Pricing for Strategy
The pricing method that the stores need to adopt has to showcase their advantages and also throw up the disadvantages of buying online. Some of the major disadvantages of buying online are the additional charge incurred on the credit cards in some cases, not buying the right size of a branded product because you do not try them out, delay in delivery, and the delivery charges. The pricing tactic adopted should highlight the advantages of the retail stores. No additional charge on the credit card, since the delivery charges could be minimal for a local store to the residence of the buyer, this can be volunteered without much cost on the store. Since most of the people buying sports clothing do not buy in volumes for themselves, but the possibility of team buying is there. Therefore, for such customers who want to order for their entire team attire, special offers including printing of their logos, etc. could be done to ensure that the team is clothed by the store in its entirety.
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Based on these values the pricing could be worked out. It should be noted that a retail store might end up with much lesser volume compared to an online store in many cases since they approach the entire market in the country online. Whereas, the retail store is more a local store unless a central purchase is done as in the case of Sports Authority and Dick’s. Since most of these stores hold stock for the manufacturer, the chances that the store could get a better deal are high. In the case of online stores, most of them hold only a virtual stock, meaning the stock held by the manufacturer or his warehouse. The retail store can get a better deal on price bargain from the manufacturer and this could reflect in a better profit margin for the product on an overall basis. The goal of the pricing strategy is to maximize the difference between the cost incurred by the company and the value created for the customer (Thomas Nagle & Reed Hogan, 2002). In line with this principle, reducing the cost to the company is one of the methods for increasing the advantage to the company. Secondly, a competitive pricing level with that of the online store needs to be worked out since it has to be on par or comparable to their pricing.
The value to the retail store is in immediate delivery, try and take the product. Now, this has been the method that the retail stores resort to. In addition, the retail stores should also work out a value creation by making the work more personal. The customer could come down to the store and pick up the product he needs at his leisure. Team clothing and organizing are also possible by the retail store which can add value. Specific value addition is done when the delivery is done across the table or at the spot required by the customer which might not be the case with the online store. It should also be noted that the value perceived by the customer could be different from what is perceived by the store. Secondly, the customer might not be paying even for the value that she perceives. This is so because of the fact that her refusal to pay might have reduced the prices on earlier occasions.
The pricing structure needs to also study which niche market in the sports arena is addressed by the retail store. The retail store need not worry about the market share even if it were to fall. Market share does not decide on the profitability of the product. This would only make the customer think that the pricing of the products is not firm and the company could offer discounts. This would only increase the negotiation possibilities rather than give increased profitability. Therefore, it is better not to offer ad hoc discounts to the customers. There can be specific promotional strategies.
The pricing policy should be value-based and should be able to bring about value to the customer in the pricing of the product. In this case, the sports goods certainly have specific value to the customer. A value-based pricing policy has to be evolved. This would not only ensure that the price is right for the company but also for the client. Value with respect to shoes, for instance, needs to ensure that the life of the shoes and the comfort it provides to the customer is better than the one with the lower price level.
The price-setting of equivalent products should be comparable to the online store. The same branded product with the same features just cannot have a higher price than what it is at the online store. Of course, if the value addition is more and if the product is supported differently, then the price-setting can be different from what it is at the online store. It is, therefore, imperative that the retail store makes a complete survey of all products and their prices at the online store and its own store and ensure that they match (Strategic pricing group, 2006). The price level in the retail store can be better but not over the price on the online store. In case there has to be a higher price compared to the online store, then it should be projected as a different product with clear value additions to the other.
Implementing New Prices
New prices once fixed should be presented through a clear advertising campaign to increase the visibility of the retail store. There has to be a stress on the value additions done and the price differences to support the retail store should be highlighted in the ads.
Percent Contribution Margin
The percentage contribution margin is a policy decision that the retail store has to work out for itself. Based on this and on the price levels existing at the online store, the contribution margin can be fixed for the retail store.
Avoiding Misleading Accounting
Policy conditions and the percent contribution margin should be clearly mentioned to the pricing staff and it has to be closely supervised. This would avoid misleading price tags or discounts being offered to the customer.
Breakeven Sales Analysis
The variable costs for the retail store are in the consumables for the retail store. This would vary with the electricity to other daily consumables that could vary with the advertising or marketing expenses that are incurred by the retail store. The cost of the product is also a variable factor that varies with the product.
Most of the costs incurred by the retail store are fixed in nature, starting from the rental to the employee cost and almost all other costs are static for the store.
Calculating Potential Financial Implications
The overall cost of the product for the store has to be analyzed and identified based on the fixed and variable costs that are incurred. The selling price for the product is also noted which is dependent on the price of the competitors too. The difference would give the contribution to the profits of the company.
Covering Nonincremental Fixed and Sunk Costs
It is important that the Non-incremental fixed and the sunk costs already invested in the company are both included while calculating the total fixed cost of the product. This is loaded as per accounting standards on the product after analyzing the extent to which products are bought and sold in the retail store.
Understanding the Pricing Game
The pricing is done based on the perceived value of the customer by most people. This is the case when the product that is being sold could bring about adequate returns to the customer, he might not really worry about paying an additional sum to the company if requested. Therefore, the store needs to identify the value of the product to the customer through an adequate study and how this value could be increased for the customer for every product. Only then better pricing could result in the benefit of the retail store. Even prestige pricing could be worked out at this level.
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Managing Competitive Information
Competitive information has to be maintained, particularly in this case about the extent to which the online stores maintain their pricing levels. This would ensure that the company is able to realize a better pricing position with reference to the competition. At the same time can also offer customers only those niche products that would improve the performance of the company.
From the earlier analysis, it is seen that the pricing would depend on the value provided by the product to the customer. When the customer perceives the same as a large-scale benefit to himself, then the value added to the product is higher and it would command better pricing. The competition’s pricing strategy should also be taken into account and the retail store should ensure that the price to service is better for their products. It is better to position their products to address those niche products where the contribution to the profitability of the company is higher.
- Thomas Nagle & Reed Hogan, 2002, The Strategy and Tactics of Pricing: A Guide to Profitable Decision Making. Prentice Hall. New Jersey.
- Strategic pricing group, 2006, Pricing strategy FAQs.
- Sommers, Barnes, Futtrell and Stanton, 2001, Fundamentals of marketing. McGraw-Hill Ryerson. Toronto.