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UNIT III

Retailing-Introduction, Definition and Scope

Introduction to Retailing
Retailing is the final stage of the supply chain, where goods or services are sold
to consumers for personal use. Retailing involves all activities related to the sale
of goods or services to consumers, including marketing, pricing, and customer
service.
Definition of Retailing
Retailing is defined as "the business activity of selling goods or services to
consumers for personal use, either directly or indirectly, through various
channels such as physical stores, online platforms, or other media."
Scope of Retailing
The scope of retailing includes:
1. Types of Products: Retailing involves the sale of a wide range of products,
including consumer goods, food and beverages, clothing and accessories,
electronics, home appliances, and more.
2. Channels of Distribution: Retailing involves various channels of distribution,
including physical stores, online platforms, mail-order, telephone-order, and
other media.
3. Services: Retailing also involves the provision of services, such as customer
support, after-sales service, and maintenance.
4. Business-to-Consumer (B2C) Transactions: Retailing primarily involves B2C
transactions, where businesses sell goods or services directly to consumers.
Some key characteristics of retailing include:
1. Customer Focus: Retailing is focused on meeting the needs and wants of
customers.
2. Multiple Channels: Retailing involves multiple channels of distribution,
including physical stores and online platforms.
3. Wide Range of Products: Retailing involves the sale of a wide range of
products.
4. Highly Competitive: Retailing is a highly competitive industry, with many
businesses competing for customers' attention.

Evolution, types, and trends of Retailing

Evolution of Retailing
1. Traditional Retailing: Retailing originated with traditional stores, where
customers would physically visit the store to purchase products.
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2. Department Stores: Department stores emerged in the late 19th century,

offering a wide range of products under one roof.
3. Supermarkets: Supermarkets emerged in the mid-20th century, offering self-
service and a wide range of food and household products.
4. Malls and Shopping Centres: Malls and shopping centres emerged in the latter
half of the 20th century, offering a variety of stores and services under one roof.
5. E-commerce: E-commerce emerged in the late 20th century, allowing
customers to shop online and have products delivered to their homes.
Types of Retailing
1. Brick-and-Mortar Retailing: Physical stores where customers can visit and
purchase products.
2. E-commerce Retailing: Online stores where customers can purchase products
and have them delivered to their homes.
3. Hybrid Retailing: Combination of brick-and-mortar and e-commerce retailing.
4. CatLog Retailing: Retailing through catalogues, where customers can order
products by mail or phone.
5. Television Retailing: Retailing through television, where customers can order
products by phone or online.
6. Mobile Retailing: Retailing through mobile devices, where customers can
purchase products and services on-the-go.
Trends in Retailing
1. Omnichannel Retailing: Providing a seamless shopping experience across
online and offline channels.
2. Personalization: Offering personalized products and services to customers
based on their preferences and behaviour.
3. Sustainability: Focusing on sustainable practices, such as reducing waste and
using eco-friendly packaging.
4. Experiential Retailing: Creating immersive and engaging shopping experiences
for customers.
5. Artificial Intelligence (AI) and Machine Learning (ML): Using AI and ML to
enhance customer experiences, improve operational efficiency, and drive sales.
6. Social Commerce: Integrating social media into the shopping experience,
allowing customers to discover and purchase products through social media
platforms.

Advantages of retailing- Retail purchasing and pricing

Advantages of Retailing
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1. Convenience: Retailing provides customers with convenient access to products

