RETAILING April 24, 2018

Transcription

1 RETAILING April 24, 2018

2 TODAY S AGENDA Lesson on Uncontrollable Variables in Pricing Worksheet Reminder: Unit Quiz on Friday

3 LESSON INTRODUCTION Yesterday we discussed controllable variables which are those that the retailer can influence, such as the company goals, expenses, and product life cycle. Today we are going to be looking at uncontrollable variables, which are those that the retailer cannot control, such as: Competition The economy Fluctuations in supply and demand

4 COMPETITION

5 COMPETITION Retailers must be knowledgeable about their competition. Many stores and products are often similar to each other. These stores compete for the same customers. Price becomes very important when competing with other retailers. Smart retailers know what the competition is offering and how their products are priced. To help learn about the competition, retailers often use secret shoppers. Secret shoppers, also known as mystery shoppers, visit several competing stores and note competitor s prices. *Job Posting Article*

6 ECONOMY

7 Expansion ECONOMY Recession/Depression Contraction The term economy refers to the wealth and resources of a country or region. The economic cycle varies over time. In positive cycles, employment rates and consumer spending are high. During these times, prices tend to be higher. When people have jobs and money they tend to spend more freely. In negative cycles, both employment and consumer spending decrease. When spending is low, retailers must try harder to entice customers to buy. One way to do this is to reduce prices. If retailers continue to lower prices due to the negative economic cycle, businesses may be forced to close.

8 SUPPLY AND DEMAND

9 SUPPLY AND DEMAND In our economy, people trade goods and services for money. The law of supply and demand explains the price of a product or service. Supply is how much of a product is available for people to buy. Demand is how much of a product or service people are willing to buy.

10 SUPPLY IN A MARKET ECONOMY The law of supply and demand states that if supply is plentiful, prices are lower. When supply is limited, customers are willing to pay more. For example, the supply of fresh fruit during off-season is limited and may be harder to find. As a result, grocery stores are able to charge higher prices for fruit when it is off-season, and customers may be willing to pay higher prices because they want fresh fruit.

11 LOW SUPPLY Supply can affect the price of goods and services in the market. When there is a limited supply, the price goes up. Some products are in high demand because there is a low supply. For example, diamonds are expensive because they are rare. Also, professional athletes often get paid millions of dollars because there are so few people who can play at their level of skill.

12 LARGE SUPPLY Sometimes the opposite is true. Instead of a limited supply, there is a large supply. When this happens, prices go down because there is more than enough for everyone to have what they want or need. If a store has too much of a product, they will lower the price hoping customers will buy it.

13 AN INVERSE RELATIONSHIP There is an inverse relationship between supply and price. If supply is low, prices will be high. If supply is high, prices will be low. We say it is an inverse relationship because when one goes down, the other goes up.

14 DEMAND IN A MARKET ECONOMY Low demand leads to low prices. If a company makes an unpopular product, there will be low demand and no interest. Consumers won t be interested in buying it. Low Demand Another reason for low demand is the time of year. There is very low demand for Christmas trees in August, however the demand goes up for trees closer to December. When there is a low demand, prices drop.

15 HIGH DEMAND High demand for a product causes prices to increase. When a lot of shoppers want a certain type of shoe, there is a high demand. Therefore, stores might charge customers more to buy the shoe. Sometimes weather conditions influence the demand as well. When there is a lot of snow, people want snow shovels and salt. This can cause the price of these items to increase.

16 A DIRECT RELATIONSHIP There is a direct relationship between demand and price. If demand is high, prices will be high. If demand is low, prices will be low.

17 INELASTIC DEMAND VS. ELASTIC DEMAND Inelastic demand: If prices go up on specific items such as staple goods (e.g. gasoline, milk), the demand stays the same. It is inelastic because staples are every-day needs. Elastic demand: If prices go up or down on specific items (e.g. designer clothing), the demand will go either up or down. It is elastic because consumers will buy the items when they are cheaper but not when they are expensive. Most products have elastic demand and will experience a change in demand when the price increases or decreases. Some products will NOT experience a change in demand when the price increases or decreases, such as Insulin for a diabetic because is a necessity and does not have a substitute.

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19 TO CONCLUDE The law of supply and demand affects the prices we pay for goods and services in our economy.