PRODUCT SELECTION

AND PRICING IN RETAIL

MARKETING
LEARNING OBJECTIVES
At the end of the chapter you will be able to:
 To understand the importance of merchandising
planning, its forms and processes.
 To understand that the merchandise budget for a
retail store is a blueprint of all merchandise
requirements.
 To understand that model stock is an ever-
changing, desired merchandise assortment
chosen carefully to best serve the needs of target
market.
Merchandise Planning
 Important:
 Fundamental to the direction of the business

 Targeting the right people, with the right merchandise

at the right time and in the right place

 Getting the right merchandise for the store’s image

What is Merchandising
 Merchandising is concerned with the planning,
sourcing, buying and arranging of these products
and services.
 It is the coordination of these and other functions
that make for a successful retail business
 Merchandising is necessary for most typ0es of
products and services
 Used to describe many aspects of the planning and
presenting of stock
Stages of Merchandising
1. Planning
 Planning retail ranges involves careful consideration of the customer,
competitors and the type of retail business, that is, discount/upscale, high
priced/low priced

2. Sourcing
 Sourcing is the locating and purchasing of merchandise to sell in the store.
An apparel retailer will source catwalk fashions from low-cost sources to
enable them to sell at high street prices

3. Buying
 Buying involves negotiation

4. Arranging and Displays

 Arranging and displays can have major affect on sales. Customers
reasonably expect displays of merchandise to be exciting and enticing

5. Space Management
 Planning for space allocation and may require the use of computer-based
planning models.
Estimating Demand
 Not an easy task, but forecasting is essential
if the right merchandise in the right amount is
to be purchase at the right time
Tool Use in Estimating
Demand
1. Target market
 Demographic information and/or profile are variables that
influence the needs and desires of the target market

2. Product Life Cycle

 May also affect the retailer’s buying decision concerning a
product or service
 A marketing model that illustrates the selling duration of a
product or service
 Can be use effectively if retailer understand the characteristics
of the target market
3. Fashion Cycle
 Also a model that illustrates how potential customers may
react to a product
 Fashion cycle has 3 stages:
1. Distinctiveness Stage
 Attracts a very few individuals who are drawn to something
different
2. Emulation Stage
 Occurs when the fashion good is found in high-prestige stores
 Such stores serve a group who wish to emulate the “jet set” in
order to be fashionable but do not wish to or cannot buy original
designs
3. Mass emulation Stage
 Occurs when the item has reached the mass merchandising
outlets and budget stores
 Items sold on the basis of price
4. Want Slips/Books
 Customer asks/looking for something that is not
carried by the store – a note should be made of
this request
 Several customers making such a request may
indicate a demand for the item
 Also use to estimate demand for the length of
time it would take to obtain the merchandise
5. Trade Publications
 Assist the retailer in determining what products are
available and what may sell
 Will point out what type of consumer advertising is in use
or is planned for a product

6. Suppliers’ Information
 Of assistance by revealing information about what is or is
not selling in other parts of the country
 Suppliers’ own estimates of demand is of interest to the
retailer
 Retailer is required to use good judgment when using this
information source for estimating demand
7. Comparison Shopping
 To find out what is selling in other stores and the
potential demand
 Best determined by making frequent comparison
shopping trips on a regular basis to different
stores
 Make note of changes in merchandise from trip to
trip can result in information that may be of great
interest to the store
 Trips to exclusive shops may indicate what may
be carried next by the store
8. Customer Opinion
 another source of information
 Use panels and questionnaires – learning from
the “horse’s mouth” of what is wanted by this
group
 Care should be used – most people do not really
know what they want or will want several months
from now when the merchandise ordered may be
on the retailer’s shelf
 Panel provides group interaction
9. Noncompeting Store
 Can be derived from swapping ideas with similar
stores in competing areas that serve similar
markets
 Retailer gets benefit of the advice and counsel of
another retailer who is faced with a somewhat
similar situation
10. Past Sales Performance
 Additional information is available on the performance of the
product in the past, customer’s reactions
11.Buying Office
 Generally serves many stores as they serve in their role of
advisor to the retailer
 In the position to get the feel of the market
 Generally know what is coming out from the manufacturers and
how much these products will be pushed by the manufacturers
12. Sale Forecast
 A subjective estimate
 Represents the sum total of the information
gained from want slips, trade publications,
suppliers, comparison shopping, customer
opinion, noncompeting stores, past sales
performance of products and buying offices
combined with the good judgment of the retailer
 THE
MERCHANDISING MIX
Merchandise Mix – Model
Stock
 Determining the actual physical units the store needs to
purchase is an important factor in merchandise planning

