|
Tuesday, July 6, 2010, 9:06 PM
|
A company might have selected the right product, chosen the right place to sell and decided on the right promotion. However, its package is not complete until it has determined the "right" price. Setting correct price is a key to successful retail management.
Price Sensitivity
Most consumers are price sensitive. For many customers, high price indicates quality. When the price is higher, the better quality they expect. Each customer will have a certain price acceptability and different customers have different limits in their perceptions of what price is within their range.
Unlike luxurious brands like Prada and Chanel, Charles & Keith's main target is to cater to the mass market. Its brand positioning is to make attractive yet affordable shoes available to working class women. For Charles & Keith, their prices are highly affordable as compared to other retailers like ALDO which also mainly sells shoes and bags. Setting the retail price too high, will only end up driving customers away. Customers will feel that the brand and quality of that certain product is not worth paying so much for.
Competition
In a perfectly competitive market, the right price is the market price. At any price above that, a company will lose all its customers, and at the market price, the same company will be able to sell as much of its product as it wishes.
Charles and Keith faces intense competition from main competitors like Mondo, URS Inc and Mitju. When comparing prices between these few retailers, their products are almost within the same price range. Nothing exceeds one hundred dollars. Shoes and accessories usually range from $20++ to $80++. While usually those higher price items are the new release. During sales or promotion period, products can be selling at below $20.
A business must consider the implications of its pricing on the pricing decisions of its competitors. For example, setting a price to low may start a price war that may not be in the best decision of either side. Marking up of price will sometimes lead to customers choosing other alternatives and brand, thus losing customers and sales.
Cost
To set a retail price, the firm or business first needs to determine their cost of goods. The cost of goods includes the amount paid for the products used to make the good, plus any other expenses incurred when ordering supplies to make the product.
A firm or business must also take into account the cost of labour. It needs to determine how long it takes to make each item, and how much money they want to make per hour manufacturing the items, to determine the cost of labour per item. To determine the minimum amount a business needs to make, the cost of goods, cost of labour, and operating expenses are added together. These costs added together should equal about what the company is minimally willing to sell their goods for.
Legal Constraint
When setting a retail price for the products, there are few legal constraints to take note of.
A firm or business is not free to price it products at any level it chooses. For example there maybe price controls that prohibit pricing a product to high. Pricing too low maybe considered predatory pricing or ‘dumping’ in the case of international trade. Retailers are banned selling at unreasonably low prices in order to drive competitors out of business. Offering a different price for different consumers may violate laws against price discrimination. Collusion with competitors to fix prices at an agreed level is illegal in many countries too.
In order to introduce another element of differentiation, Charles & Keith started reducing the prices of out-of-season products, in order to attract customers into their stores, where they would buy other products as well as the reduced-price products. Currently, in their stores, they are having 30% discount on selected items. Those items that are on discount are items from last season which they intend to clear its stock. This way, they create short-term sales therefore it will generate higher traffic.
Though Charles & Keith made little profit, or even a loss, on the price-reduced products, but recouped the revenue in the increased sales of other profitable lines. Examples would be their new arrivals of shoes, bags and accessories.
Hi-Lo pricing also introduced an element of excitement into shopping and by implementing odd pricing strategy - shoppers felt good when they had bought an exceptional bargain, and this would tend to encourage them to return. Being unique in its own ways, Charles & Keith understand buyers’ mindset well therefore they implement this unique pricing strategy to entice more customers.
Demand & Supply
by Fernandez
What makes service industries so distinct from manufacturing ones is their immediacy: the hamburgers have to be hot, the motel rooms exactly where the sleepy travellers want them, the airline seats empty when the customers want to fly, and in the case for Charles and Keith our shoes will have to be nice and comfortable. Balancing the supply and demand sides of a service industry is not easy, and whether a manager does it well or not will, this author writes, make all the difference. In this rundown of the juggling feat service managers perform, the author discusses the two basic strategies—“chase demand” and “level capacity”—available to most service companies. Here are several ways service can alter demand and influence capacity.
The literature on capacity management focuses on goods and manufacturing, and many people assume that services are merely goods with a few odd characteristics. Unfortunately, these people never fully explore the implications of these strange traits:
1. Services in Charles and Keith are direct; they cannot be inventoried. The perishability of services leaves our staffs without an important buffer that is available to manufacturing managers.
2. There is a high degree of producer-consumer interaction in the production of service, which is a mixed blessing; on the one hand, consumers are a source of productive capacity, but on the other, the consumer’s role creates uncertainty for staffs about the process’s time, the product’s quality, and the facility’s accommodation of the consumer’s needs.
3. Because a service cannot be transported, the consumer must be brought to the service delivery system or the system to the consumer.
4. Because of the intangible nature of a service’s output, establishing and measuring capacity levels for a service operation are often highly subjective and qualitative tasks.
Whereas the buying of Charles and Keith shoes can be delayed, as a general rule services are produced and consumed almost simultaneously in our store. And if one looks at Charles and Keith, it is quite apparent that successful service executives are managing the capacity of our operations and that the unsuccessful are not. So, the “odd characteristics” often make all the difference between prosperity and failure.
Charles and Keith supply of goods are efficient. Through proper planning and centralize method Charles and Keith are able to efficiently supply all their stores with their goods that are sold out as soon as possible. Using centralised warehouse, they will make delivery almost every day to different store that are running low on certain goods island wide.
Demand Strategies
From my trip to the Charles & Keith outlet at Bishan Junction 8, I have concluded that Charles & Keith adopts the odd pricing method when pricing its products as all of their products (footwear, bags and wallets) ends with a .90 which induces consumers to perceive it as “not very expensive”. For instance, a pair of flats may cost $33.90, but to a consumer it may be seem as “less than $34”, which will eventually lead her to purchase it.
However, there is also the price lining method being adopted by Charles & Keith. For the sandals there are a few price points being set; $33.90, $36.90, $39.90 and $43.90 depending on the design with the more sophisticated or trendy ones priced at the higher value and the simple and casual ones priced at the lower value. The same applies to the other types of footwear such as the heels, platform heels, and flats as well as the bags.
To further support that this successful retailer practices price lining, Charles & Keith’s Signature Label which portrays a woman as modern, fashionable and prestigious considering its exclusivity, thus is priced at a much higher price by 30% as compared to the rest. Consumers perceive that label of shoes as one that is of better value and quality because of the higher price. Charles & Keith’s Signature Label’s prices ranges from $69.90 to $99.90, which I was told by the sales assistant as the outlet does not carry the exclusive line.
