Escolar Documentos
Profissional Documentos
Cultura Documentos
3. Helping to
4. Leveraging
overcome
online and
financial
data to drive
Source: IGD Research, 2013 pressure
loyalty
points
8/31/2018 DOMS, RGIPT July-Sept 2018, MRB, SKAR 2
Merchandise Management
Retail Pricing
Private labels contribute 40 per cent of KB’s Fairprice’s sales turnover, but going
forward, this is expected to soar. Private labels brands such as Golden Harvest
(staples), Ektaa (community based products) and Sach (toothpaste, juice, ghee) gets
adequate shelf space at the ‘neighbourhood’ formats of KB’s Fairprice.
Demand Falls
Price Increases
9502
Quantity Sold
6429
5350
4051
2873
2121
Price
$2,700.0
Contribution to Profit (USD)
$2,127.5
$1,502.0 $1,643.5
$619.0
$6.00 $6.50 $7.00 $7.50 $8.00 $8.50
1 2 3 4 5 6
-$576.5
Price Points
(1100 − 1500)/1500
=
(100 − 90)/90
−0.26666
=
0.1111
=-2.4
Price Elasticity
Price Elasticity
• Substitutable products/services
• Products/services necessitates
• Products that are expensive relative
to a consumer’s income
Historically, the price elasticity of gasoline has been greater than -1,
so increases in price have not led to a proportional decrease in sales.
8/31/2018 DOMS, RGIPT July-Sept 2018, MRB, SKAR 20
Price Elasticity
For products with price elasticity less than -1, the price that maximizes
profits can be determined by the following formula:
−2.4 ∗ $100
=
−2.4 + 1
−240
= = $171.42
−1.4
8/31/2018 DOMS, RGIPT July-Sept 2018, MRB, SKAR 22
How Can Retailers Reduce Price
Competition?
• Develop lines of private label merchandise
PhotoDisc/Getty Images
In reality, Retailers need to set price for over 50,000 SKUs many
times during year
• Set prices based on pre-determined markup and merchandise
cost
• Make adjustments to markup price based on customer price
sensitivity and competition
Margin
Rs50/
Cost of
Markup as a Percent Merchandise
of Retail Price Rs75/
40% = Rs50/Rs125
Retail Price = cost + markup
Markup% = retail price – cost
retail price
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑀𝑒𝑟𝑐ℎ𝑎𝑛𝑑𝑖𝑠𝑒
Retail Price=
1−𝑀𝑎𝑟𝑘𝑢𝑝 % (𝑎𝑠 𝑎 𝑓𝑟𝑎𝑐𝑡𝑖𝑜𝑛)
Initial Retail
Reductions Price Rs100/
Rs10
Maintained
Markup Cost of
Rs30/ Merchandise
Rs60/
Maintained Markup as a Percent
of Actual Sales 33% =
Rs30/Rs90
𝑂𝑝𝑒𝑥+𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡+𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛𝑠+𝑆ℎ𝑟𝑖𝑛𝑘𝑎𝑔𝑒
+
𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒 𝑎𝑛𝑑 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝑠
+𝑎𝑙𝑡𝑒𝑟𝑐𝑎𝑡𝑖𝑜𝑛 𝑐𝑜𝑠𝑡𝑠−𝐶𝑎𝑠ℎ 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝑠
Initial Markup % = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠+𝑀𝑎𝑟𝑘𝑑𝑜𝑤𝑛𝑠+𝑆ℎ𝑟𝑖𝑛𝑘𝑎𝑔𝑒
+𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝑠
Product T-Shirt
Units Purchased 200
Unit Purchase Price ₹ 1,000.00
Retail Sales Price (RSP) ₹ 1,800.00
Initial Markup 80%
Period (month) 1
Units Sold on intended Price 160
Units Left to be sold 40
Revised RSP ₹ 1,200.00
Average Selling Price ₹ 1,680.00
Merchandise Cost ₹ 1,000.00
Maintained Markup 40.48%
Contribution/Unit
Breakeven
point
Fixed Costs
Unit Sales
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
Break-even quantity=
𝐴𝑐𝑡𝑢𝑎𝑙 𝑈𝑛𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 𝑃𝑟𝑖𝑐𝑒−𝑈𝑛𝑖𝑡 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡
The quantity at which total revenue equals total cost, and then profit
Occurs for additional sales
8/31/2018 DOMS, RGIPT July-Sept 2018, MRB, SKAR 36
Illustration of Breakeven Analysis:
Break-even volume of a new private-label product
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
Break-even quantity=
𝐴𝑐𝑡𝑢𝑎𝑙 𝑢𝑛𝑖𝑡 𝑠𝑎𝑙𝑒𝑠 𝑃𝑟𝑖𝑐𝑒−𝑈𝑛𝑖𝑡 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
𝑅𝑠.10,00,000/
= = 1,00,000 units
𝑅𝑠.18−𝑅𝑠.8
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
Break-even quantity=
𝐴𝑐𝑡𝑢𝑎𝑙 𝑢𝑛𝑖𝑡 𝑠𝑎𝑙𝑒𝑠 𝑃𝑟𝑖𝑐𝑒−𝑈𝑛𝑖𝑡 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
𝑅𝑠.10,00,000/
= = 1,00,000 units
𝑅𝑠.18−𝑅𝑠.8
Want to charge every customer the maximum they are willing to pay
Problems
– Don’t know willingness to pay
– With list prices, can’t prevent high willingness to pay customers
from buying at low price
• Promotional Markdowns
– To increase sales and promote
merchandise
– To Increase traffic flow and sale of
complementary products
generate excitement through a
sale
eBay: Auction on
porsche speeder 1960
8/31/2018 DOMS, RGIPT July-Sept 2018, MRB, SKAR 46
Variable Pricing and Price
Discrimination Continued
• Clearance Markdowns for Fashion Merchandise
• Coupons
• Price Bundling
– McDonald’s Value Meal
• Multiple-Unit Pricing or Quantity Discount
• Variable Pricing by Market Segments (Third Degree of Price
Discrimination) – Charge different groups different prices
– Seniors Discounts
– Kids Menu
• Zone Pricing (Third Degree of Price Discrimination) – Charge
different prices in different stores, markets, regions
• Advantages
– Increases profits through price discrimination
– Sales create excitement
– Sells merchandise
• Disadvantages
– Train people to buy on deal and wait
– Have an adverse effect on profits
EDLP Hi-Lo
• Assures customers low prices ■ Higher profits through price
• Reduces advertising and discrimination
operating expenses ■ More excitement
• Better supply chain management ■ Build short-term sales and
– Fewer stock outs generates traffic
– Higher inventory turns
Yield Management:
The practice of adjusting prices up or down in response to demand to
control the sales generated
Royalty-Free/CORBIS
8/31/2018 DOMS, RGIPT July-Sept 2018, MRB, SKAR 54
Pricing Techniques for Increasing Sales
• Leader Pricing
• Price Lining
• Odd Pricing
• When the price sensitivity of the market is NOT high, the risk to one’s
image of using 9 is likely to outweigh the benefits. Even dollar prices and
round numbers are appropriate.
Seeking lowest price? Use shopping bots (online price comparison) or search
engines
These programs search for and provide lists of sites selling what interests the
consumer
Retailers using the electronic channel can reduce customer emphasis on price
by providing services and better information.
(c) image100/PunchStock
8/31/2018 DOMS, RGIPT July-Sept 2018, MRB, SKAR 60
The Three Most Important Things in Electronic Retailing
Contrast likely to
Upper price Contrast
occur Lower end-price Assimilation
end-point likely to
point likely to occur occur
• Level of knowledge
• Frequency of
Latitude of reference purchase
depends on: • Brand loyalty
• Quality perception
• Segmenting shoppers
• Formulating pricing strategy
• Designing appropriate promotions
• Identifying appropriate value propositions