 Basic ingredient of this procedure is the model stock:

 Defined as an ever-changing, desired assortment of
merchandise carefully chosen by a store to best serve a target
market
 Essential element in the definition is assortment:
 Assortment is defined as the distribution of merchandise “in
sight” (inventory on hand and merchandise on order) according
to classification, subclassification, style, color, patter, size and
price, with the quantities in each of these factor fitting customer
demand.
 Assortment is concerned with the variety, width, depth,
consistency, balance, and flexibility of the merchandise.
1. Width
 Widthor breadth is concerned with
complementary items within a merchandise
line:
 A shoe store sells pantyhose
 A store selling Silverstone tires also sells
Silverstone batteries
2. Depth
 Depth stands for the number of sizes, colors, and other characteristics
that are carried in a single line:
 A store that sells Bonia shirts in seven sizes, five sleeve lengths, four collar
designs and six colors is found to have great depth in the Bonia shirt line
 Such a store would have 7 x 5 x 4 x 6 or 840 SKUs (Stock-Keeping Units) in
the Bonia line.
 Under most guidelines, the store would then carry three of each stock-
keeping unit or a total shirt inventory of 2,520 units.
 Stock-keeping Unit (SKU) stands for one, distinct, individual type of item
carried by a store:
 If store carries 12 shirts just alike in size, color, style and etc, then all 12
shirts represent only one SKU
 If, six are blue and six are white, two SKUs are present
 SKUs are important to retailer since much merchandise arrives at the
store are already coded as to size, color and etc using a Universal
Vendor Marking (UVM) system
 UVM allows the retailer to keep track of merchandise by means of a
common identifying system that can be read by optical scanner or
manually.
3. Consistency
 The degree to which products are related in the
customer’s mind:
 A particular assortment may appear to be just be unrelated
merchandise to one person, the next customer may view it
as a logical combination:
 E.g. a gift department in a large department store.
Merchandise of many types is drawn together for the
benefit of the customer. Since the customer views the
items as all having the same purpose – a gift, a gift
department is thought to have a good breadth of
merchandise from which to select.
 How customers perceive the assortment is the only
thing that counts – is considered as consistent.
4. Balance
 An important factor is stock balance:
 Amount of SKUs are needed in each line to attract a customer
 As store has limited space, it must work to achieve a
balance throughout the store for maximum customer
satisfaction within the space provided
 Need to develop a balance that will be in keeping with
the desired image of the store:
 E.g. if the store wishes to remain a men’s clothing store in the
minds of the consumers, it must watch its stock mix to guard
against adding too many nonclothing items or in some cases
too many clothes for women.
5. Flexibility
 Assortment for a store is every changing:
 E.g. during a special promotion, goods not normally
purchased will be added to the store.
 Assortment also changes due to fashion and
technological obsolescence:
 E.g. women’s shops that used to carry a large
selection of hats, purses, and shoes to match no
longer do so due to changes in fashion
 Assortment
varies with the seasons, weather,
and customers of the area.
 Some items such as staple goods, the change is very
slow:
 Amount, brands, sizes, and etc of bread needed by the store
this month will be somewhat similar to those of last month
 Some cases the model stock will almost be static in the
short run
 Demand for shopping goods is dynamic:
 What customer desires now may not be true next year or even
next month
 For clothing store, the retailer may know how many SKUs are
needed
 Merchandise
Resources
What is available and where to
find it are the basic assignments
facing a retailer when the
question of merchandise
resources is raised.
Available Resources
1. In-store Sales Calls
 Sales representative will call upon a retail store brining samples
of available merchandise
 In-store buying is done for reorders and late season purchases
 Advantage:
 No travel expenses of either time and money incurred by retailer
 Retailer has undivided attention of the seller
 All store records are close by in case something needs to be
double checked such as the sales of a particular item for last year
 All appropriate store personnel may be included in the discussion
if the store manager deems appropriate
 Disadvantage:
 Number of available samples may be limited
 Limit the ability of the retailer to know what other vendors will
offer in terms of merchandise, prices, etc
 Many of the “better” vendors will not make in-store calls on
smaller stores or stores in less favorable geographic locations
2. Merchandise Centers
 Take one or two forms:
 Wholesale market centers
 Concentration of many vendors in one area

 Manufacturing market centers

 Concentration of various manufacturers in one area

 Merchandise centers develops where a great number of

sales offices and/or display rooms are located to serve a
concentration of potential customers.
 Generally located in a particular part of major cities or even
in the same building in order to allow the retailer to shop
and compare the available merchandise of many suppliers.
3. Trade Shows
 Usually occur once during each buying season.

