Module -5 Retail Pricing 9 hours

Retail Pricing: Factors influencing retail pricing, Retail pricing strategies, Retail promotion
Strategies Relationship Marketing in Retailing: Management & Evaluation of Relationships in
Retailing, Retail Research in Retailing: Importance of Research in Retailing, Trends in Retail
Research, Areas of Retail Research. Customer Audits, Brand Management in retailing Retail
Audit and ethics in Retailing Undertaking an audit, responding to a retail Audit, problems in
conducting a retail audit Retail Analytics Case Study: Customer Analytics at Big Basket.

Setting the right price will result in increased revenue to the retail firm. The prime objective of
retail pricing is to achieve profitability which is influenced by two factors. They are Profit
margin of the offering and cost of merchandising.
Factors Influencing Pricing:
The porter‘s model can help to understand the influences of retail pricing.
1. Customer: Customer‘s price sensitivity is influenced by many factors. For ex: Café coffee
day offer the coffee at the same price of Rs.35 (minimum) in all its branches of urban and semi
urban areas, though it is a general assumption that semi urban customers won‘t go for highest
prices. But in order to maintain, its positioning strategy, coffee day maintained the same price
and attracting its target customers through its ambience. Segmentation of the customers can also
be useful for fixing the appropriate price. There is some customers look for the benefit of owning
the brand rather than the price. Situations also affect the pricing policy of the firm. A store
located in hill station may fix high price and the same may be accepted by customers.
2. Suppliers: In order to maintain image of the brand and to achieve the goal of the firm,
sometimes the manufactures direct the pricing policy of the retail firm. The conflict between the
retailer and manufacturer may arise when the manufactures decides to introduce a new model
and that hampers the movement of retailer‘s old stock. Reputed Retailers have more bargaining
power when they buy bulk items from the manufacturer. Also sometimes retailers seek, for price
guaranteed ie if the prices of sold items to retailer go down.
3. Competitor: It affects the freedom to fix price. The range varies from being perfect to
monopoly. Retailers generally avoid price based strategy because it may end up in price war. 4.
4. Government: There are legal issues relating to price discrimination. The retailer can charge
different price to different customer only when the distance is the justifying factor.
Vertical Price Fixing: The retailer to set price at manufacturer suggested price.
Horizontal agreement: - agreement between retailer competitors
Predatory pricing- This pricing is considered as illegal as it intends to drive away the
competition.
Retail pricing strategies:
1.EDLP- Every Day Low Pricing: It is popularized by Wal Mart, Home Depot. In India, this
strategy is followed by Big Bazar. But the bulk volume is necessary to negotiate with the
manufacturer for price concession so that it can be offered at reduced price to the customer. Low
prices are stable and not subject to one time sale. The strategy is that it continues to offer
products below MRP.
Advantages: Less reliance on price reduction to change, Reduced Advertisement, Informed
customer service, Better Inventory management.
2.High – Low Pricing: Prices that are sometimes above their Competitors EDLP. It uses
Advertisement to promote frequent sales. Also use ‗sale‘ to respond increased competition.
Advantages: some merchandise can be used to target different segments; Enthusiasm is created
among customers (impulse Purchase), Image of quality is created (high price- no compromise on
quality); EDLP is difficult to implement, so it has advantage over that.
3. Loss Leader Pricing: Fast moving products offered at low price as to attract buyers and to
persuade them to buy other products also
4. Skimming: sets relatively high price for a product or service at first and then lower price over
time. Effective only when the firm is facing inelastic demand.
5. Penetration Pricing: setting a relatively low initial entry price so as to increase market share.
The retailer has to be very careful with this strategy as it may establish long term price
expectation and that makes it difficult to eventually raise prices. The solution is to set the initial
price at the long term price but include an initial discount coupon
6. Price lining: refers to the offering of merchandise at a no. of specific but pre-determined
prices. Prices may be held constant over a period of time eg. 79.50, 109.50, 149.50 7.
7. Psychological pricing: intended to have special appeal to customers.
• Prestige pricing: high prices to convey distinct and exclusive image for the product. Charging
high price for a product where it is judged this in itself give it prestige. For e.g.: TAJ
• Reference Pricing: uses consumers frame of reference that is established through previous
experience of purchasing eg: sports items.
• Traditional Pricing: uses historical /long standing prices ( sports products)