and services.
2. Wide Selection: Retailing offers customers a wide selection of products and
services to choose from.
3. Personalized Service: Retailing provides customers with personalized service
and support.
4. Easy Returns: Retailing allows customers to easily return or exchange products
that do not meet their needs.
5. Competitive Pricing: Retailing promotes competitive pricing, which benefits
customers.
6. Job Creation: Retailing creates jobs and stimulates economic growth.
7. Product Information: Retailing provides customers with information about
products, helping them make informed purchasing decisions.
Retail Purchasing
1. Sourcing Products: Retailers source products from suppliers, manufacturers, or
wholesalers.
2. Negotiating Prices: Retailers negotiate prices with suppliers to ensure
competitive pricing.
3. Managing Inventory: Retailers manage inventory levels to ensure that products
are available when customers want them.
4. Transportation and Logistics: Retailers arrange for transportation and logistics
to get products from suppliers to stores.
Retail Pricing
1. Determining Prices: Retailers determine prices based on factors such as cost,
demand, competition, and profit margins.
2. Pricing Strategies: Retailers use pricing strategies such as discounts,
promotions, and price matching to attract customers.
3. Price Elasticity: Retailers consider price elasticity, which is the responsiveness
of demand to changes in price.
4. Value-Based Pricing: Retailers use value-based pricing, which is based on the
perceived value of the product or service to the customer.

Purchase management- Merchandise purchasing and open to buy

planning.
Purchase Management
1. Definition: Purchase management is the process of planning, organizing, and
controlling the purchase of merchandise or services.
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2. Objectives: The objectives of purchase management include ensuring the right

products are purchased at the right price, quality, and time.
3. Functions: The functions of purchase management include planning, sourcing,
negotiating, ordering, and receiving.
Merchandise Purchasing
1. Definition: Merchandise purchasing is the process of buying products for
resale.
2. Types of Purchases: There are two types of purchases: domestic and
international.
3. Purchasing Methods: Purchasing methods include cash purchasing, credit
purchasing, and consignment purchasing.
4. Vendor Selection: Vendor selection involves evaluating potential vendors
based on factors such as price, quality, and reliability.
Open-to-Buy (OTB) Planning
1. Definition: OTB planning is a process used to plan and manage inventory
purchases.
2. Objective: The objective of OTB planning is to ensure that the right products
are purchased in the right quantities at the right time.
3. Steps: The steps involved in OTB planning include:
- Determining the sales forecast
- Calculating the inventory required
- Determining the open-to-buy amount
- Allocating the open-to-buy amount to different categories
4. Benefits: The benefits of OTB planning include improved inventory
management, reduced stockouts, and increased profitability.

Pricing strategies- every day pricing, competitive based pricing

Everyday Low Pricing (EDLP)
1. Definition: EDLP is a pricing strategy where a retailer sets a low price for a
product every day, rather than offering frequent promotions or discounts.
2. Objective: The objective of EDLP is to attract price-conscious customers and
create a perception of value.
3. Advantages:
- Reduces promotional expenses
- Simplifies pricing and inventory management
- Attracts price-conscious customers
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4. Disadvantages:
- May lead to lower profit margins
- May not be effective for products with high demand elasticity
Competitive-Based Pricing
1. Definition: Competitive-based pricing is a pricing strategy where a retailer sets
prices based on the prices of their competitors.
2. Objective: The objective of competitive-based pricing is to stay competitive in
the market and attract customers who are price-sensitive.
3. Methods:
- Price matching: matching the price of a competitor
- Price beating: beating the price of a competitor
- Price leadership: setting prices that others follow
4. Advantages:
- Helps to stay competitive in the market
- Attracts price-sensitive customers
- Can lead to increased market share
5. Disadvantages:
- May lead to price wars, which can be detrimental to profit margins
- May not be effective for products with unique features or benefits

Price skimming, market-oriented pricing and marginal cost pricing

Price Skimming
1. Definition: Price skimming is a pricing strategy where a company sets a high
initial price for a product to maximize profits before competition increases.
2. Objective: The objective of price skimming is to capture the consumer surplus
and maximize profits.
3. Advantages:
- High profit margins
- Ability to recover research and development costs quickly
- Creates a premium image for the product
4. Disadvantages:
- May limit demand and market share
- May attract competition
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- May lead to customer dissatisfaction and negative word-of-mouth

