Price Management for Retailers

This chapter addresses the special characteristics of retail price management. For many retailers, price is the most important and most effective competitive instrument. Price differences in retail have a greater impact on profit than they do for industrial goods or services because of the low profit margins. The priority for retailers is their price positioning in terms of setting the overall price ranges for a store or outlet as well as for individual product categories. The price image of a retailer is extremely important and must be carefully managed. Because of the large assortments, consumers normally do not know each individual product price and therefore rely on the store’s price image for guidance. Retailers often have more information about consumers than manufacturers, but they only use this information to a limited extent for price setting. Information on competitors’ prices is easier to acquire in retail channels than in other sectors. Standard price strategies such as everyday low prices (EDLP) or Hi-Lo are common. Discounts have complex effects which are only partially understood and which are not completely measurable. Assortment effects play an important role in price setting for retailers but are also difficult to quantify.