TheRightPrice

SantiagoGallino– TuckSchoolofBusinessToniMoreno– KelloggSchoolofManagement

July2013– LBS– London,UKJanuary2017

29May2017 2RetailFundamentals

LearningModules

1.Demandforecasting

2.InventoryDecisions

3.AssortmentPlanning

4.PricingDecisions

5.Theomnichannelcustomer

6.Fulfillingomnichanneldemand

7.Omnichanneljourneys

8.Supportinganomnichannel

strategy

29May2017 3RetailFundamentals

M4.3Opening1

29May2017 4RetailFundamentals

M4.3Priceelasticity2

QuantitySoldatDifferentPrices

Ifcustomersareverypricesensitive,salesdecreasesignificantlywithpriceincreases

29May2017 5RetailFundamentals

M4.3Priceelasticity2

Elasticity=percentchangeinquantitysoldpercentchangeinprice

Acommonlyusedmeasureofpricesensitivity:

29May2017 6RetailFundamentals

M4.3Priceelasticity4

Acommonlyusedmeasureofpricesensitivity:

29May2017 7RetailFundamentals

M4.3Priceelasticity2

• Ingeneralwewouldexpectthatpriceelasticitywillbenegative

• Buttheremightbesituationswhenproductswithpositivepieceelasticity

29May2017 8RetailFundamentals

M4.3TheOptimalPrice3

QuantitySoldatDifferentPrices

Ifcustomersareverypricesensitive,salesdecreasesignificantlywithpriceincreases

ProfitatDifferentPrices

29May2017 9RetailFundamentals

M4.3DefiningpricesandPriceelasticity

4

CustomerPriceSensitivityandCost

29May2017 10RetailFundamentals

M4.3Closing2

• Tolearnaboutpriceelasticityretailerscanlookathistoricalsales

• Differentproductshaveverydifferentpriceelasticity.• Andthepriceelasticityforaproductcanvaryfordifferent

customerssegments.• Youcanbegladlysurprisewhenyoudiscoverthatyoucan

increasethepriceofaproductswithoutaffectingsalesinameaningfulway.

29May2017 11RetailFundamentals