Market-Oriented Pricing
1. Definition: Market-oriented pricing is a pricing strategy that takes into account
the prices of similar products in the market.
2. Objective: The objective of market-oriented pricing is to set prices that are
competitive with other products in the market.
3. Methods:
- Going-rate pricing: setting prices similar to those of competitors
- Value-based pricing: setting prices based on the perceived value of the
product
- Target pricing: setting prices based on the target profit margin
4. Advantages:
- Helps to stay competitive in the market
- Attracts price-sensitive customers
- Can lead to increased market share
5. Disadvantages:
- May lead to price wars, which can be detrimental to profit margins
- May not be effective for products with unique features or benefits
Marginal Cost Pricing
1. Definition: Marginal cost pricing is a pricing strategy where the price of a
product is set equal to its marginal cost.
2. Objective: The objective of marginal cost pricing is to maximize profits by
producing and selling the optimal quantity of the product.
3. Advantages:
- Helps to maximize profits
- Encourages efficient production and allocation of resources
- Can lead to increased market share
4. Disadvantages:
- May not take into account other costs, such as fixed costs and opportunity
costs
- May not be effective in markets with high demand elasticity

Retail price strategies- mark up pricing and vendor pricing.

Mark-up Pricing
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1. Definition: Mark-up pricing is a pricing strategy where a retailer adds a markup

to the cost of a product to determine its selling price.
2. Formula: Mark-up pricing formula: Selling Price = Cost + (Cost x Mark-up
Percentage)
3. Types of Mark-ups:
- Gross mark-up: the difference between the selling price and the cost of the
product
- Net mark-up: the difference between the selling price and the cost of the
product, minus any discounts or allowances
4. Advantages:
- Easy to calculate and implement
- Allows retailers to quickly respond to changes in costs or market conditions
- Can help retailers maintain profit margins
5. Disadvantages:
- May not take into account other factors that affect pricing, such as
competition and demand
- Can lead to overpricing or under-pricing if not carefully managed
Vendor Pricing
1. Definition: Vendor pricing is a pricing strategy where a retailer sets prices
based on the prices charged by vendors or suppliers.
2. Types of Vendor Pricing:
- Suggested retail price (SRP): the price recommended by the vendor or
supplier
- Minimum advertised price (MAP): the minimum price at which a retailer is
allowed to advertise a product
3. Advantages:
- Helps retailers maintain consistency in pricing across different vendors and
suppliers
- Can simplify pricing decisions and reduce administrative costs
- Can help retailers maintain profit margins
4. Disadvantages:
- May not take into account other factors that affect pricing, such as
competition and demand
- Can lead to overpricing or under-pricing if not carefully managed

Competitive pricing and psychological pricing

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Competitive Pricing
1. Definition: Competitive pricing is a pricing strategy where a company sets its
prices based on the prices of its competitors.
2. Objective: The objective of competitive pricing is to stay competitive in the
market and attract price-sensitive customers.
3. Methods:
- Price matching: matching the price of a competitor
- Price beating: beating the price of a competitor
- Price leadership: setting prices that others follow
4. Advantages:
- Helps to stay competitive in the market
- Attracts price-sensitive customers
- Can lead to increased market share
5. Disadvantages:
- May lead to price wars, which can be detrimental to profit margins
- May not be effective for products with unique features or benefits
Psychological Pricing
1. Definition: Psychological pricing is a pricing strategy that takes into account
the psychological factors that influence consumer purchasing decisions.
2. Objective: The objective of psychological pricing is to create a perceived value
in the minds of consumers.
3. Methods:
- Charm pricing: pricing products at $X.99 instead of $X.00
- Bundle pricing: offering multiple products together at a discounted price
- Price anchoring: offering a higher-priced product to make a lower-priced
product seem more reasonable
4. Advantages:
- Can create a perceived value in the minds of consumers
- Can increase sales and revenue
- Can help to differentiate a product from competitors
5. Disadvantages:
- May not be effective for all types of products or consumers
- Can be seen as manipulative or deceptive if not used transparently