ASSIGNMENT OF BRL-006
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(A) Short Type Questions:- What is n1eant by merchandising strategy? Explain its different ,components
- "Category Management meets ,customer needs better than standard brand m.,magement". Elaborate.
- Explain the importance of the sales forecasting in tl1e retail business. Describe different factors that are taken into account while making it.
- Explain the proc,ess of setting sales objectives.
- What is meant by Break Even Analysis? Explain the "Mark-up" method ,of pncmg.
- Djstinguish between:
(a) Stock turn and stock to sale.s ratio - Why is assortment planning necessary for a successful business? Discuss the main guidelines for tbis purpose.
(b) Premium pricing and economy pricing
- Describe the important fa.ctors that should be consider,ed while making the selection of a vendor.
- Describe briefly different retail price strategies.
(A) Short Type Questions
1. What is meant by merchandising strategy? Explain its different components
Products to be sourced: Retailers may buy product from a variety of sources, which depend on the nature of the business and the product, as well as the capacity for the inventory. There are different types of sources, e.g. drop shipping, local sourcing, low volume: wholesalers, mid volume: importers and distributors and high volume: manufacturers and liquidation sales.
Vendor's terms and conditions: Vendor's terms and conditions is an important step in the product merchandising strategy. These depend on the nature of product. The buyer and the Vendor negotiate and set the terms and conditions. Some examples are: Dispatch /Transit time, Posting and Packaging, Payment Options, Exchanges, Defects, Returns, Lost items, etc.
Pricing strategy: One of the four major elements of the marketing mix is price. Pricing is an important strategic issue because it is related to product positioning. Furthermore, pricing affects other marketing mix elements such as product features, channel decisions, and promotion.
Packaging and presentation: The packaging and presentation of the product plays an important role in merchandising. No matter how well is it made, a product will not attract a buyer unless it is presented in an attractive manner. It cannot be expected that a car of a new model in a showroom will be presented in a dirty state or having scratches on the body. Similarly, the packaging of a produce displayed on the shelves of a supermarket is equally important; it should be attractive in appearance, easy to handle, showing the brand name prominently, and providing all the information, such as nutrition value, ingredients, weight, price, manufacturing date, expiry date, discount, if any, etc. clearly.
2. "Category Management meets customer needs better than standard brand management". Elaborate.
ANS: Category Management (CM) is the process of manufacturers and Retailers working together to maximize profits and enhance customer value in any given product category.
1. Opportunities for Cost saving
Expertise application of categorization leads to considerable opportunities for cost-saving. The chances of outsourcing and control relationships with the stakeholder show the cheaper costs of procurmg.
2. Better vendor risk management
It helps to gain an in-depth understanding of each consumer for better catering and services. 3. Streamlined business strategy
Specific optimized goals and strategies help any company to achieve strategic purposes - identification of the capital unit and the suppliers in advance help the company to strategize better.
4. Centralizing spend data
Centralized data helps in easier logging, tracking, and reporting.
Category managements reduce the supply chain risk and also drives an innovative outlook on the supply chain categories. I hope this article has helped every interested reader in achieving the essential knowledge about category management. Follow the mentioned process for a successful venture in business and organizations. In category management, individual businesses can doubt that the quality would be affected because of cost control, they can resist against any change in a more general way, or they are stressed over the effects the progressions may have on their present providers. It may be causing trouble.
To shift the flow from doubters to adopters, the association must utilize strategies that address worries from businesses and partners. The category supervisor can lighten worries through open correspondence, making a characterized incentive and interfacing with (and tuning in) to partners over the association.
Embracing a method to manage category with sourcing will have improved agreement results as the procedure is overseen from beginning to end. Analytical tools and talent to utilize those tools will need to be acquired.
By globalizing spend categories; the category manager furnishes a chance to team up with providers to be progressively coordinated, imaginative, and receptive to the organization's objectives.
By incorporating the right Category Management will empower your business in reducing the risks associated with the supply chain, plus it will ensure the adept channelization of collaborative processes of organizing category, so different units of business work in synchronization to offer the value to the customer and provide profits.
