Retail Pricing - Different Types of Pricing Models
The sale of goods from fixed points (malls, department stores, supermarkets and so on) to the consumer in small quantities for his own consumption is called as retail. According to the concept of retailing, a retailer doesnt sell products in bulk; instead sells the merchandise in small units to the end-users.
Cost Plus Pricing Mechanism
Every organization runs to earn profits and so is the retail industry.
Cost plus pricing works on the following principle:
- Cost Price of the product + Profit (Decided by the retailer) = Final price of the merchandise.
According to cost plus pricing strategy the retailer adds some extra amount to the actual cost price of the product to earn his share of profits. The final price of the merchandise includes the profit as decided by the retailer.
Cost Plus Pricing
- Cost plus pricing strategy takes into account the profit of the retailer.
- Cost plus pricing is an easy way to calculate the price of the merchandise.
- The increase in the retailer price of the merchandise is directly proportional to the increase in the cost price.
- The customers however do not have a say in cost plus pricing.
Manufacturer Suggested Retail Price (Also called List Price or Recommended retail price)
According to manufacturer suggested retail pricing strategy the retailer sets the final price of the merchandise as suggested by the manufacturer.
- The retailer sells his merchandise at a price suggested by the manufacturer.
- The retailer sells the product at the same price as suggested by the manufacturer.
- The retailer sells the merchandise at a price less than what was suggested by the manufacturer - Such a condition arises when the retailer offers Sale on his merchandise.
- Retailers initially quote an unreasonably high price and then reduce the price on the customers request to make him realize that a favour has been done to him. A condition of Bargain - where the customer negotiates with the retailer to reduce the price of the merchandise.
The cut throat competition in the current retail scenario has prompted the retailers to guarantee excellent customer service to the buyers for them to prefer them over their competitors.
- The price of the merchandise is more or less similar to the competitors but the retailers add on certain attractive benefits for the customers. (Longer payment term, gifts etc.)
- The retailers ensure that the customers leave their store with a smile to have an edge over the competitors.
- He tries his level best to offer better services to the customers for a better business in future.
Pricing Below Competition
According to pricing below competition policy
- The price of the merchandise is kept lesser than what is being offered by the competitors.
Prestige Pricing (Pricing above competition)
According to prestige pricing mechanism, the price of the merchandise is set slightly above the competitors.
The retailer can charge higher price than the competitors only under the following circumstances:
Exclusive Brands at the store.
Brand image of the store
Prime location of the retail store
Excellent customer service
Merchandise not available at any other store
- Certain price of a product at which the consumer willingly purchases it is called psychological price.
- The consumer perceives such prices to be correct.
- A retailer sets a psychological price which he feels would meet the expectations of the buyers and they would easily buy the merchandise.
- According to multiple pricing, the retailer sells multiple products (more than one) for a single price.
- The retailers combine few products to be sold for a single fixed price.
- 3 Shirts for $100/- or 3 Perfumes for $20/- and so on.
According to discount pricing, the retailer sells his merchandise at a discounted price during off seasons or to clear out his stock.
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The article is Written By Prachi Juneja and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
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- Classification of Retail Formats, Key Features, Advantages and Disadvantages
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- Social and Economic Significance of Retailing
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- From Kirana to Kopitiam: A Case Study of the Changing Indian Retail Industry
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- Why Discounting is Ruining the Retail Industry?
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