BUSI 446 Week 6 Retail Management Project Report 3 Example

Retail Management Project Report 3: Pricing and Promoting Harvest Lane Market's Prepared-Meals Counter

Setting the Counter's Prices

The prepared-meals counter will sell family-size entrees serving four, with two sides. Levy et al. (2019) describe cost-oriented pricing, in which a markup over cost covers operating expenses and profit, checked against demand and competitors.

A 42.5 percent gross margin is above the store average of about 30 percent, which the counter needs, since Report 1 found that its $1.5 million in equipment would lower asset turnover unless the new sales carry a higher margin. Two nearby competitors sell comparable meals at $21.99 and $24.99, and a local restaurant charges about $38 for a similar takeout meal for four, so $19.99 sits below rivals while keeping the margin. The price also ends in 99 cents, which shoppers in grocery stores expect, and sits under the $20 mark that many families use as a mental limit for a weeknight dinner. Levy et al. (2019) describe this kind of price lining and odd pricing as ways retailers shape how customers perceive a price. A smaller two-person meal at $11.99 will be added after the first month if the family meals sell as planned.

Everyday Prices, Not Weekly Deals

Harvest Lane's center store runs a high-low strategy, with weekly specials. Levy et al. (2019) contrast this with everyday low pricing, which holds prices steady. Hoch et al. (1994) tested both in a supermarket chain: cutting regular prices across categories raised unit sales only slightly and lowered profit, while raising prices lost few sales and raised profit. Customers in most grocery categories are less sensitive to everyday prices than retailers fear.

Ellickson and Misra (2008) found that supermarkets choose pricing strategies to fit the demographics of their markets and tend to match the strategy of nearby rivals. The counter's customers buy for convenience on busy weeknights, a habit that steady prices support better than deals they would need to watch for. The counter will therefore hold its prices steady, with no weekly discounts, and change the menu instead of the price. Steady pricing also protects the margin the counter needs. A weekly deal at $14.99 would cut the contribution per meal from $8.49 to $3.49, and the counter would have to sell more than twice as many meals to earn the same gross margin. The stores' weekly specials will continue in the center store, where shoppers compare prices across chains, so the two strategies will run side by side, each where it fits.

Communication Plan

The target is the top loyalty tier identified in Report 2, about 15 percent of members. Ailawadi et al. (2009) note that targeted promotions can reach valuable customers at lower cost than broad ones. The plan has three parts:

• A free sample meal coupon emailed to top-tier members in the counter's first month.
• Signs at the store entrance and at the meat counter, where shoppers decide on dinner.
• A weekly menu email to members who redeem the sample.

The test of the plan is repeat buying: the goal is for 35 percent of members who redeem a sample to purchase again within 30 days.

Levy et al. (2019) describe the communication mix as a blend of paid, owned and earned media. This plan relies mostly on owned media, the loyalty email list and the stores' own signs, which cost little and reach shoppers already inclined to buy fresh food. Paid advertising in local media will wait until the counter proves itself, since a broad campaign would spend money reaching households outside the stores' trade areas. Earned media may follow on its own if the farms' names on the menu attract attention from local food writers. The first month's budget is $3,500, mostly for sample meals, which keeps the cost of acquiring each repeat customer low enough to recover within a few purchases.

References

Ailawadi, K. L., Beauchamp, J. P., Donthu, N., Gauri, D. K., & Shankar, V. (2009). Communication and promotion decisions in retailing: A review and directions for future research. Journal of Retailing, 85(1), 42-55. https://doi.org/10.1016/j.jretai.2008.11.002

Ellickson, P. B., & Misra, S. (2008). Supermarket pricing strategies. Marketing Science, 27(5), 811-828. https://doi.org/10.1287/mksc.1080.0398

Hoch, S. J., Drèze, X., & Purk, M. E. (1994). EDLP, Hi-Lo, and margin arithmetic. Journal of Marketing, 58(4), 16-27. https://doi.org/10.1177/002224299405800402

Levy, M., Weitz, B. A., & Grewal, D. (2019). Retailing management (10th ed.). McGraw-Hill Education.