• Odd-Even pricing: eg: $ 9.95 to denote lower price or a ―good deal‖ $ 10.00 –imply high
quality. • Multiple Unit pricing –encourage additional sales and increase profits. Gross margin
that is sacrificed in a multiple unit sales is more than offset by the savings that occur from
reduced selling and handling expenses.
• Bundle Pricing: Practice of offering two or more different products at one price. Used to
increase both unit and rupee sales by brining traffic in to the shop.
• Pre-emptive Pricing: setting low prices in order to discourage or deter potential new entrants
• Extinction pricing: Has overall objective of eliminating competition and involves setting very
low prices in the short term in order to undercut competition.
RETAIL PROMOTION:
Retail promotion is broadly defined as all communication that informs persuades and or reminds
the target market or other prospective segment about marketing mix of the retail firm. The
retailer seeks to communicate with customers to achieve a number of objectives.
a) Increasing store traffic by encouraging new shoppers to visit store
b) Increasing the share of wallet for all shoppers
c) Increasing the sale of a given product category
The promotional elements include:
Advertising, sales promotion, Publicity, personal selling, Direct marketing, Public relations.
Selection of Promotion Mix: Retailers usually employ a combination of the above. The degree
and nature of usage of each promotion method depends on the objectives of the retail firm. For
ex. McDonald‘s extensively relies on advertising in national and local newspaper. Haldiram, the
Delhi centric food chain, primarily relies on point of purchase (POP) material. Retail banking
Industry makes extensive use of all promotional methods including television, print media.
Various retail promotion methods can be compared on the basis of the degree of control,
flexibility, credibility and cost associated with them.
Retail Advertising: The American Marketing Association defines Advertising as any paid form
of, non personal presentation of ideas, goods, services by an identified sponsor‖ Advertising is
recognized as an indispensable tool of promotion. Based on the conceptualization, advertising
can be understood as follows:
1. paid form of communication
2. Non personal presentation of message (face to face direct contact with customer)
3. Issued by an identified sponsor.
OBJECTIVES OF ADVERTISING:
o To promote new product, to support personal selling programme
o To reach out to people not accessible to salesperson
o To enter new market, to manage competition
o To enhance goodwill of the retail firm and to improve dealer relation
o To warn the public against imitation of the retailers products.
SIGNIFICANCE OF ADVERTISING IN RETAIL SECTOR: Its imperativeness has
increased in this era of globalization and liberalization around the worlds. Raymond‘s the apparel
retail chain, primarily used television and print ad to promote experiential aspect associated with
shopping at its stores.

