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Fashion Marketingand
Merchandising
Knitwear Design
Semester-6
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Session Plan-11
Pricing strategies
Market Penetration
Skimming
EDLP Single Pricing
Books for ref:
Retail management-text and cases: Swapna Pradhan:Edition-2
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Pricing Price is the value placed on what is exchanged .
Integral part of the retail strategy. Costs and operating
expenses also need to be considered while establishing
the retail price
Arriving at the right price for a product or service is one
of the most difficult tasks for marketing.
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Factors like the target market, store
policies, competition and economic
conditions are considered whilearriving at a price.
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1. Demand for the product and Target
market
For whom is the product meant for ?
What is the value proposition for the consumer?
Price of the product is linked to the quality. Eg:
Electronics.high priced product is perceived tobe of good quality.
Products like designer clothing, a certain section
of the population may be willing to pay the price. Hence very imp. to know the tgt mkt and the
value proposition he is looking for.
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2. Store Policies and the image to be
created
Retailers who want to create a prestige image
may opt for a higher pricing policy
Retailer who want to penetrate the market willoffer value for money proposition.
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3. Competition for the product
Competition for the product and competitors
price for a similar product is considered.
Common product prices of all similar products tobe taken into consideration before finalizing the
final price.
If unique product without any competition may
demand a premium price.
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4. Economic Conditions
Imp. For pricing.
During economic slowdown, prices are generally
lowered to generate sales.
Demand and supply conditions also affects.
If the demand is more than supply, prices can bepremium, however, when supply is more than
demand, prices have to be economical
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Elements of retail Price
Imp. Element : Cost of goods, (cost ofmerchandise + various other expenses (involvedin the movement of the goods from themanufacturer to the actual store). These may befixed or variable.
Fixed Costs: rent, office equipments, insuranceetc..
Variable costs: vary with the amount of servicesprovided or goods produced. Salaries of labourdirectly involved, raw material, advertisement orpromotion expenses.
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Cost of product is the total of fixed and variable
expenses to the manufacturer for producing and
distributing the product or service.
Price is the selling price per unit, customers pay
for your product or service.
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Profit Fixing
Profit to be earned must be planned
before fixing the retail price. The profit
figure arrived at can also be expressed as
markup percentage as
Retail price = cost + Markup.or
Cost = Retail Price Markup and
Markup = Retail Price-Cost
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Example:
Cost of a product =Rs200/-
markup = Rs150/-
Retail price = 200 +150 = 350/-
Markup% on retail = 150/350=42.86%
Based on the cost price, markup %Markup % on cost = 150/200=75%
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Determining the price
Break-even Point (BE): is the point at
which the retailer neither makes profit nor
loses money.
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Breakeven analysis is the process used to
uncover the break even numbers.
To reach breakeven point, it is imp. To
determine the fixed and the variable costs perunit.
Breakeven Revenue=
Fixed Cost_________1-(variable cost per unit/selling price per unit
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Eg: Calculating breakeven Revenue
Determine an appropriate hourly rate ( revenue that canbe charged by a consultant or a service business
Total fixed cost=Rs40,000/-.
Variable costs= Rs25/-per hour
Selling Price=Rs50/-..using the breakeven formula
= 40,000
1-(25/50)
= 80,000/-
Thus the company needs 80,000 to cover costs. Less thanthis amount will be loss and more means the company is
making money.
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Calculating breakeven Units
To determine how many units must be produced and
sold to break-even
Fixed costs = Number of units needed to break evenUnit Contribution margin
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Eg: Calculating breakeven Revenue
The unit produced is one hour of consulting. No. of
hours required to cover costs= Rs 1600/-
40,000 = 1,600 units (hours per year)
50-25
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Mark-Up Pricing It is the difference between the cost of the product and the
final selling price. Can be in terms of rupee or percentage.
