In this article, we wind up our six-part series on pricing in retailing. We hope our Q&A has been helpful. How would you answer these questions?
How are prices displayed in your store?
There are various options for displaying prices, depending on the pricing philosophy (such as a prestige image versus discounting):
Exterior store windows can show prices for selected sale items and/or highlight a store's orientation ("Service that is a cut above the rest," "The best brands at the best prices," etc.). A small firm can compete by featuring selected sale items; but these prices must be promoted to shoppers so that they are aware of the good values at local stores.
Interior store displays can emphasize or de-emphasize prices. To emphasize prices, a retailer can use large in-store signs that show prices of given items, promote a particular color price tag to indicate particularly good bargains, leave items in cartons, and have plain displays (such as dump bins) and fixtures. To de-emphasize prices, a retailer can use only small price tags that are attached directly to merchandise or have salespeople responsible for communicating prices (as done in upscale apparel stores and jewelry stores); there would be no overt references to prices in the store and the atmosphere would be stylish.
What payment method(s) do you accept?
Until recently, large stores and nonfood chains were the most apt to accept credit cards. They saw the value of them and got good terms from issuers. Many chains developed their own cards to stimulate more customer loyalty. The one holdout was the supermarket, where the low margins made the costs of credit cards undesirable.
Today, things have changed; and all types of retailers (big and small, general merchandise and food stores, etc.) now carry credit cards. Why? Issuers have lowered fees, credit cards are widely advertised and easier for retailers to process, and more consumers than ever before actively use credit cards and consider if given cards are accepted prior to entering stores (hence, the success of the Visa campaign against American Express).
In choosing whether to accept credit cards, a retailer should consider:
- Are prices of individual items high?
- Is the total customer bill (the sum of the individual items bought on one shopping trip) high?
- Am I interested in increasing the impulse purchases shoppers make?
- Do competitors accept credit cards?
If the answer to any of these questions is yes, credit cards should be accepted.
Do you understand both of these terms? Elastic demand? Inelastic demand?
With elastic demand, shoppers perceive retailers in the same category (such as gas stations, supermarkets, or pharmacies) to be rather similar. These retailers must always be sure that their prices are competitive or they will lose business. With inelastic demand, shoppers perceive retailers in the same category to be dissimilar, due to their locations, product assortments, customer service, etc. These retailers can set premium prices since their unique characteristics encourage many customers to be store loyal.
What do you think about everyday low pricing?
This approach has enabled Wal-Mart to maintain a discounter image, attract a steady stream of price-conscious shoppers, reduce advertising expenditures, and run less frequent sales. However, for the typical retailer, the better phrase is really "everyday fair pricing." This means that each retailer must strive to set its REGULAR PRICES in a way that appeals to the chosen customer market and that fairly reflects the merchandise, customer service, ambiance, etc. offered by that retailer. From the customer's vantage point, prices must be perceived as fair - every day.
We hope that as you think more about the way you set prices (and that you do so at least once or twice a year), you will peruse our series on this topic and see the "big picture" of pricing.
Joel R. Evans, Ph.D., is the RMI Distinguished Professor of Business and Barry Berman, Ph.D., is the Miller Distinguished Professor of Business - both in the Zarb School of Business at Hofstra University. Drs. Evans and Berman are co-authors of 10E: Marketing, Marketing in the 21st Century and Retail Management: A Strategic Approach, 10E. They are also partners in Berman Evans Associates, a consulting firm. They may be reached at email@example.com or firstname.lastname@example.org.