Category Management is one of the most critical factors for ensuring that customers get their preferred products and services as per their preferences.
All in all, category management offers a categorization of products and services based upon how they can be purchased, used and consumed.
3. Explain the importance of the sales forecasting in the retail business. Describe different factors that are taken into account while making it.
ANS: Why Sales Forecasting is of Great Importance to Each Business
1. Help Sales Representatives to Meet their Targets
To boost sales and revenue, the enterprises must help and motivate sales representatives to accomplish their objectives or targets. The businesses can make it easier for the sales professional to plan and carry out sales activities by defining his quota or target early and ambiguously. Sales forecasting help businesses to estimate demand for a product and create a business plan for individual sales representatives. There are even a number of sales forecasting methods that help businesses to harness the information provided by sales representatives.
2. Improve and Speed up Product Delivery
While comparing products or brands, customers check the amount of time required by the business to deliver the product. No business can speed up product delivery without manufacturing sufficient products. Sales forecasting helps businesses to manufacture sufficient products by estimating customer demand in advance. Hence, businesses must make sales forecasting to improve customer experience and reduce complaints. Also, they can drive sales by processing just-in-time orders efficiently.
3. Stabilize Inventory Management
In addition to manufacturing sufficient products, businesses also need to monitor and manage inventory proactively. Often enterprises fail to manage inventory efficiently due to lack of information regarding future demand for a product. Inadequate inventory management further makes many businesses to have overstock and stock-out situations. Sales forecasting helps businesses to avoid overstock and stock-out situations by predicting demand for a product accurately and managing inventory proactively.
4. Streamline Supply Chain Management
Both online and local retailers must control all aspects of supply chain to process just-in-time orders and accelerate product delivery. The businesses cannot control supply chain fully without predicting demand for a product and managing the production of the specific product in advance. The sales forecasting methods help decision makers to estimate demand for a product accurately over a specific period of time. Hence, it becomes easier for businesses to manage and control all aspects of the supply chain.
5. Simply Financial Planning
No entrepreneur can run and expand his business in the long run without funding working capital needs and maintaining a positive cash flow position. Often businesses find it difficult to balance cost and revenue due to a lack of accurate financial data. Sales forecasting helps businesses to estimate cost and revenue accurately and early. The businesses can further leverage the financial data to boost marketing activities and drive sales during a specific period.
6. Leverage Real-Time Data
The businesses nowadays collect real-time customer data from various sources. The sales forecasting models help businesses to predict future demand for a product based on real-time customer data. Some models enable decision makers to estimate future sales based on information collected from sales representatives. At the same time, the businesses can use specific techniques to forecast demand by initiating market tests and conducting surveys. There are even a number of sales forecasting solutions that help businesses to integrate the real-time customer data and sales forecasting models seamlessly.
7. Eliminate Chances of Panic Sales
The choices and preferences of customers keep changing continuously. Sometimes the changes in customer preferences reduce the demand for specific products. In such scenarios, enterprises get rid of additional merchandise through panic sales. The panic sales always bring down the prices of products and make businesses incur huge losses. Sales forecasting helps businesses to prevent panic sales by manufachlfing products according to future customer demand. Also, businesses can boost sales by planning promotional activities and scheduling mega sales according to the current demand for the products.
Factors to Keep in Mind for Accurate Sales forecasting
Since sales forecasting plays such a critical role in a company's growth, here are a couple of pointers that can help improve the accuracy of your forecasts.
Look at Historic Data and Reports
Past sales performance is a good leading indicator of future sales performance. Historical conversion rates tell you how many prospects, teams, or individuals were able to convert over a given period of time. Understanding your conversion rates at each stage of your sales funnel will give you a better understanding of what kind of future sales your team can achieve and the pipeline coverage you will need to hit those targets.
Define the Sales Process
You need to start with a clearly defined sales process accounting for each opportunity stage in the sales funnel. These stages need to be defined by the buying process and clearly documented so everyone knows when and how to count the leads when they enter or drop-off the funnel. Document the steps in the sales process that can be used when converting a lead to a customer, clearly defining how to qualify a lead, an opportunity, a prospect, and a close. If these standards are not communicated, each member will come up with their own interpretation of each stage in the sales process. This will lead to inconsistent data and impact your ability to predict the likelihood of an opportunity closing.
