Ch 14- Retail Marketing

Define Discount Orientation

A strategy where a retailer uses low prices as its primary competitive advantage. While Walmart is the most common example, they are no longer the cheapest option, yet they maintain this “low price” image.

What is At-the-Market Orientation?

Also knows as “market-based pricing” firms use average industry prices as a benchmark. This is common when two major players (e.g. Home Depot and Lowe’s) price-match each other to avoid a “race to the bottom”

What are the advantages of Upscale Orientation?

Increased revenue per unit and strong brand differentiation

What are the disadvantages of Upscale Orientation?

Higher marketing costs to maintain a premium image and decreased overall sales volume.

Define Transparency Pricing

A pricing strategy ( led by brands like Oliver Cabell) that involves making consumers aware of the exact cost breakdown (e.g., canvas, leather, duties) of a product to build trust

Name the four external factors that affect retail price strategy

1.Consumer 2. Government 3. Supply Chain 4. Competitors

How do Consumers influence pricing?

Retailers must price based on willingness to pay (e.g. Misfits Market selling “ugly” produce at a discount)

How does the Government influence pricing?

New regulations, little minimum wage increases, can force retailers to raise prices to offset higher labor costs

Describe how Supply Chain issues affected Toblerone

When the price of hazelnuts skyrocketed, Toblerone considered changing the shape of the bar )reducing the number of “peaks”) to avoid a price increase that customers wouldn’t accept

Describe how Competitors affected Fitbit

Fitbit held a great market share until the Apple Watch was released; the new competition forced Fitbit to pivot its pricing and targeting to survive

Elastic demand

Small price changes lead to substantial changes in units bought (e.g., pizza)

Inelastic demand

Large price changes lead to very small changes in units bought (e.g., gasoline or insulin)

What five factors make a product more inelastic?

1. Few substitutes (e.g. food at a stadium)

2. High cost of switching (e.g. being locked into the Apple ecosystem)

3. High degree of necessity (e.g. life-saving medications)

4. Small proportion of income (e.g. a pack of gum)

5. Peak of demand (e.g. Disney during spring break)

Define Price Skimming

A strategy focused on maximizing profits by charging a very high price to early adopters who are willing to pay a premium for new technology (e.g. iPhone or Nintendo Switch launches)

Define Price Penetration

Launching a low-priced product to secure market share and achieve fast growth. This works well in crowded markets to “get people in the door”

Describe the Michael Scott Paper Company case study for Penetration Pricing

Michael Scott used penetration pricing to steal customers from Dunder Mifflin, but the strategy was unsustainable because the prices were too low to cover costs, leading toward bankruptcy

What is Dynamic (Surge) Pricing?

The practice of adjusting prices in real-time based on a customer’s perceived ability or willingness to pay at that moment. It is commonly used by uber during high-demand periods.