Module 4

Retail Pricing and Communication

Chapter Content
The importance of pricing decisions is growing because today’s customers have
more alternatives to choose from and are better informed about the alternatives. By
letting the customers perceive better customer value, it gives the organization s higher
chance of sales. it is not anymore, the product that they solely look after, but it is also on
the benefits that they can get from the organization.

One way to let customer feel value is to lower the price of the product. The lower
the price, the higher the sales and profits. Thus, the retailers must also remember that
the set prices of the product, despite of the lower prices, they will still generate profits.
This chapter discusses the factors that the retailers must consider in setting the
price. Pricing the product may not be enough to generate sales and profit for a long-term
period, that is why proposition should be endowed by the organization. Different
strategies will also be touched that the retailers can use in pricing. Reduction of pricing
will also be tackled together with the reasons behind the reductions in prices or the
markdowns, and how the retailers can still generate income from markdowns.

Communication programs can have both long- and short-term effects on a

retailer’s business. From a long-term perspective, communication programs can be used
to create and maintain a strong, differentiated image of the retailer and its private-label
brands. This image develops customer loyalty and creates a strategic advantage. Thus
brand-image-building communication programs complement the objectives of retailer’s
CRM programs.

In addition, retailers frequently use communication programs to realize the short-

term objective of increasing sales during a specified time period. In this regard, this
chapter discusses the role of communication programs in building brand images, and it
focuses on developing and implementing communication programs.

Learning Outcomes:
 Formulate effective pricing strategies that they can use in all of
circumstances of the competition not only locally but also in the
international area that will lead them increase sales and profits.
 Efficaciously formulate a retail program plan that they will use to
communicate with the customers using an effective customer interaction
method.

4.1Considerations in Setting Retail Price

 Customer Price Sensitivity and Cost
Generally, as the price of the product increases, the sales for the product
will decrease because fewer and fewer customers feel the product is a
good value. The price sensitivity of customers determines how many units
will be sold at different price levels. One approach that can be used to
measure the price sensitivity of customers is a price experiment. It is to
consider to what extent can the customers can give in exchange of the
product that is being offered to them.
 o Price Elasticity
It is the most common measurement that is being used to know the
sensitivity level of the customers with the prices of the product. To
compute for the percentage change in quantity this formula is
being used:

Percentage change∈quantity sold

Elasticity =
Percetnage change∈ price
The sensitivity of the customers with the price is elastic or that they
can adopt with the price change if the percentage is less than 1,
and if otherwise or inelastic, retailers experience decreases in sales.

 Competition
Customers have lots of choices for goods and services, and they
typically search the best value. Retailers therefore need to consider
competitors’ prices when setting their own. customer price sensitivity or
the elasticity ignores the effects of competitors’ prices. Retailers can price
above, lower, or at parity with the competition. The chosen pricing policy
must be consistent with the retailer’s overall strategy and its relative
market position.
Most retailers routinely collect price data about their competitors to
see if they need to adjust their prices to remain competitive. Competitive
price data are typically collected using store personnel, but pricing data
are available from business service providers.

 Pricing Services
o Matching Supply and Demand
Services are intangible and thus cannot be inventoried.
When retailers are selling products, if the products don’t sell one
day, they can be stored and sold the next day. However, when a
service is about to be rendered, the potential revenue for the
unused service is lost forever. In addition, most services have
limited capacity, and due to this capacity constraints, service
retailers might encounter situations in which they cannot realize as
many sales as they could make.
To maximize the profit and sales potentials, many service
retailers engage in yield management, which is the practice of
adjusting prices up or down in response to demand to control the
sales generated. Some service retailers also use less sophisticated
approach such as matching the demand with supplies.

o Determining Service Quality

Due to the tangibility of services, it is often difficult for customers to
assess service quality especially when other information is not
available. Thus, if consumers are unfamiliar with a service or
service provider, they may use price to make quality judgement.
They may use other non-diagnostic cues to assess quality, such as
the size and décor of the lawyer’s office. Another factor that
increases the dependence on price as a quality indicator is the risk
associated with a service purchase. Because customers depend on
price as a cue of quality and because price creates expectations of
quality, service prices must be determined carefully.
4.2Retail Price
 Setting Prices Based on Costs
o Retail Price Markup
The markup is the difference between the retail price and the cost
of the item. The markup percentage is the markup as a percentage
of the retail price:
Retail Price−Cost of Merchandise
Markup Percentage=
Retail Price
The retail price based on the cost and markup percentage is:
Retail Price=Cost of Merchandise+ Markup

