Retail Pricing and Evaluating Merchandise Performance

Growth in retail at one point in time was possible through the opening of new stores and simply getting the product to the stores. However, with the scale of competition, the focus is now on making store space and product mix work as hard as possible to maximize returns from every square foot and every promotion. Budgets are constantly tightened and decisions at each level need constant analysis and evaluation. The retailer today has little choice but to ensure that every product in the store is on sale at a price that grows profits, preserves market share and builds customer loyalty.

Arriving at the right price for a product or service is one of the most difficult tasks of marketing Various factors need to be considered and it calls for balancing act on the part of the person responsible for fixing the price. Price is the value placed on what is exchanged. It is the point at which the exchange between the buyer and seller takes place, where supply and demand are equal. Pricing is an integral part of the retail strategy and again cannot work in isolation. Costs and operating expenses also need to be considered while establishing the retail price.

We start with the concept of retail price and the factors affecting it. The elements of retail price are then examined. Developing a pricing strategy and the adjustments that can be made to retail price are studied. The subsequent paragraphs examine the methods that can be employed for measuring merchandise performance.

The concept of Price:

Price is an integral element of the retail marketing mix. It is the factor, which is the source of revenue for the retailer. The price of the merchandiser also communicates the image of the retail store to the customers. Various factors like the target market, store policies, competition and economic conditions need to be taken into consideration arriving at the price of a product.

The primary factor that is to be considered while arriving at the pricing strategy is the business model that the retailer has chosen to follow. The decisions on the pricing of the products will have to follow which the retailer has chosen to be the market place, or example followed by an up market department store.

The next factor to be taken into consideration is the demand for the product and the target market. Who is this product meant for and what is the value proposition for the consumer? In some cases, the price of the product is linked to the quality. This is generally in case of products like electronics where a high priced product is perceived to be of good quality. On the other hand, for products like designer clothing a certain section of the population may be willing to pay a premium price. Hence it is very essential that the buyer is clear about the target market for the product and the value proposition that they would look for.

The store who wants to create prestige image also influence the pricing of a product. Retailers who want to create a prestige image may opt for a higher pricing policy while a retailer who wants to penetrate the market may decide to offer a value for money proposition.

Competition for the product and the competitor’s price for a similar product in the market also need to be taken into consideration. In case the product is unique and does not have any competition it can command a premium price, on the other hand, in case there is a fair amount of similar products in the market, the prices of such products need to be taken into consideration before fixing the price.

The economic conditions prevalent at the time play a major role in the pricing policy. For example, during an economic slowdown, prices are generally lowered to generate more sales. The demand and supply situation in the market also affect prices. If demand is more than supply prices there can be premium; however, when supply is more than demand, prices have to be economical.

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