 Purpose is to bring both the seller and buyer into contact with as
many firms as possible.

 Usually held in large arenas such as PWTC (Putra World Trade

Centre, KL) or civic centers or large hotels if space requirements
are not too great.

 Vendors will set up booths where the buyer can get “hands-on”
experience with the merchandise.

 Face-to-face contact is made and merchandise orders can be

taken on the spot
 Disadvantage:
 Frequent buying mistakes are made at trade shows
especially retailer who has not done his or her homework
(preparation of the merchandise budget and determination
of the model stock)

 Tend buy what is seen first

 Leads to inappropriate assortment of merchandise and very

soon depleted open-to-buy

 Best not to buy anything during the first show visit.

4. Supplier Advertisements
and Catalogs
A very important resource for last-minute or fill-in
merchandise
 Serve additional function for small retailer who is
located in a geographical isolated area in
keeping them inform of what’s available
 Disadvantage:
 Knowledge of quality of merchandise is limited
 Accuracy in the description
 Timeframe in the arrival of merchandise might be
longer or delayed
5. Resident Buying Offices
 Is of great assistance to a store
 Its entire reason for existence is to assist in
the buying function
 Provide information about market trends,
develop and maintain supplier contacts, and
provide assistance to the store when the
retailer does come to the market.
 Actual role is advisory in nature.
Resident Buying Offices
 Serviceprovided by a resident buying office
are twofold:
 Source of information
 Will provide data on current and new sources of
supply
 Information on quality level of suppliers
 Does new supplier appear to be reliable?
 Will provide information about the market
 Daily and weekly newsletters tell of new items, price
deals, promotional items.
Resident Buying Offices
 Buyer assistance
 Can arrange private showings of merchandise just their
member stores that may even include merchandise
only shown to preferred customers
 Keep abreast of all new items made available for sale
 Enables them to have latest and most desirable items
available for viewing during the client’s visit
 Can make reorder purchases for retailers
 Also give aid in the area of merchandise adjustments,
misordered merchandise, and other similar problems
Resident Buying Offices
 Resident buying office fall into 5 basic categories
depending on type of ownership and method of
compensation.
 Can either be store owned or independent
 Independent are divided further into salaried or
broker:
 Has no direct support other than that to performance
 More aggressive on behalf of its clients – do a better job
than its store-owned competitors
 Store-owned offices are placed in 3 categories:
 Individual store
 Associated store
 Chain store
Resident Buying Offices
a. Independent Resident Buying Office – salaried
 Gets its name from its method of compensation
 Usually sign an annual contract providing for the store to
pay up to approximately 1 percent of annual sales to the
resident buying office in payment of services rendered
 For small store, a flat fee will be charge
 Does not benefit small store – outweigh the cost to the
small store
 Serves as a negative inducement for a small firm to use a
salaried resident buying office
Resident Buying Offices
b. Independent Resident Buying Office –
Merchandise Broker
 Paid by the vendor or seller and not by the retailer
 Makes money buy selling merchandise – anxious to sell
those items which vendors offer good commissions.
 Little or no commission being offered by a vendor
usually means that the particular line of merchandise
will never be mentioned by the merchandise broker:
 Good and profitable item may be missed completely by the
retailer
Resident Buying Offices
c. Store-Owned Resident Buying Office –
Individual
 Owned and operated for the benefit of an individual
store
 Had become unfavorable competitive position where
stores nowadays are spreading the costs of
operation
Resident Buying Offices
d. Store-Owned Resident Buying Office –
Associated
 A result of unfavorable position of individual
buying office
 A buying office that is owned and operated by an
association or group of stores
 Usually comprises of well-known group
organisations
 Able to have more favorable arrangements with
suppliers
Resident Buying Offices
e. Store-Owned Resident Buying Office –
Chain
 Assists the buyers from each individual unit in
selecting the best merchandise for each
particular store
 Decision to buy would rest with the local buyer
while the buying office would offer advice and
information
6. Central Buying Offices
 Has the responsibility for actually selecting
and buying the merchandise for the
individual stores
Central Buying Offices
Advantages:
1. Specialization of skills
 Have personnel to concentrate they efforts in
various smaller areas of merchandise