Invest in a CRM
A sales forecasting CRM helps sales teams predict future revenue growth more accurately as you can adjust your pipeline estimates based on lead confidence. It also helps you streamline the sales process as it offers a lot of insights into the team's productivity, success rate, and bottlenecks in the sales process. CRM solutions such as Salesforce, Freshsales, or Hubspot will help your sales reps track opportunities and help you identify top lead sources. This helps you optimize your resources by allocating more funds toward your more profitable sales activities. To improve the efficiency of your sales reps, ensure that your CRM is integrated with your finance system. The two systems in sync will ensure sales reps have access to more contextualized information about their customers leading to smoother workflows and better client relationships. We have integrated with Salesforce to let your sales team manage their entire cycle from quotes to orders to billing and renewals without leaving the comfort of your CRM.
Pick a Sales Forecasting Method
After establishing your sales process and having a CRM in place, you need to choose a sales forecasting method. The forecasting model you choose needs to factor in the maturity of your business, the size of your sales team and pipeline, the quality of your sales data, and how meticulously you track it. You can learn more about the various sales forecasting methods here
Consider Both External and Internal Factors
When drawing up your annual forecast, you need to factor in several external factors such as changing economic conditions, market competition, and the seasonality of the business. So sales forecasting is never a one-time activity that you are done and dusted with at the beginning of the year. Unpredictable events such as global pandemics, economic crises can turn your forecast on its head, so in a volatile environment, it's better to re-forecast at the end of every quarter and monitor the progress on a day- to- day basis. Apart from external factors, internal factors such as beefing up your sales teams, change in pricing, promotional strategy, new product launches also need to be worked into your forecasts.
4. Explain the process of setting sales obiectives.
ANS: Sales Objectives" are the outcomes a sales force strives for, the goals toward which selling effort is directed. And since they are the outcomes of Sales Activities, we cannot manage Sales Objectives with the same degree of control as the Activities themselves. We can only achieve the Objectives we desire indirectly by managing our sales force's Activities.
The planning of this figure is the most significant, and should be calculated first, because it is the basis for establishing the stock markdown and purchase figures. It is one figure that requires greatest skills and judgment. It requires following :
a) Reviewing and analyzing past sales performance for the same time period
b) Considering factors that may cause change in sales. These factors are : • Current Sales trends • Previous rate of growth patterns • Economic conditions • Local business conditions • Fashion factors • Influencing conditions within and from outside the store or departments ( e.g. change in store concept, market directions, competitions, etc.)
c) Establishing, for a season, a percentage of estimated sales change. This would be done after past sales perfonnance and the current conditions have been reviewed and analyzed. Thus, the total Rupee sales volume for the entire period can be calculated as below -
Seasonal Planned Sales = Last year (LY) sales + (LY sales * planned increase%,)
= L.Y.Sales + Rupee increase
Sales planning takes place at the distribution chain, segment, and season levels. The planner can drill down to the category, sub-category, rollout, month and week levels. When planning sales, Retailers should identify the stage of the lifecycle of the specific category, and should also determine whether the merchandise category offered is a fad, a fashion, a staple or a seasonal item, so as to plan merchandising accordingly.
5. What is meant by Break Even Analysis? Explain the "Mark-up" method of pricing.
ANS: Break-even analysis entails calculating and examining the margin of safety for an entity based on the revenues collected and associated costs. In other words, the analysis shows how many sales it takes to pay for the cost of doing business. Analyzing different price levels relating to various levels of demand, the break-even analysis determines what level of sales are necessary to cover the company's total fixed costs. A demand-side analysis would give a seller significant insight into selling capabilities. Break-even analysis is useful in determining the level of production or a targeted desired sales mix. The study is for a company's management's use only, as the metric and calculations are not used by external parties, such as investors, regulators, or financial institutions. This type of analysis involves a calculation of the break-even point (BEP). The break-even point is calculated by dividing the total fixed costs of production by the price per individual unit less the variable costs of production.