Retail Price=Cost of Merchandise+ Retail Price x Markup Percentage

Cost of Merchandise
Retail Price=
1−Markup Percentage (as a fraction)

o Initial Markup and Maintained Markup

Retailers frequently reduce the price of items for special promotions
or to get rid excess inventory at the end of a season. In addition,
discounts are given to employees, and some merchandise is lost to
theft and accounting errors or inventory shrinkage. These factors
that reduce the actual selling price from the initial sales price called
reductions. Thus, there is a difference between the initial markup
and the maintained markup. The initial markup is the retail selling
price initially set for the merchandise minus the cost of the
merchandise. The maintained markup is the actual sales realized for
the merchandise minus its costs. Thus, the maintained markup is
equivalent to the gross margin for the product.

 The use of Breakeven Analysis

A useful analytical tool for making these assessments which determines,
on the basis, of a consideration of fixed and variable costs, how much
merchandise needs to be sold to achieve a break-even profit. The
breakeven point quantity is the quantity at which total revenues equals
total cost, and then profit occurs for additional sales.
The formulas:

( TOTAL¿COSTS )
BREAKEVEN QUANTITY =
ACTUAL UNIT SALES PRICE−UNIT VARIABLE COST
For new products:
¿ COSTS
BREAKEVEN QUANTITY =
ACTUAL UNIT SALES PRICE−UNIT VARIABLE COST
 For breakeven sales:

¿COSTS
BREAEVEN QUANTITY =
ACTUAL UNIT SALES PRICE−UNIT VARIABLE COST
4.3Markdown
 Reasons for Taking Markdowns
Retailers’ reasons for taking markdowns can be classified as either
clearance or promotional. When merchandise is selling at a slower rate
than planned, will become obsolete at the end of its season, or is priced
higher than competitors’ goods, merchandisers generally mark it down for
clearance purposes. Markdowns are part of the cost of doing business, and
thus merchandisers plan for them. Thus, a merchandiser’s objective isn’t to
minimize markdowns. That is why the merchandisers set the initial markup
price high enough that even after markdowns and other reductions have
been taken, the planned maintained markup is still achieved.

o Optimizing Markdown Decisions

Retailers have traditionally created a set of arbitrary rules for taking
markdown to dispose of unwanted merchandise. One retailer
identifies markdown candidates when its weekly sell-through
percentages fall below a certain level. Another retailer cuts prices
on the basis on how long the merchandise has been in the stores.

o Reducing the Amount of Markdowns

Retailers work closely with their vendor partners to coordinate
deliveries and help reduce financial burden of taking markdowns.
Creating a feeling of scarcity among customers is an excellent
method to reduce markdowns even if there are adequate quantities
of merchandise available. If the retailers change their display
frequently, customers will perceive that the merchandise is new
and available in limited quantities.

o Liquidating Markdown Merchandise

 Sell to Another Retailer
Selling the unsold merchandise to another retailer has been
very popular among retailers. However, this approach for
liquidating unsold merchandise only enables retailers to
recoup a small percentage of the merchandise’s cost.

 Consolidate Unsold Merchandise

Markdown merchandise can be consolidated in a number of
ways. First, the consolidation can be made into one or a few
of the retailer’s regular locations. Second, markdown
merchandise can be consolidated into another retail chain or
an outlet under the same ownership, third, unsold
merchandise can be shipped to a distribution center or a
rented space such a convention center for final sale.
However, consolidation can be complex and expensive due
to the extra transportation and record keeping involved.
  Sell at Internet Auction
The internet is increasingly useful for liquidating unsold
merchandise. Many retailers have separated areas of their
Web sites for clearance merchandise.

 Donate to Charity
Donating clearance merchandise to charities is a common
practice. Charitable giving is always a good corporate
practice. It is a way of giving back to the community and has
a strong public relation benefit. Also, the cost value of the
merchandise can be deducted from income.