 Buyer become knowledgeable about their own
products as well those sold by the competition
 Concentration of effort permits buyer to develop
high level of expertise on the market for the
product as well as on the possible resources for
the item
Central Buying Offices
2. Better Selection of Merchandise
 As central buyer usually represents many stores
causes this specialized buyer to receive
preferred treatment from vendors
 End result – better choice of merchandise
3. Lower Costs
 Typical buying in large quantities
 Permit per unit cost to be lower due to quantity
discount
Central Buying Offices
Disadvantages:
1. Market Variations
 A central buying office will find difficulties in determining
what will be sold in other parts of the geographical
location
 Differences in culture, fashions, preferences and tastes
 Requires to serve the uniqueness of the individual
location
 Can only be effective if central office is being provided
with lots of information
 Buyers should visit stores as often as possible.
Central Buying Offices
2. Separation of Buying and Selling
 Accountability for merchandise performance of
central buying office is rather difficult to justify:
 When merchandise sells well, central office will get
the credit
 When merchandise does not sell well, the store will
be blamed for not providing them with accurate
information, while store will blame them for making
poor decisions
Central Buying Offices
3. Specification Buying
 Creates product exclusively by the particular group of
stores
 Central buying will determine the desired characteristics for
a product with assistance from the member stores and then
contract for its manufacture under store name
 Provide improved quality, better product features and lower
costs through volume purchases
 Customers might prefer manufacturer’s brand rather then
private label
 Will have great difficulties in selling products of large
volume
7. Full-Service Merchandising
 Assumes the role of co-responsibility with the
retailer
 Offers the retailer a source of merchandise
plus promotional assistance, accounting
systems, training programs and/or a host of
other possible services
 In return, the retailer makes a commitment to
purchase a significant amount of
merchandise from the vendor
Full-Service Merchandising
Various types of Full-Service Merchandising:
1. Voluntary Chains
 Retail store voluntarily aligns itself with a particular wholesaler
 Store will take on the name of the voluntary chain
 The burden of supply is on the wholesaler
 Retailer receives cheaper price since the benefit of quantity
purchasing is present
 Less amount of time spend on resource relations and more time
spend with customers:
 Provided the wholesaler is doing an excellent job
Full-Service Merchandising
2. Rack Jobbers
 Firms that provides all services for a particular type of
merchandise not normally within the area of expertise of the
retailer
 E.g. health and beauty aids, or kitchen items in a clothing or food
store, etc
 Jobbers may originate with a wholesaler
 Jobbers keep the merchandise up-to-date and well stocked in
the store.
 Rotate merchandise from store to store giving the appearance of
new merchandise
 Usually provide the store on consignment or sold with a
guaranteed-return provision – retailer assumes no risk
Full-Service Merchandising
3. Leased Departments
 Merchandise carried by store with no knowledge
would hire rack jobbers
 When item requires competent sales assistance,
a lease department is the answer
 Not a popular choice as such operations prevent
retail management from having absolute
management control
 Must ensure that lease department do not cause
customer dissatisfaction – require to terminate
arrangement if store were to keep its image
Full-Service Merchandising
4. Programmed Merchandisers
 Involves not only merchandise but also services
such as assistance in promotion and training
 Retail management deals directly with major
suppliers of resources
 Agreement involves a commitment to buy
particular items from a vendor for a predetermined
period of time in return for the services offered by
the vendor.
 Relationship between retailer and vendor is
successful, arrangement may be continued over
along period of time
Which Resources to Use
 Its at the disposal of the retailer
 May use all of the possibilities for various
merchandise and different situations found at
different stores or at different times of the
year
 Optimum resource mix is a management
decision
 true test – end product of the buying process,
the success or failure of the merchandise on
the retailers shelf.
Questions??
Thank you
FACTORS AFFECTING
PRICING POLICIES
Definition of Price
 Price is the monetary value assigned by the
seller to something purchased, sold or
offered for sale, and on transaction by the
buyer, as their willingness to pay for the
benefits the product and channel service
delivers.
 Retailer’s view:
 Treats pricing as a cash flow or income
generating function