MARKUP METHOD OF PRCING
Markup is defined as the difference between the retail price of the commodity and its cost. It is mostly used to apply to the amount added to the cost to determine the retail prices of individual items. If there is a rise in the price of a particular item for sale, we add the amount to a cost price in calculating the selling price.
Profit: If the sale price of the product is more than the cost of the product, then the seller here get profit on the product. Suppose, the sale price of a shirt is 2000 and its actual cost is 1700, then;
Profit = sale price - cost
Profit = 2000 -1700 = INR 300.
Markup Percentage
To calculate the percentage of markup we have to use the following formula;
Sale Price = Cost * (1 + Markup)
or
Markup = (sale price/cost) - 1
Markup = (Sale Price-Cost)/Cost
The benefit of using the mark-up pricing is that it is very simple to calculate and understand. Also the same type of pricing used by all the firms in the industry, the price tends to be similar and hence, the price competition reduces in the market.
But however, it also suffers from limitations, while computing the mark-up price the actual demand for the product is ignored. Also, the perceived value of the customer and the amount of competition prevailing in the market is overlooked.
6. Distinguish between:
(a) Stock turn and stock to sales ratio
ANS: Stock Turn is a measure of how many times your inventory is replaced in the course of a year. For example, if you have an average inventory of 300 ties in a year and you sell 300 ties every 4 months, your inventory "turns over" or is totally replaced, 3 times per year. Therefore, your tum is 3. In three turns a total 900 ties are sold in a year on an average. Stock Tum is often increased by reducing selling price. Retailers like Wal Mart offer products at low prices thereby selling to more number of customers. However, this obviously reduces profit. A balance needs to be reached between the proper stock tum, and the proper profit margin on the products sold in the store. Increased stock tum is a number game in Retail and therefore competitive pricing policy can help achieve better stock turns and also result in better bottom line for the store.
Stock Turn = Annual Sales / Average Inventory
Stock to Sales Ratio
This is the ratio of the inventory available for sale versus the quantity actually sold. For every unit sold, how many units were on hand? Stock to Sales Ratio is the exact inverse of Sell Through Percentage.
Stock turnover also indicates the briskness of the business. The purpose of increasing inventory turns is to reduce inventory for three reasons.
• Increasing inventory turns reduces holding cost. The organization spends less money on rent, utilities, insurance, theft and other costs of maintaining a stock of good to be sold.
• Reducing holding cost increases net income and profitability as long as the revenue from selling the item remains constant.
• Items that turn over more quickly increase responsiveness to changes in customer requirements while allowing the replacement of obsolete items. This is a major concern in fashion industries. However high turns may indicate that, the inventory is too low. This often can result in stock shortages.
(b) Premium pricing and economy pricing
ANS: Premium Pricing: In order to "Differentiate" itself and convey products / services that are unique or luxurious, this method of pricing is used. These products cater to classes. Primarily, pricing strategy takes into account the current marketplace price of goods or services. Pricing strategy is also about considering your costs and pricing your product appropriately, so that you are able to make money off of your sales.
Economy Pricing: It is a "No Frill Pricing Model". Simply put, cost of manufacturing and marketing is kept at minimum. The objective here is to develop mass markets for these products. For example, Hypermarkets and Super market would use this model to drive volumes in respective categories.
Economy pricing is useful for companies who are keeping their overhead low. For example, generic grocery store brands of products usually have a lower price than the name-brand items, due to the lack of advertising or out-of-store promotion. Because these companies save on those aspects of the product, they are able to keep their pricing low. Companies who use economy pricing count on the fact that their lower price compared to the product next to them on the shelf will increase the number of sales. Economy pricing does particularly well during times of . . econonuc recession.
