Retail Price Strategies
Before detailing the development of pricing strategy, it is necessary to discuss the factors that affect price decision making. Consumers, govt., manufacturer and wholesaler and competitors each have an impact on the pricing strategy of retailer.
The consumer and retailer pricing
A retailer must understand the relationship between price and consumer purchases and perception's. Two economic principles explain this relationship the law of demand and the price elasticity of demand.
The law of demand states that consumers purchase more units at low prices than at high prices. The price elasticity of demand relates to the sensitivity of the buyers to price changes in term of the quantities they will purchases, if relatively small changes in price have little impact on the number of unit purchased, demand is considered to be inelastic. Unitary elasticity occurs in the cases where changes in price directly offset changes in quantity.
The importance of price varies by market segment, on the basis of a classic study; consumer can be divided into four categories, depending upon their shopping orientations.
Primarily interested in shopping for values and extremely sensitive to price, quality and merchandise assortment.
Shops where he or she is known, strong personnel attachment with store personnel and the store itself.
Willing to sacrifice lower prices and better assortment of goods in larger stores or chains to help the smaller stores stay in business.
Shops only because he or she must want to finish as quickly as possible, and place emphasis on convenience.
The government and retail pricing
When examining the impact of government upon planning a pricing strategy, it must be remembered that three levels of govt. Exist central, state and local. Although many of the key laws are central, these laws are central, these laws apply only to interstate commerce. Therefore a retailer who operates exclusively with in the boundaries of one state may be restricted by central legislature. Legislation focuses on six major areas, horizontal price fixing, vertical price fixing, price determination, minimum price levels, unit pricing and price advertising.
Manufacturers, wholesalers and other suppliers and retail pricing :
Manufacturers, wholesalers and other suppliers have an impact on the retailers pricing strategy. In cases where suppliers are unknown or product are new, retailer seek price guarantee to ensure that inventory values and profits will be maintained. Price guarantee protect retailer against poise decision. For examples, a new manufacturer sell a retailer against poise decision. For examples, a new manufacturer sell a retailer radio's that have a final selling price of Rs. 800. The manufacturer pays him the difference. Should the retailer have to sell the radio at 25% ? The relative power of retailer and his supplier determines whether or not a guarantee is provided.
There are often conflicts between manufacturer and retailers in the setting final prices. Manufacturer and retailer would each like to control the final selling price of merchandise. The manufacturer wants to achieve and retain a certain image and to allow all retailers, even those who are inefficient, to make profits; in contrast, the retailer would rather set prices based upon his or her store image, objective and so on.
Competition and retail pricing
The degree of control a firm has over prices depends upon the competitive environment in which it operates. In a market pricing situation, there is a lot of competition, and consumers can seek out the lowest price. Retailer price similarly to each other and have little control over price. Super market, fast-food retailers, and gas station are all in highly competitive industries and sell similar products or services. Therefore retailer in this area utilizes market pricing demand for a retailer in on of this area is wea enough so that a number of customers will switch to competitors if prices are raised.
Under administered pricing, retailers attempt to Create store loyalties on the basis of a distinctive retailing mix. If strong differentiation is possible, the retailer can have control over the prices, it charges, this occurs because consumers considered image, assortment, personal service, and so on more important than price and will pay a high price of the products when shopping at status stores do not offer a good image, a good assortment, personal service and so on department stores, sloshing stores, and restaurants and retailer that are able to create distinctive offering and have some control over the prices.
The key to the impact of the competitive environment on prices is the ability of retailers of differentiates itself from competitors. Week differentiations yields market pricing strong differentiation results in administered pricing.
Because most price strategies can be easily copied in a short time, the reaction of competitors is predicable if the leading firm is successful. Accordingly a retailer may have to view price strategy from short run as well as long run.
Retailing in the future :
Many environment changes will occur in the future, and these will have a impact on retailing. A far sighted retailer must study demographic, life style, consumerism, technological and institutional trends adapt the retail mix to these trends. Demographic trends are growth in the number of house holds (due to increase in one person house hold) suburban communities the number of working woman, and the number of higher income families.
Life style changes will include different and expanding roles for woman and increased consumer sophistication and confidence. Some consumers will experience a poverty of time and will seek convenience in shopping. The other consumer will have greater amount of leisure time and will purchase more entertainment and recreation products.
Consumerism (organized reaction to harmful business practices) will continues to grow in importance, consumer group and govt. Agencies will expand their actions and participation many retails have already implementer volunteer plans to aid consumers. The major technological changes will be concentrated in electronic banking (cashless transaction and nation credit cards) computerization (computerized checkout and electronic point of sale systems) Retail institutions changes will occur because of the evolutionary nature of the retail life cycle and rising costs. Retailers must be aware of the retailer life cycle and react according to the stages in shish they are operating (innovative, accelerated development, maturity and decline) four institutional type (the super store, risk minimization, rationalized retailing and positioned retailing) will become more prominent in the future.
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