 Customer’s view:
 Sees price as more than money
 Includes the complexity of emotional and
functional benefits derived from the product and
the brand
 Means that value for the customer is a complex
set of perceptions
Factors Influencing
Retail Price
 Target Market Merchandise Cost

Role of Price in
Competition Retail Mix

Merchandise Legal
l Considerations
Characteristics e

PRICE
1. Target Market – Price
Sensitivity
 Consumer view price as a communication of quality
and related product attributes from the pricemaker.
 Price elasticity of demand is a concept that
determines the effect of a given price change on
demand.
 If price is elastic, a change in price will influence
consumer demand.
 An inelastic situation would find a change in price
having little or no influence in demand.
 Amount
of the price shift can also influence
consumer reaction:
 A slight change in price may have little influence
of the target market
 A price that represents a significant change from
the market price will result in some change in
consumer demand if the item’s price adjustment
is though to be significant when measured against
the consumer’s purchasing power
Factors Influencing Price
Sensitivity
a. Perceived Substitutes effect
 Buyers are more sensitive the higher the product’s
price is in relation to another product or substitute they
could purchase
 Consumer will choose a substitute or forgo the
purchase if they believe the overall value is
unacceptable
 E.g. local residents may avoid an area with higher
priced shops frequented by tourists who are unaware of
the alternatives
b. Unique Value Effect
 Buyers are less sensitive to a product’s price the
more they value any of its attributes that
differentiate it from competing products
 E.g. many customers are loyal to Nestle
products because they perceive them to offer
superior benefits
c. Importance of Purchase Effect
 If the risk of the purchase increases then the
price will be the most important aspect of the
purchase
 Occurs when the item is an important present or
when there is the need to purchase medicine.
 The greater the importance of the product, the
less price sensitive (more inelastic) the purchase
will be
d. Difficult Comparison Effect
 Buyers are less sensitive to price when they find
it more difficult to compare alternatives.
 Lead to a demand for the more established
brands, or greater store loyalty, in order to
reduce the perception of risk.
e. Price Quality Effect
 A higher price may signal that the product is of
superior quality – less sensitive to price
 Only applicable to some products
 E.g. Whisky at a higher price may signal
improved quality but very few people would think
higher priced petrol offered any quality
advantage.
f. Expenditure Effect
 Buyers become more price sensitive when the
expenditure is larger, either in absolute money
amounts or as a percentage of their income
 Most prevalent in low income households in
which all expenditure is carefully controlled
 Effect is also stronger and more likely to occur in
times of recession
f. Fairness and Transparency Effect
 If buyers believes the price falls beyond reasonable and
fairness level then they become more price sensitive
 Some types of products it is relatively easy to judge the
offer of alternative brands and products and therefore
easy to switch demand to cheaper alternatives
 Some alternatives are difficult to find and consumer will
perceive retailers or the brand they stock as ‘ripping-off’
customers
 E.g. street vendors are often seen to be selling drinks or
ice creams at highly inflated prices when the temperature
is extremely high.
2. Competition
 Consumers tend to compare stores