Can be calculated on cost or on the retail price
Selling price = cost + markup
Markup% (at retail) = (retail selling price-merchandise
cost) / retail selling price
Markup% (at cost) = (retail selling price- merchandise
cost) / merchandise cost
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1) Eg:
A buyer pays Rs 100/- for a toy to be sold in his
store. He intends to sell it at a price of Rs175/-.
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Markup calculated would be:
markup% at retail price: 175-100
175 = 42.86%
Markup% at cost : 175 -100
100 =75%
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2) Eg
A women blouse costs Rs220/- and retail
for Rs 460/-
SP-C = MU X100 = MU%
SP
460-220 = 240 = 24 0.52 X100 = 52%
460 460 46
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Eg:
If we need an assortment of shorts which
will be sold at Rs100/- and markup needed
is 55%, what should be the cost price?
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MU = (SP-C)/SP
55% = (100-C ) / 100
C = 100 X .45 = 45
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EG
The cost of an Item is rs15/- , the planned
MU is 55%, what will we use as retail
price?
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SP = Rs 23.25
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Cumulative Markup
It is calculated for a group of products.
Eg: for a particular month the cost of inventory is
rs100,000 and the selling price is Rs185,000. If and
Additional inventory worth Rs 20,000/- has been ordered
to retail at Rs 35,000/- then the total cost of inventory
and the value of the stock at the selling price will be
determined as follow:
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Cost of Inventory= Rs 100,000 +Rs20000 = 120,000
Retail value of Inventory= Rs 185,000 + 35,000=220000
Cumulative markup=
Markup % at retail = Retail value cost valueRetail value
= 220,000-120,000
220,000
= 100,000
220,000 =45.46%
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Initial markup
It is the difference between the cost price of themerchandise and the initial retail price. The
initial markup takes into consideration the
operating expenses, the planned profit, etc
Initial markup%= (operating expenses + net profit +
markdowns + employ and consumer discounts +
alteration costs-cash discounts) / (net sales +markdowns + employee and customer discounts)
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Maintained Markup
It is the difference between the gross
merchandise cost and actual selling price.
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Retail pricing policies
and strategies
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Retail pricing policies and strategies
Pricing strategy adopted by a retailer can
be cost-oriented, demand-oriented or
competition oriented
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Cost-oriented pricing
A basic markup is added to the cost of the
merchandise to arrive at point.
Retail Price = Cost + markup
If formula rearranged:
Cost = retail price markup
markup = Retail price -cost
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The difference between the selling price
and cost is markup. (It should cover all
operating expenses and transportation
etc..
Mark up % can be calculated on retail
price or cost.
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Markup% (at retail)= (retail selling price-merchandise
cost)/retail selling price
Markup% (at cost)= (retail selling price-merchandise
cost)/merchandise cost
When the buyer is aware of the markup% required and
the selling price, he can also work put the price at which
he actually needs to procure the product.
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Single markup does not work always for aproduct category, then variable markuppolicy is followed.
If variable markup policy followed, buyercan buy product at varying pricing but
maintain the margins to be earned. Some products may earn a higher marginwhile others a lower.
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Demand-oriented pricing
Focuses on the quantities that the customers
would buy at various prices.
Depends on the perceived value attached to the
product by the customer.
Many times High value product is perceived ashigh quality product and low value product is
perceived as low quality product
Understanding of the market and value
proposition that would look for is the key todemand oriented pricing.
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Competition-oriented pricing
When the price adopted by the
competitors play a key role in determining
the price of the product.
Retailer may price the product on par with
the competition, above the competitors
price or lower
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Price Lining: When retailers sell themerchandise only at given prices
Price zone :is a range of prices for a
particular merchandise line. Price point: is a specific price in that price
range.
Price range: refers to the width of the pricerange, ie..the no. of points that a retailerchooses to offer the range of products at.
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Pricing Strategies
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Market Skimming Is a form of price discrimination over time.
The strategy here is to charge initial high prices and then
reduce them gradually.