7. Why is assortment planning necessary for a successful business? Discuss the main guidelines for this purpose.
Ans: One of the main ways a retailer can increase the financial performance is by increasing the level of customer satisfaction through the variety of products on offer. An important factor to consider during the assortment planning process is that assortment variety increases inventory costs. Therefore it is important for assortments to be optimised. Range i.e. assortment planning is the process that ensures that the customer needs are met by buying the right width of the right product in the right depth and delivering it to the stores at the right time. In simple terms, assortment planning is where you decide what to buy, how many options to buy and how much to buy of each option, and when to put it on sale. 'What' is determined by the customer profile, 'how much' by the planned turnover, 'how many' by the capacity available and when by commercial considerations and the product life cycle. Look at Figure 7.2 which shows the three drivers. Retailer operates in a competitive environment and must aim to differentiate themselves from their competitors. While some of this differentiation will come from other sources, such as the store environment or the marketing, a great deal of the onus will rest on the product. While planning the assortment you must consider about the right product, right place and the right time.
Although the customer is the most important element in determining what the assortment will contain, there are other influences and constraining factors that need to be taken into account. The physical limitations due to the size of the outlets, the developments in the market as a whole and the expected level of profitability must all be considered. It is important to understand the interdependencies between these four elements. For example, the customer may wish to have the widest possible Assortment but there may not be the sufficient space to stock it, the trend in the market may be for lower priced product but this may not deliver the required level of profitability, or, may be space is available but no suitable product is available. It is not possible to build a successful Assortment without understanding these relationships.
(B) Essay Type Questions
8. Describe the important factors that should be considered while making the selection of a vendor. Ans: Some of the factors relevant for the selection of a vendor are: 1. Quality 2. Price 3. Quick Delivery 4. Service 5. Assurance of supply 6. Size of the supplier 7. Number of suppliers 8. Local suppliers and 9. Miscellaneous Considerations.
1. Quality:
The term quality stands for ability and willingness of the supplier to meet the specifications of the buyer.
At no cost, the quality should be sacrificed for low price.
2. Price:
Normally quality does not always go side by side with price but we must try to find out those suppliers who make better than average product at an average price. However, sub-standard and poor quality purchases should not be made at the cost of a low price.
3. Quick Delivery:
The lead time i.e., time to get supplies, should be less so that there is a quick delivery of goods. Generally, the best suppliers are the busiest and in order to get goods from them, one has to wait for a long time. However, quick delivery reduces the amount of forward planning and increases the flexibility.
4. Service:
It is very important factor in selecting the vendor. It includes the provision of expert advice to the buyer before and after the sale of materials and other items. Good service helps in maintaining good relations between the supplier and the buyer. The speed and effectiveness of arrangements to service and repair equipment is very important to certain machines.
5. Assurance of supply:
Only those suppliers should be preferred who assure supplies of raw materials and other components. Thus, suppliers who suffer recurring shortages should be used with great care as it can adversely affect our production schedule.
6. Size of the supplier:
Some authorities recommended that orders of small size should be placed with a small company whereas the orders of large size should go to large companies. However, this correlation can't be always applied. A small supplier would generally work very hard to perform a large order, if given a chance.
7. Number of suppliers:
Should we place all order with one supplier or use two or more suppliers? The use of a single supplier has the following advantages:
(a) In times of shortage, the supplier will give preference to the needs of the customer.
(b) A single supplier can also offer the best price with assured supplies.
On the other hand two or more suppliers may be beneficial in times of shortage. Large companies generally buy from two or more suppliers getting the twin benefit of low price and service.
8. Local suppliers:
Sometimes, a buyer may be compelled to buy certain requirements locally on account of the following reasons.
a) Community relations between the company and public may force the buyer to buy locally. For example, the supplier to a hospital or charitable trust by the local businessman would help in raising the funds for such organisations.
b) Local buying is generally justified when small quantities of materials are purchased.
c) There is a feeling of closer co-operation between the vendor and the buyer.
d) The delivery is quickly made.
e) Urgent orders can be met promptly.
f) Disputes, if any, can be easily resolved.
9. Miscellaneous Considerations:
The following points should also be taken into account at the time of selection of suppliers:
(a) In order to maintain complete objectivity, the buyer must keep himself free from unethical influences. Favour to friends should be avoided. Similarly commercial bribery such as gifts etc has no place in selecting vendors.