 Price is a popular measure of comparison

 Storemay choose to price above the going

price or below
a. Pricing Above the Competition
 Must offer the customer something in return for the
higher price
 Something extra must be clear in the customer’s
mind even if such a store differential does not
actually exist:
 E.g. if a customer feels that service is better at the more
expensive store, that is what counts
a. Prestige Image
b. Location
c. Services
d. Merchandise Assortment
b. Pricing Below the Competition
 2 reasons:
 Market Penetration
 Dropping price or entering a market with lower price
 Draws attention and high degree of interest in the product and/or
store
 By default
 Results when others raise prices and the retailer in question
retains the status quo
 Little attention is generated for this retailer
 In some situation, its better to raise the price along with
competitors and then after a period of time retreat to the prices of
the good old days.
 The impact will generally be more positive than achieving the
same position by default
c. Pricing with the Competition
 Implies selling a the going price
 Should not imply followership
 The retailer is making the decision to remove the
price from the list of variables that gives the store
its uniqueness when compared with the
competition.
3. Cost of Merchandise
 Cost is important in determining price, but
does not alone determine price
 Retailer should be concern with what an item
is worth is what it sells for, not its cost
 Danger against too cost conscious – refuse to
sell below cost since he or she desires to
recover such costs on a per product basis.
 Also caution not to price a particular item too
high, since a going price may be three time the
cost
 Retailer should base the retail price partially
on how good a negotiator the retailer is with
suppliers
 No direct relationship between what the
customer perceives as retail value and the
cost of the item.
 Cost should be considered:
 Trade, quantity, cash and other discounts, as well
as workroom (alterations, carpet installation, etc)
and transportation charges are all involved
4. Role of Price in Retailing
Mix
 Retailing mix consist of five ‘P’s:
 Product
 Place
 Promotion
 Personality
 Price
 Price should be coordinated with the other variables
 Influence of place on price, such as having a store near a
campus provides conveniences
 Personality of the store is also influenced through price, since
customer equates higher prices with a higher-class or prestige
store
 Product and promotion work hand-in-hand with price in many
ways
5. Merchandise
Characteristics
 Merchandise itself can affect the method of
pricing an item
 Seasonal Merchandise must be price
according to season and reduced in price in
order to sell before the end of the season
unless storage of the merchandise is planned
 Fashion and fad merchandise and items
calls for premium price, when fashion is out,
pricing should change to relieve retailer of the
merchandise
 Physical Characteristics
 The perishable nature of some products like durians,
water melon can hold for a certain period of time:
 Initial pricing is keep to a reasonable level to avoid
customer running away and leaving unsaleable products
 A regular price reduction schedule is also planned to
maximize the sales of the products
 Uniqueness and Scarcity of Products
 Water-melon sold in New York City fetch a premium price
when it first came.
 Subsequent arrival of the next melon will not bring a
premium price
6. Legal Considerations
 Many laws and regulations affecting retailing
either directly or indirectly influence price
 Unit Pricing
 Regulations where in effect, require a price to be
quoted in particular ways that are felt to hinder the
merchandising of the product. For example:

 4 for RM1.00 must also show 25 cent for each can

 49 cent for a ½ bag must also show a price of 98 cent per
kg.
 Price reduction sales
 Of great concern to many governmental agencies
 Price reductions that are fictitious are now
scrutinized by the Ministry of Trade and
Consumer Associations
 Prepriced merchandise with sale tags already
attached when received at the store are also now
prohibited unless the original retail on the item is a
legitimate price for the item
Approaches to Pricing
the Retail Product
Various types of Pricing Available
for Different Situation or Store
Type
1. Price Lines
 Is a particular price level or price point that is set for
merchandise that would normally sell around that
price (price zone).

 Will eliminate the infinite number of prices in the

store or department and replace them with a series
of prices set at certain intervals:
 E.g. instead of having shoes that sell at RM22.95,
RM23.05, RM23.69, RM24.16, RM24.77, RM25.15 etc all
shoes in this price zone may sell at RM23.95. The next
higher price zone may be a price line of RM29.95
 Advantages:
a. The decision-making process for customers is
simplified
 Keeps customers from being confused and losing the
sales because they cannot make up their mind
b. Sales person work well with price lines
 More confident when working with price lines. More sure
of the price and use it in suggesting merchandise to
customers
c. Advertising and sales promotion is more
effective
 Impact of placing all shoes in a price line “on sale” is
greater than featuring one particular item
d. Greater depth and better assortment are possible
 By having 3 price lines as opposed to 300 different prices – greater
concentration on the optimum assortment of merchandise is
possible.
 Elimination of items no longer a problem due to price lining will
permit greater depth in the popular items
e. Trading-up of the customer is made easier
 Price lines of good – better – best may serve as an encouragement
for the customer to trade up if the price differential is not too great
 Retailer run an advertisement featuring the lowest price line. When
customer comes to the store, efforts are made to move the
customer up to the middle price line.
f. Merchandise buying is simplified
 By knowing the selling price of the merchandise will
be, the merchandise buyer can concentrate on those
sources of supply that sell products in the
appropriate cost range.
 Also the buyer can use the established price point as
an initial negotiating point with buyers
 Disadvantages:
a. Price reduction are made difficult
 Unless all lines of a merchandise group are
simultaneously reduced