TYPES OF ADVERTISING:
a. Consumer oriented or persuasive Advertising: The major objective of consumer oriented
advertising is to inform consumers about the new products, holding consumer patronage against
intensified campaign by rivals, promoting a contest or a premium offer. It helps in maintaining a
regular demand and attracts a lot of attention and preferences of the customers. eg: Wills
Lifestyle, the ITC owned apparel retail chain
b. Informative Advertising: Purchase of durable products is often too expensive to buy, so the
buyer requires elaborate information about them. Hence the retailer and manufacturer spend a
huge amount of informative advertising.
c. Institutional or corporate Advertising: Its main motive is to build corporate image. An attempt
is made to highlight the achievements and objectives of retail organization. E.g. HDFC bank has
tied up with Business Today the leading business magazine to sponsor 10000 copies of the
Magazine in each metro. The cover of the sponsored copies of December 2003 rated HDFC bank
as the best bank in the country.
d. Financial Advertising: advertisement by various financial institutions like standard chartered
Bank, ICICI etc. Recently HDFC bank has evolved a mix of sales promotion and advertising to
attract new customers.
e. Classified Ad: which are placed under specific headings and columns in various magazines.
SALES PROMOTION:
Sales promotion refers to communication strategies designed to act as a direct inducement, an
added value or incentive for the product to customers. Sales promotion provides extensive
tactical measures to marketers to manage internal or external impediments to sales or profits.
Internal impediment (unsold stock); External impediment (competition)
Objective of Sales Promotion:
o Assist the other communication activities undertaken by the store.
o to encourage new tiers by offering free trial
o to encourage repeat purchase
Supplier originated sales promotions: Sales promotion can originate from two sources – suppliers
or retail store itself.
In-store Activities: Price –off Pack: The product is sold at reduced price form its normal selling
price. This is in the form of a discount.
Premiums: These are in the form of small gifts that a customer gets on purchasing a product. It‘s
attached to the pack or inside the pack.
Self-liquidating Premiums: Customer has to write to the supplier for the gift, enclosing empty
packets, bottle crowns etc. of the product plus some money. Basically the customer provides
some proof of the purchase. For eg: Rin gift hunt, Rs. 5 lack worth of educational gift to children
(requires customer has to fill the form and submit to the nearby store)
Personality promotions: Many companies use show –business personalities to endorse their
products. The suppliers tend to associate the charisma associated with these personalities. For ex:
T.N Shesan the former election commissioner was used by Safal Vegetables since he did not
appear for any other product and he had an honest and upright image.
Co-operative promotions: two or more products share and fund in joint store promotion. Shaving
foam and after shave lotion. Sampling: Free sample, and sometimes the demonstrator may also
be present to explain the product. The product may be entirely new and customers may have
little knowledge about the product
Multipack: two or more packs are attached and sold for a better and attractive price than the price
of the items singly. Maggie noodles packet free with the purchase of four or one gets three soaps
at the price of two.
Buy one Get one free: The customer can get two units of the product at the price of one.
Point of purchase (POP) Display Material:
Leaflets, special fittings: Products are kept in the special racks row stands provided by the
suppliers. For ex: racks provided by the toothbrush suppliers, dry battery stands, glass case for
watches.
Demonstrators: sometimes demonstrators used in this context. For ex: a children‘s product may
use a person dressed as their logo (e.g.: teddy bear)
PUBLICITY: Publicity entails any communication that fosters a favourable image for the
retailer among its public. It can be personal or non personal, paid or non-paid and sponsor
controlled or non sponsor controlled. Publicity is a non personal form of promotion where
messages are transmitted through mass media, the time or space provided by the media is not
paid for, and there is no identified commercial sponsor.
TYPES OF PUBLICITY:
PLANNED PUBLICITY: A retailer outlines its activities in advance, strives to have media
report on them, and anticipated that certain events will result in media coverage. Community
services like donations, and social sales, and introduction of new goods or services of the
activities which lead to media coverage.
UNEXPECTED PUBLICITY: It takes place when the media reports on a firm without any
advance notice about the media coverage. TV and newspaper reporter may anonymously visit
stores and rate their performance for their coverage.
COMPLEMENTARY PUBLICITY: Sometimes media reports about a firm in a
complimentary manner with regard to the excellence of its retailing practices. eg: HDFC
Retail promotion needs to be organised with due understanding of the retail business and its
positioning.
Demonstrators: sometimes demonstrators used in this context. For ex: a children‘s product may
use a person dressed as their logo ( e.g.: teddy bear)
DIRECT MARKETING:
Direct marketing is a channel-agnostic form of advertising which allows businesses and non-
profit organizations to communicate straight to the customer, with advertising techniques that
can include cell phone text messaging, email, interactive consumer websites, online display ads,
database marketing, fliers, catalog distribution, promotional letters, targeted television
commercials, response-generating newspaper/magazine advertisements, and outdoor advertising.
Amongst its practitioners, it is also referred to as direct response.
Direct marketing is one of the forms of communications which seeks to cause action; forms
databases about clients; influences separate layers of consumers; gives the chance to learn and
analyze their action of the consumers to various offers.
Direct marketing is directly reaching market (customers and potential customers) on a personal
(phone calls, private mailings) basis, or mass-media basis (infomercials, magazine ads, etc.).
PROBLEMS AND PROSPECTS PROBLEMS
• Cannot see and examine
• Operating costs

• Low response rates

• Intense competition

• Image problems

• Lack of comfort with interactive technology

• Privacy and ethical issues

PROSPECTS
• Segmentation and targeting

• Geographical range
• Shopping convenience

• Technological advances

• Lower prices to customer is possible

• Lower operating costs are possible

Tools of Direct marketing:

Personal relations with clients
• Public statements
• Use of recommendations
• Personal SALE
• Catalog marketing
• Mobile marketing
• TV marketing
• Web marketing
• Door to door contacts
PERSONAL SELLING: Personal selling is a promotional method in which one party (e.g.,
salesperson) uses skills and techniques for building personal relationships with another party
(e.g., those involved in a purchase decision) that results in both parties obtaining value.
In most cases the "value" for the salesperson is realized through the financial rewards of the sale
while the customer‘s "value" is realized from the benefits obtained by consuming the product.
However, getting a customer to purchase a product is not always the objective of
personal selling. For instance, selling may be used for the purpose of simply delivering
information.
Because selling involves personal contact, this promotional method often occurs through face-to-
face meetings or via a telephone conversation, though newer technologies allow contact to take
place over the Internet including using video conferencing or text messaging (e.g., online chat).
PUBLIC RELATIONS: Public relations (PR) are the practice of managing the spread of
information between an individual or an organization (such as a business, government agency, or
a non-profit organization) and the public.
Public relations may include an organization or individual gaining exposure to their audiences
using topics of public interest and news items that do not require direct payment.
This differentiates it from advertising as a form of marketing communications. The aim of public
relations is to inform the public, prospective customers, investors, partners, employees, and other
stakeholders and ultimately persuade them to maintain a certain view about the organization, its
leadership, products, or of political decisions. Public relations professionals typically work for
PR and marketing firms, businesses and companies, government and public officials as PIOs,
and nongovernmental organizations and non-profit organisations.
Relationship marketing
Relationship marketing refers to all marketing activities directed towards establishing,
developing and maintaining successful relational exchanges.
Relationship marketing draws upon number of areas (customer quality, customer service, social
interaction)
Relationship marketing implemented through various components (rewards, customer services
and involvement of customers in planning and execution of retail strategy)
Customer service is the vital part of Relationship Marketing
THE EVOLUTION OF RELATIONSHIP MARKETING:
Customer Relationship Management (CRM) originated in two unrelated places.
USA- Database Marketing was used when the marketers directed their efforts to increase selling
effectiveness. Information Technology and Statistical analogy was also used for this purpose.
Scandinavia and Northern Europe – The Relationship marketing was emphasized in B2B
marketing.
In the later half of 1990, there was a shift from Database marketing to Relationship Marketing.
Marketers and Retailers started using IT to communicate with customers and that helped them to
base their product offering.
Relationship Marketing emerged out of 2 major considerations
1. Macro level ( At the macro level there was an increased necessity to maintain relationship
with employees, customers, suppliers and government)
2. Micro level (At the micro level there was a shift from Transaction focus to Relationship
marketing
Transaction Marketing: - focuses on single sale, product features, little emphasis on customer
service and moderate customer contact
Relationship Marketing:- focuses on customer orientation, high emphasis on customer service,
High commitment. Related to this is Pareto‘s Law which states that 80 % of the company
revenue comes from the 20% of the loyal customers. The fact is that acquiring a new customer
cost 5 times of retaining an existing customer. Relationship Marketing attempts to optimize the
resources for the retailing by retaining customers.
Relationship Strategies in Relationship Marketing:
1. Personalisation: It describes the social content of the interaction between service employees
and their customers. It can be regarded as a means of showing recognition and respect ex:
Feeling of familiarity, personal recognition, friendship and social support by retailer. Sometimes
retailers recognize customers calling by their name.
2. Special Treatment Benefit: Relationship marketing does not tell to maintain relationship
with all customers. Customer focus and selectivity is the key aspect of Relationship marketing. It
emphasizes relationship with the loyal customers. Differentiation required between loyal and the
non-loyal one. Up gradation and service augmentation are the ways to provide special Treatment
benefit to the loyal customers.
3. Communication Benefits: Efforts must be taken to ―Stay in touch‖ with customers- is the
key determinants of Relationship Marketing. Companies use Direct mail, e-mail and telephone
and SMS service to keep in touch with the customers.
4. Rewards: Pricing incentives, money savings, free gift are the ways to reward loyal customers.
Rewarding efforts must be more functional and economical.
Relationship marketing in organized vs. unorganized retail sector:
Organized Retailers can be classified as in store retailer and Non store retailer.
Organized Retailer provide standardized service, large retail format with high quality ambience,
well trained sales staff, wide range of merchandising.
Unorganized Retailers: (Kirana stores and Central Business district of a city)
The USP (Unique selling Preposition) of this unorganized retailer is locational convenience and
customized service.
They establish comfortable relationship, and the customers inform about their changing needs on
a regular basis. Sometimes the retailers are considered to be the part of their family
Relationship efforts of unorganized retailer are not only confined to Grocery but also garment,
jewellery and durables. Customers depend on retailers than on brands. This is the result of
relationship.
Loyalty Programme:
The use of loyalty programme is evident from the fact that the corporate expenditure on loyalty
programme is booming.
The following are the bases for loyalty programme.
1. Loyal customers are cheaper to serve: Retailers may not be required to invest , maintain and
communicate with customer(loyal) as they are already predisposed to search for information (
new arrivals and services)
2. Loyal customers are willing to pay more for a given bundle of offering: Customers normally
stick into one business entity because of high switching cost and psychological stress. They
therefore will to pay higher prices.
3. They act as Effective marketer for the service offering: The word of mouth market ing is very
effective, and many stores justify their investment in loyalty programme by seeking profits not
so much from the loyal customer but from the new customer the loyal one brings.
RETAIL RESEARCH Retail Research: Marketing research specifies the information required
to address the marketing issues (marketing opportunities, evaluate marketing actions, monitor
marketing performance) design the method of collecting information, manages and implements
the data collection process, analyses and communicated findings and their implications.
Importance of research in retailing:

• Retail research can help retailers to take important decisions such as market positioning,
which retail format will be most suitable for the particular target market, how best to
display merchandise and so on.
• At the retail level, research is used for concept testing, business feasibility analysis,
identifying the correct product mix, understanding the target market profile,
understanding and analyzing consumer behaviour.
Methods of retail research:
Qualitative Research Methods:
It is used to find out what is in consumer‘s mind. The retailer will be able to get oriented to the
range and complexity of consumer activity and concerns. Such data may help retailer to know
more about things (feelings, thoughts, and intentions, past behaviour) which cannot be directly
observed or measured.
Focus group study is used to identify the most likely product positioning, and to know the cues
on the various features which go into the shopping such as ambience, shopping needs and
requirements, style preferences.
3 Major types:
1. Exploratory Research: defines the problem in detail, suggest hypotheses, used for generating
ideas for new product.
2. Orientation Method: getting to know the consumer‘s best view and vocabulary.
3. Clinical: Gaining insights of issues which otherwise might be impossible to pursue structured
research methods.
Qualitative research can take the form of Focus Group Discussion, Projective techniques (Word
association test, third person role playing, and sentence completion test)
Quantitative Research through survey:
Survey can help to understand the consumer‘s behaviour: Current shopping patter, to know the
size of the market, the retail formats currently being used, size of the core target.
The survey in many forms is one of the most widely used and well knows method of acquiring
marketing information by communicating with the group of customers through questionnaire or
interview. It is efficient and economical.
Observation Method of Research: -used to provide information on current behavior. The
research design can be: Casual or systematic.
It will be easy to observe the following information:
• what is the in store traffic pattern

• what is the customers reaction to the displays, visual merchandising

• what is the pattern of customers movement

• why is the reaction to private labels

• which are frequently asked questions by the customers

Forms of observation:
1) Direct observation: the retailer may use an observer disguised as a shopper to observe how
long customer spend time in the display area.
2) Contrived observation: Buying teams disguised as customers will try to find out what happens
during normal interaction between the customer and the retailers.
3) Content Analysis: used to analyse the content or messages of advertisement
4) Humanistic Enquiry: It involves immersing the researcher in the system under study .
The researcher maintains two dairy.
1) Theory construction which records in details the thoughts, premises, and hypothesis.
2) A detailed date and time sequenced notes which are kept on the technique used for enquiry
with special attention to biases or distortions
5) Behaviour recording devices: help to overcome deficiencies of human observers. People
meter, Eye movement recorders, voice pitch analyses.
Brand management in retailing: Of the top 10 strongest brand in the world five are retail brand.
Brand management possess several challenges to the retailer.
The key issues are:
1. Brand management of the retail outlet, and
2. Deciding whether or not to opt for the strategy of self own branding.
The 10 strongest brands in the world: Coco-cola, McDonalds, Sony, Nike, Microsoft, Wal Mart,
Ford, Levis, Gap and Amazon
A retailers brand is valuable since it enhances reach and endurance with the consumer and
ensures more focused strategic plan.
The elements of store brand are 1. Format 2. Location 3. Visual Merchandising 4. Experience 5.
Price 6. Product assortment 7. Service Own Branding:
Own branding occurs when a retailer sells products under the retail organizations house brand
name. Own branding can be of two types, integrated own branding (occurs when the retailer also
manufactures the branded retail products.
eg.Raymonds, Bose, Sony retail outlets) and Independent Brand (occurs when the retailer
procures the products from other suppliers though, they are sold under the label of the retail
house e.g. grocery, garments, shoes).
Significance of Own Branding: Private labels have showed an increase in tern of both value and
volume across countries. Private label share of the product categories such as food, drink,
personal care ranged between 5% and 20% in value terms in most countries. A well run private
label brand enhances store profitability by increasing pressure on branded manufactures.