(b) Dishonest vendors must be rejected for ever.
9. Describe briefly different retail price strategies.
Ans: Retail pricing is a core aspect of any business that sells products to customers. After all, consumers may care about a number of factors when making purchasing decisions, but the price they will pay for an item is almost always among their top concerns.
1. Manufacturer Suggested Retail Price (MSRP)
This pricing strategy is perhaps the most familiar for consumers. The idea behind the Manufacturer Suggested Retail Price (MSRP) is to standardize the prices of products sold across multiple locations, and it is often used for mass-produced items like consumer electronics or household appliances.
This approach can also be referred to as cost-based pricing, since it takes into account the cost of manufacturing the product, a profit margin for both the manufacturer and the retailer, as well as the prices of similar products. Generally, the manufacturer provides the products to the retailer at roughly half the MSRP, enabling the retailer to tum a profit from the sale.
Pros: This approach takes the guesswork out of price-setting for retailers, saving them time and energy.
Cons: Offering certain products at the MSRP can lower your competitive edge on those particular products-after all, if you offer the same item at the same price as other retailers, how do you set yourself apart?
2. Keystone pricing
Keystone pricing is essentially doubling the wholesale or production cost of a product to determine the retail price.
This practice actually stems from the MSRP, which, as we mentioned, is generally double the wholesale price.
Pros: Similar to the MSRP, this approach saves retailers time and energy, as it doesn't require too many calculations to determine the retail price of a product.
Cons: Although keystone pricing may work for some items, it won't work for all of them. For items that are truly worth more, you may be setting the price too low, which means you won't achieve the profit margins you feasibly could on that item. For other items, keystone pricing may be too high, which will end up hurting your sales-especially if there is a nearby competitor selling the item for cheaper.
3. Bundle pricing
Also known as multiple pricing, bundle pricing is when you sell a group of products for a single price-think three-pack socks or five-pack underwear.
Retailers often prefer bundle pricing because it streamlines their marketing campaigns, as they have to promote a single price instead of several price points. Customers also love bundle deals, since they believe they're getting more bang for their buck.
Pros: Bundle pricing often leads to larger-volume purchases of certain products or product groups, so if you have unsold inventory you're trying to move, this could be a smart tactic to employ.
Cons: Once you offer items in a bundle package at a low cost, it can be harder to sell them separately at their original price. This is due to what is called cognitive dissonance, whereby the consumers believe they're getting less value for the amount they pay because they're comparing it to the bundle deal that was previously available ( even if the bundle deal was more expensive than the individually priced item).
4. Discount pricing
As the name suggests, discount pricing is the practice of selling products at a discount, whether it's through sales codes or coupons sent directly to the customer or through in-store discounts or even store-wide markdowns. Although retailers don't love the idea of discounting items as it generally eats into their profit margins, offering the occasional sale can do wonders for getting more people into your store and attracting new groups of customers who are out looking for a deal.
Pros: Discount pricing can be a great way for retailers to get rid of slow-moving or out-ofseason items.
Cons: If you offer discounts too frequently, it can lower your brand's perceived value m customers' eyes, making them unwilling to pay full price for your goods and services.
5. Penetration pricing
Often preferred by newer brands who are set to enter the market, penetration pricing is the practice of initially keeping product prices low so as to introduce the brand and its products to as many people as possible.
The idea is that by generating word of mouth among consumers, retailers can save on advertising and customer acquisition costs down the road.
Pros: Offering lower prices than the established competition can help retailers strike the right chord with shoppers, helping them to build a loyal customer base from day one.
Cons: If you make the switch from your initial low prices to regular pricing too abruptly, it has the potential to backfire and alienate the customers you had acquired by that point.
6. Loss-leading pricing
This is the approach of luring customers in by offering a discount on a product they want, then encouraging them to buy more products along with the original one once they're in your store.
By using the loss-leading pricing, retailers hope to offset their profit loss on the discounted item by selling additional products the consumer hadn't initially thought of buying.
Pros: This approach often increases the average transaction value (ATV), or the amount a shopper spends in a single shopping trip.