b. Too few price lines may give the impression of

limited offerings
 A store with the image of offering a wide and varied
selection may confuse this image by going too
heavily into limited price lines.
2. Psychological Pricing
 Psychological pricing techniques take many
forms:
a. Multiple Pricing
 Most consumers are conditioned to think that a
multiple-product price means a cheaper price
although this may not always be the case.
 E.g. four cans of anything for a ringgit sounds better
than 25 cents each.
 Does not imply a bargain to many customers
b. Odd Pricing
 Price level that gives the impression of a cheaper price
 E.g. for 50 cents or 49 cents; RM2.00 or RM1.98; RM80 or
RM78?
 Based on studies made, consumers do not universally
distort odd price ending downward to lower perceived prices
 Odd pricing may not always give the impression of lower
prices to a given market.
 Most stores do not use odd pricing:
 E.g. a high-fashion image store would not wish to sell a dress for
RM229.95 when RM230.00 would be more desirable in terms of
image.
 For the store that chooses to use odd pricing, several rules
of thumb may be applied:

 Under 50cent: drop 1 cent (49cent, 39cent, etc)

 Greater than 50 cent but less than RM1: drop 2 cent

(98cent, 88 cent, etc)

 Greater than RM1 but less that RM50: drop 5 cent

(RM1.95, RM24.95, RM39.95, etc)

 Greater than RM50: drop RM2 (RM98, RM148, RM163,

etc)
3. Loss Leader Pricing
 Ispricing an item below the market price, or
even below cost, for purposes of generating
store traffic
 Use for well-known branded merchandise
that have a high level of demand among the
store’s target customers
 Food store that features bread, soft drinks, coffee
and sugar as loss leader items hopes to use such
items to draw people to the store so that they buy
other items
 Loss leader items should be placed strategically
throughout the store so that customers are
exposed to many other items while taking
advantage of the bargains.
 Disadvantage:
 Tendency for the leader items not generating sales of
additional items.
 To solve this problem, retailers offer leaders to customers
with minimum purchases which create another disadvantage
– customer irritation of having to meet the minimum
purchases.
4. Bait-and-Switch Pricing
 Identical to loss leader advertisements:
 Both emphasize great savings to customers
 The difference would be:
 Retailer had no intention to sell the featured items
 The purpose of Bait-and-Switch Pricing is to
get the customer to the store so that the
customer can be traded up to a more
expensive item.
 Consider as deceptive pricing
5. Flexible versus Rigid
Pricing
 Flexible Pricing
 Entails selling an item for different prices under different
circumstances
 ‘Negotiate’ with customers and offering of ‘good deals’ to
customers are some examples of flexible pricing
 Rigid Pricing
 Is what its name implies – fixed.
 A prestige store may have such a policy for image purposes.
 Follow the practice of rigid prices due to its simplicity:
 No haggling over the price
 Sales personnel are required to make pricing decisions
 Self-service is also possible along with its accompanying
possible reduction in needed sales personnel.
 Pricing and The
Relationship to Value
 Whatever pricing policy is adopted, a company has
to take into consideration the potential consumer’s
perceptual assessment
 In deciding to buy a product a consumer has to be
willing to give up something in order to enjoy the
satisfactions of the benefits the product will deliver.
 Majority of consumers are looking for value when
they buy a product and value is derived from the
functions of quality and price, as well as the added
value of the image or brand.
 This may be expressed as:

Quality + IMAGE
Value = Price

If a consumer believes the image and quality of a

product is good they will be
Willing to make greater sacrifice in order to purchase
that product.
Value can be grouped into 4
categories
1. Value as low price

2. Value as whatever is wanted from a product

3. Value as the quality one gets for the price paid

4. Value as what one gets for what one gives

 Markdowns
In the use of price to increase
demand markdown reduction of the
original price may be necessary
due to a number of reasons
1. Competitor activity affecting demand
2. Inadequate original pricing policy
3. Merchandise did not meet consumer needs
or preferences
4. Economic or seasonal problems
5. Overstocking of merchandise or poor stock
keeping
6. Quality of merchandise inferior due to
manufacture or damage
7. Problems of seasonality and poor timing of
offer
8. Merchandise became shop-soiled or
damaged on the shop floor
9. Need to release the display space for other
merchandise
10. The selling space or display of the
merchandise had been inadequate or in the
wrong location
11. A policy decision taken to develop improved
customer goodwill through markdowns
12. An error by the buyer with regard to style,
fashions, research of markets, etc
13. An initial markdown being too small to achieve
desired sales results
14. Sales staff not being briefed properly or
encouraged to sell old as well as new lines
Questions?

Thank you