The adage “rich people love low prices, the poor need them” holds true universally. Price is undoubtedly among the most important drivers of store choice. It influences shoppers’ perceptions of the store and impacts their shopping behaviour. As the variable that generates revenue and profit, it warrants careful consideration.
In theory retailers can use analytic techniques to determine the price elasticity and the cross price elasticity of demand of their products, and set prices optimally. With manufacturers’ support some retailers do this for the major items in important categories.
In practice, however, there are also many complexities. Considering that the average supermarket is stocking roughly 20,000 SKUs, and that items are constantly being listed and de-listed, it is impractical to scientifically set prices for every item. Moreover the price of a product (e.g. a traffic builder) in one category affects the sales of products in other categories.
So in reality, most retailers set prices based on manufacturers’ guidelines and pre-determined mark-ups. The mark-up is likely to vary across categories based on category dynamics (turns × earns), as well category/brand roles and strategies.
There are two approaches retailers have historically taken on pricing: high-low promotional and everyday low price (EDLP). The high-low promotional pricing involves setting regular prices at healthy margins but running frequent promotions to temporarily reduce prices for some products to much lower levels. With EDLP the retailer charges low prices for items all the time, making low but positive margins on them.
Pricing these days tends to be a hybrid of the two strategies. Stores may have some key products on EDLP, and the rest following high–low promotional approach. Additionally there may be privileges and discounts for loyalty card holders.
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The Plannogrammer is an experiential learning facility for category managers, trade marketers, and retailers in consumer markets. Ideally suited for hybrid learning programmes, Plannogrammer imparts hands-on training in the planning and evaluation of promotions and merchandising.
It supports a collection of simulation and analysis platforms such as Promotions and Space Planner for optimizing space and promotions, Plannogram for populating shelves and merchandising, a Due To Analysis dashboard that decomposes brand sales into the factors driving sales, and a Promotion Evaluator to evaluate the volume, value and profit impact of promotion plans.