Cons: When it comes to implementing loss-leading pricing, it's cmcial to strike the right balance in customer service. Just as you don't want your customers to feel forced by staff to purchase items they don't need, you also don't want to risk losing money by only selling the discounted items and not much else.
7. Psychological pricing
Although the concept may sound like something out of a research paper, we all encounter psychological pricing on a daily basis.
Also known as "charm pricing," this approach relies on the theory that customers place greater trust in prices that end with odd numbers like 5, 7, or 9, the last one being the most popular. So, instead of offering an item for a rounded $200, the retailer may choose to price it at $199, and customers will perceive this to be a better deal based on the number alone.
Pros: Psychological pricing is especially useful for brands that want to increase their overall sales volume by driving customers to make impulse purchases of cheap to mid-range items.
Cons: Not all brands should implement psychological pricing. In fact, if you're a premium or luxury brand, implementing psychological pricing can have the opposite of the intended effect in that it makes you seem "cheap" or "gimmicky" in the customers' eyes.
8. Competitive pricing
As the name suggests, competitive pricing is the practice of using your competitors' prices as a benchmark and setting your prices lower. Again, retailers who take this approach hope to offset their reduced profit margins by increasing the total volume of sales.
Pros: For large retailers who are able to negotiate deals to lower their unit costs, the competitive pricing approach can really make a difference in getting ahead of the competition.
Cons: For smaller retailers, the only way this practice can be sustainable is to ensure that you sell high volumes of the product. Also, depending on the product, it can make customers think of your brand as the discount alternative to other brands.
9. Premium pricing
The opposite of competitive pricing, premium pricing is when you choose to offer your items at a higher price than the competition.
Pros: When combined with the right marketing tactics, this approach can help your brand be perceived as a "premium" or luxury brand. Cons: Depending on your target customer group, premium pricing may not be the way to go. There are many factors at play here other than a product's price and perceived value, such as your customers' buying power, the quality of your competitors' offering, or even your geographical location.
10. Anchor pricing
Anchor pricing is the approach of placing both the discounted and the original prices of an item side-by-side to give the customer an idea of how much they're saving.
This method creates what's known as an anchoring cognitive bias, where the customer considers the listed original price as the reference point in evaluating whether to buy the discounted item.
Pros: Listing the anchor price along with the discounted price makes the customer feel like they're getting a deal, which can serve as an incentive to buy the item.
Cons: Don't be tempted to increase your anchor price to an unreasonable level. Keep in mind that consumers are much savvier today than they used to be, and thanks to the prevalence of smartphones, they can access your competitors' prices in just a few seconds.
11. Channel-based pricing
Channel-based pricing is a relatively new approach that's applicable for omnichannel retailers or simply those that sell their products across multiple channels like brick-and-mortar store, website, and social media accounts. With this method, retailers set different price points for the same product based on where it's sold.
Pros: For retailers looking to promote one channel over another-say, to drive their e-commerce operations or to draw more people into stores-channel-based pricing can be used as a great incentive for customers to choose that particular channel.
Cons: Customers may feel outright cheated if they see that you offer the same product at two distinct price points. One way to get around this is to keep prices the same but offer a channelspecific discount, one that's applicable only online or only in-store.
12. Wholesale pricing
Wholesale pricing is often used by retailers who sell their products to other businesses (B2B) instead of directly to the customer (B2C). In some cases, the same retailer can offer prices at the MSRP to the customer and at a discounted wholesale rate to other retailers, who then sell these products to the customer for a profit.
To set the wholesale price, you must first calculate the cost of goods manufactured (COGM), which includes both material and labor costs as well as additional costs like transportation and overhead expenses. Then, you must factor in the profit margin, which should be at least 50%, before setting your wholesale price.
Pros: Offering products at wholesale is a great option for retailers looking to move large quantities of slow-moving inventory, but this approach can also be used by brands looking to introduce their proprietary designs to a whole new group of shoppers.
Cons: For wholesale pricing to be sustainable for your business, you must ensure that your sales volume stays consistently high-meaning you'll have to make sure that the quantity of items in each order meets the minimum required amount.
