Are Prices, Managed?
When a retailer has established his price strategy, proceeds to make the price management. The process to operate the pricing in a day-to-day basis in each store and for every item.
Price management takes into account the price life cycle, that usually is like this: when there is a new product it gets a promotional price to achieve market share and drive sales, later on it gets a regular price that is the one that will keep according to the item’s performance. Finally, and aligned with the store’s strategy it gets a markdown price.
Is the one that the item will have for most of its shelf life. For example, those are the prices the products have on a regular basis.
Is usually applied when is the product introduction, has a presentation change or is having poor sales. As an example of a promotion are the ones we see on the temporary price reduction, 20% off, buy three pay only two or additional product for free.
The one used at the end of the product’s life in the shelf, when the product is not going to be resupplied due to lack of sales, has been delisted by the manufacturer or the promotion has ended. An example of a markdown price is the prices you see after a promotional event like the Halloween or Valentine’s Day. The day after it finishes or even some days prior you can spot products with discounts that keep increasing day by day due to the demand for it is over and the store has to move all the inventory left to use the available space with new products.
The difference between promotional price and markdown price is that the promotional is only temporary, and once the promotion is over, the product gets back to its regular price. And in the markdown, the price never goes back to a regular one.
Stegic vs Tactic Pricing
In the price management there are two phases to assign it, according with the company’s goals: Strategic and tactic pricing.
Strategic pricing is performed generally once or twice a year. This is due to the changes that could be in the product’s costs, inflationary adjustments, taxes or a change in the price strategy. Is not used to do it more frequently because of the cost to label the prices and for the impact in the price perception of the customers.
In the tactic pricing or price maintenance, the store reacts against the competitor’s prices in a proactive way by adjusting its prices. The adjustment comes from two sources, a change in the cost from the manufacturer, that has to be transferred to the consumer through the price, or a change in the price of the products of the competitor, if the competitor lowers the price of a product and the store is interested in remain competitive in that product, then has to adjust its prices accordingly. The adjustment could be to equal the competitor’s price or some percent lower.
To be competitive in the market the price perception is used, this is achieved through the price strategy and how prices are assigned. The company’s image could be the cheapest, always with promotions, has the better products, has exclusive products or makes me feel comfortable when I’m at the store.
To keep the price perception in the store, every retailer has a team that shops the key products in the competitor’s stores every week or two to verify with its own prices and, make changes accordingly with the company’s strategy.
The image items, generally belong to the groceries or are constantly consumed and from those, consumers have a clear perception of its price. Is usually on these products that customers make their price comparisons and make their choice as to where to shop. As an example we have the retail carts that sit in the front of the store with the image items in it and its prices from the store and the same one with its respective prices from the competitor.
Once the prices of the key items from the competitors are in place, based on the pricing strategy and the pricing image against the competitors, the decision about the price changes is taken.
Finally, to guaranty that the pricing strategy of the company is applied, there are the pricing rules. These are used to have pricing consistency, keep the price image and enforce the company’s strategy in store.
Examples of pricing rules are:
- Margin rules, the price of the product has to get a margin of at least 10%
- Line products, all the flavors of juice of the same size have to have the same price;
- Size-value relationship, bigger sizes bring more value for the money, if I buy a two liter juice bottle, has to be cheaper than if a buy two of a liter
Price management is the process to assign prices according with the company’s strategy and the perception that is looking to have against the competitor’s prices.
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