.
6) Auction :- type pricing:- This type of pricing have become more popular, especially with the growth of internet. Companies need to be aware of three major types of auction and their separate pricing procedures.
• English auctions:- One seller and many buyer. This auctions are being used today for selling antiques, cattle, real estate, and used equipment and vehicles.
• Dutch auctions :- One seller and many buyer or one buyer and many sellers. Each seller sees what the last bid is and decides whether to go lower.
• Sealed-bid auctions:- A variant of sealed-bid auctions involves a two stage bidding process. The first stage is the submission of technical bids. Only those who pre-qualify on technical bids are asked to submit the commercial bids. This typically followed for high-ticket items and projects.
7) Group pricing :- Consumers and business buyers can join groups to
avail a volume discount and other concession Housing and other cooperatives forming a consortium for joint negotiations in the purchase of critical raw¸ utilities or the purchase of the plant and equipment by small scale industries; neighbors pooling together to avail bulk discount in the purchase of agricultural produce from wholesale market fall in this category.
STEPS 6: SELECTING THE FINAL PRICE
In selecting the final price, the company must consider the additional factors as mentioned below.
1) IMPACT OF OTHER MARKETING ACTIVITIES
2) COMPANY PRICING POLICIES
3) GAIN AND RISK SHARING PRICING
4) IMPACT OF PRICE ON THE OTHER PARTIES
ADAPTING THE PRICE
Several price adaptation strategies are as follows.
1) Geographical pricing ( Cash, Countertrade, Barter )
Barter:- The direct exchange of goods, with no money and no third party involved.
Compensational deal:- The seller receives some percentage of the payment in cash and the rest in products.
Buy back arrangement:- The seller sells a plant, equipment, or technology to another country and agrees to accept as partial payment products manufactured with the supplied equipment.
Offset:- The seller receives full payment in cash but agrees to spend the substantial amount of the money in that country within a stated time period.
2) Price discounts and allowance
Discount pricing has become the modus operandi of a surprising number of companies offering both products and services. Most companies will adjust their list price and give discounts and allowance for early payment, volume purchase, and off season buying. Companies must do this carefully or find that their profits are much less than planned.
3) Promotional Pricing
Companies can use several pricing technique to stimulate the early purchase.
• Loss leader pricing:- Supermarkets and department stores often drop the price on well known brands to stimulate the additional store traffic.
• Special event pricing:- Sellers will establish the special price in certain season to draw in more customers. Every august there are back to school sales.
• Cash rebates:- Auto companies and other consumer goods companies offer cash rebates to encourage the purchase manufacturers products within the specified period.
• Low interest financing:- Instead of cutting its price, the company can offer its costumers low-interest financing.
• Longer payment terms:- Sellers, especially mortgage banks and companies, stretch loans over long period and thus lower the monthly payments.
• Warranties and service contracts:- Companies can promate sales by by adding a free or low cost warranty or service contract.
• Psycological discounting:- This strategy involves setting an artificially high price and then offering the product at substantial savings.
4) Differentiated Pricing
Price discrimination occurs when a company sells a product or services at two or more prices that do not reflect a proportional difference in costs.
In first degree price discrimination the seller charges a separate price to each customer depending on the intensity of his or her demand.
In second degree price discrimination the seller charges less to buyers who buy a large volume.
In third degree price discrimination the seller charges different amounts to different classes to buyers.
INITIATING AND RESPONDING TO PRICE CHANGES
1) Initiating Price Cuts
A price cutting strategies involves the following possible traps.
• Low quality trap:- Consumer will assume that the quality is low.
• Fragile market share trap:- A low price buys market share but not market loyalty.
• Shallow pockets trap:- The higher priced competitors may cut their prices and may have longer staying power because of deeper cash reserves.
2) Initiating price increases
The price can be increased in following ways.Each has a different impact on buyers.
• Delayed quotation pricing:- the company does not sell a final price until the product is finished or delivered.
• Escalator clauses:- The company require the customer to pay today’s price and all or part of any inflation increases that take place before delivery.
• Unbundling:- The company maintains its price but removes or prices separately one or more element that were part of the former offer, such as free delivery or installation.
• Reduction of discounts:- The company instructs its sales force not to offer its normal cash and quantity discounts.
3) Reaction to price changes
Any price change can provoke a response from customers, competitors, distributors, supplier, and even government.
• Customers Reaction:- Price cut can be interpreted in many ways: the firm is in financial trouble; the item is to replace by the new model; the price will come down even further the quality has been reduced.
• Competitors Reactions:- Competitors are most likely to react when the numbers of firms are few, the product is homogeneous, the buyers are highly informed.
4) Responding to competitor’s price changes
Brand leaders respond in several ways.
• Maintain prices:- The leader might maintain its price and profit margin, believing that 1) it would lose too much profit if it reduced its price, 2) it would not loose much market share,3)it could regain market share when necessary.
• Maintain price and add value:- The firm may find it cheaper to maintain price and spend money to improve perceived quality than to cut price and operate ay lower margin.
• Reduce price:- The leader might drop its price to match the competitor’s price.It might do so because 1) its cost fall with volume, 2) it would lose market share because market is price sensitive, 3) it would hard to rebuild market share once it is lost. This action will cut profits in short run.
• Increase price and improve quality:- The leader might raise its price and introduce new brands to bracket the attacking brand.
• Launch a low price fighter line:- It might add lower priced items to the line or create a separate, lower priced brand.
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