The success largely depends on in-elasticity of thedemand.
Main objective is to benefit from high-short term profits
(due to newness of the product).
Such strategy works well for prestige goods or luxury
items.
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Market Penetration Opposite of market penetration and aims to capture
large market share with low prices.
Low prices stimulate purchases
Discourage competitors from entering the market as theprofit margins are low.
Retailers who wish to enter a new market or build on a
relatively small market share.
Demand of the product s/b highly elasticie..demand is
price sensitive and new customers will be attracted to
the product because of low prices
Expansionistic pricing:
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Expansionistic pricing:
Another form of penetration pricing.
The product enjoys the high price elasticity of demand, so
that adoption of low price leads to significant increase in
sales volumes.
Good strategy for companies entering new or international
market .
A low cost version of a product may be offered at a very
low price to gain recognition and acceptence by
consumers. Once accepted more expensive versions may
be offered at higher price.
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Price Bundling
Variation of multiple pricing.various products arebundeled together and sold as one unit.
Products are put together as package deal and soldtogether at a single price.
Eg: Fast food resturants putting together and offeringproducts under the happy price menu or computerhardware manufacturer selling the hardware and theprinter and some softwares ata particular price as apackage.
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Leader pricing
One or few items are sold at a deep discount to increase
traffic and sales on complementary items.
Key to success: product must appeal to large no. of
people and should appear as a bargain.
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Multi-Unit Pricing
The retailer offers discounts to customers
who buy in quantity or product bundle.
This involves value pricing for one of the
same item.
Eg: one T-shirt may be priced for Rs/-255
while two T-shirts may be offered at rs/-
355.
Helps in moving slow moving products.`
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Every Day Low Pricing (EDLP)
Strategy adopted by retailers who continually price their
products lower than the other retailers in the area.
Eg: Walmart and Toys R Us follow this regularly.
Objective: to assure buyers that they need not wait for
sale or promotion to achieve attractive prices. They
assume that consumers are attracted by their focus on
low priced products.
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Odd Pricing
Retail prices end in odd numbers, such as
rs/-99, 199 or 299.
Used to denote low prices.
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Single Pricing
Same price for all products
Also known as one price policy
Common eg: dollar shops, charge one price for variety of
items.
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Multiple Pricing
The customer is given discount for makingquantity or bulk purchases.
Eg: can of soft drink sold at Rs15/- butpack of 3 may be sold at Rs40/-.
Eg. of psychological pricing where thecustomer believes that he is getting abargain for buying more units.
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Concept of MRP
Prior to 1990s packed products were marked
with two separate prices.
Retail price..(local taxes extra)
Maximum retail price Rs (inclusive of all taxes)
Following complaints, an act was introduced in year 1990
which instructed manufacturers to print MRP on the
packed product which is inclusive of al taxes.
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Adjustments to retail price
Retail price are adjusted by markdowns or by way of
promotions.
Markdowns are permanent reduction in the price,
May be done as a result of slow selling
Or as a part of systematic strategy
Usually done after a determined no. of weeks in order
to maintain a desired rate of sales
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Timely markdowns help improve profitability, increseturnover and increse profit.
Markdown gets necessary due to wrong forecasting,
overbuying, faulty selling practices or if the odds andends are left of a season
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Markdown % calucation:
Total markdown / total sales.
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Promotions are temporary reduction in the price used to
generate additional sales during peak selling periods.
Prices reduced by % (eg 25%off) or to a sale price
(Rs99) High volume items with a substantial initial
markup, are usually selected for promotional vehicals
Promotions may include coupons, which may reduce the
retail price by an amount or percent.
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Markups vs Mardown
A markup is where profit is expressed as
percentage of costs :
Price-cost / cost X 100
A selling price of 30, with a cost of 20 gives a
markup of 50%
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Markdown is percentage of the sale price
Price - cost / price X 100
Selling price of 60 with a cost of 24, gives
a markdown of 60%
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Thank you!