Pricing Strategies in the Small Business Retail Grocery Area: Can They Affect Retail Profitability?

By Judd, L. Lynn; Lewis, Barry T. et al. | Journal of Business and Entrepreneurship, March 1989 | Go to article overview

Pricing Strategies in the Small Business Retail Grocery Area: Can They Affect Retail Profitability?


Judd, L. Lynn, Lewis, Barry T., Nance, Jon R., Journal of Business and Entrepreneurship


ABSTRACT

The primary objective of this study was to explore the relationship between the employment of selected pricing strategies and the financial success of the member stores of a retail grocery cooperative. For the purposes of the study, the perceived competitive situation of the retail grocery stores was also entered into these relationships.

INTRODUCTION

In the highly competitive grocery business, independent grocers may live and die by their expertise in marketing. Price, product, place and promotion are the key elements of a retailer's marketing strategy. Of these, price is often the clearest avenue to profitability by the grocery retailer.

This study specifically looks at pricing strategies used by retail grocers within the pricing strategy variable of their marketing mix. In addition to the profitability of the individual pricing strategies, the competitive level of competition for the researched retailers was also used in the research study.

Retail practitioners and academicians have often theorized about the impact of various pricing strategies on retail profitability. Numerous studies have been done in the area of retail pricing. For example, studies have included testing alternative prices for the introduction of a new product, testing the effect of a change in price of an existing product, the effect of label-off promotion sales of the brand, and even cross branding of products to encourage trial. In most applied situations, the relative performances of different price levels have been utilized for decision-making criteria. Recent research has included price-quantity relationships/price elasticity;5 unit pricing;1 comparative pricing decisions;2 odd-even prices;7 consumer price perceptions;3 and consumer response to in-store price information.8 This study specifically looks at pricing strategies utilized by all grocers within their "Pricing" strategy variable of their marketing mix. In addition to the profitability of the individual pricing strategies, the competitive level of competition for the research retailers was also utilized within the research study.

This study examined sue basic pricing strategies utilized by retail grocers within their pricing strategy mix. These strategies are psychological pricing, multiple pricing, cost-plus pricing, stockturn pricing, suggested list pricing, and leader pricing. The emphasis of the "pricing" variable in a retailer's marketing mix was also examined. In addition, competitive pricing strategy of the researched retailers (above, with, or below competition) was also studied.

INDEPENDENT VARIABLES OF STUDY

Psychological pricing is setting prices that have special appeal to target customers. Retailers use prices such as $.98, $4.98, and $9.95 because they expect more favorable customer response than $1, $5, and $10.

Multiple pricing attempts to increase both unit and dollar sales volume. This is a strategy to give customers quantity discounts (for example, pricing three cans of peas at $1.37 rather than $.50acan).

Retailers often add a fixed percentage markup to the wholesale cost of the products or services which they sell (cost-plus pricing). For example, canned beans might have a markup of 30%, based on the wholesale cost of the beans.

Stockturn pricing is a demand-oriented pricing strategy. For example, the price of steak might be higher when the weather is warm enough for outdoor barbecue and lower when it is not. The use of demand pricing can also mean pricing at a lower price to increase the stockturn rate or a lower stockturn rate with a higher price. Stockturn rate is the number of times the average inventory of a particular product is sold annually.

Suggested list pricing is simply pricing products according to the manufacturer's suggested price for a product.

Leader pricing is setting a limited number of very low prices to get customers into a retail store. …

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