 Carry the Merchandise Over to the Next Season

The final liquidation approach is used with relatively high-
priced non-fashion merchandise, such as traditional men’s
clothing and furniture. However, it is not profitable to carry
over merchandise because of excessive inventory carrying
costs.
4.4Pricing Techniques for Increasing Sales and Profits
 Variable Pricing and Price Discrimination
o Individualized Variable Pricing
Ideally, retailers could maximize their profits if they charged each
customer as much as the customer is willing to pay. Charging each
individual customer, a different price based on their willing ness to
pay is called the first-degree price discrimination. It offers
customers savings, and at the same time, retailers and
merchandisers can generate incremental revenues. Although
individualized variable pricing is legal, and widely used in some
retail sectors, it is impractical in most retail stores because, first, it
is difficult to assess each customer’s willingness to pay; second,
retailers cannot charge the posted prices in stores as customers
with different willingness to pay enter the store. In addition,
customers might feel they are being treated unfairly if they realize
that they are being charged a higher price than other customers.

o Self-Selected Variable Pricing

 Promotional Markdown
Merchandisers employ promotional markdowns to promote
merchandise and increase sales. markdowns can increase
customer traffic flow. Retailers plan promotions in which they
take markdowns for holidays, special events, and as part of
their overall promotional program.

 Clearance Markdown for Fashion Merchandise

Clearance markdowns primarily focused on how retailers get
rid of unwanted merchandise, and yet it can also be used to
attract different market segments based on their degree of
price sensitivity. Others may be willing to pay the highest
price of the products just to be the first people to wear such
kind of fashion trends, some still wait until the prices of
these products’ prices go down or at the end of the season
sale.
  Coupon
It offers a discount on the price of specific items when they
are purchased. Coupons are issued by manufacturers and
retailers in newspapers, calendars, on products, on the shelf,
at the cash register, over the internet, and through the mail.
Retailers use coupons because they are thought to induce
customers to try products for the first time, convert first-time
users to regular users, encourage large purchases, increase
usage, and protect market share against the competition.

 Price Bundling
It is the practice of offering two or more different products or
services for sale at one price. It increases both unit and
dollar sales by increasing the amount of merchandise bought
during a store visit. The practice is an example of second-
degree. Price discrimination because it offers more price-
sensitive customers a lower-priced alternative.

o Variable Pricing by Market Segment

Retailers often charge different prices to different demographic
market segments, a practice referred to as third-degree price
discrimination. This practice is generally legal, although gender-
based pricing, in which men and women are charged different
prices for the same service. Another example of third-degree price
discrimination is zone-pricing in which is practiced different prices in
different stores, markets, regions, or zones. Retailers used this
pricing to address different competitive situations in their various
markets.

o Dealing with Perceptions of Fairness

Setting different prices for similar products or services, such as shirt
sold at the manufacturer’s suggested retail price versus discounted
at the end of the season or a seat on a n airplane discounted on the
day of the flight, may seem unfair to customers. To lessen this,
feeling, retailers can offer additional benefits with the higher-priced
products or services or more restrictions on the less expensive
items. Another way to make such transactions seem fairer to
customers is through customization. Provide as much information
about the product or service as possible so that the customer can
decide whether the price is fair. To the extent possible, make
relevant cost and quality information available to customers.

 Leader Pricing
It is pricing certain items lower than normal to increase customers’ traffic
flow or boost sales complementary products. Some retailers call these
products loss leaders. In a strict sense, loss leaders are sold way below the
competition price. Thus, the firms do not really need to price such products
that low to use price-leader strategy.
  Price Lining
Retailers frequently offer a limited number of predetermined price points
within a merchandise category, a practice known as price lining. Both the
customer and retailers can benefit from such a strategy for several reason
and some of it are 1) confusion that often arises from multiple-price
choices is essentially eliminated, and the customer can choose the tire
with the low, medium, or high prices; 2) it gives merchandisers greater
flexibility for it is a strict formula used to establish the initial retail price or
the initial markup, there could be numerous price point, but with a price-
lining strategy some merchandise may be bought a little below or above
the expected cost for a price line.

 Odd Pricing
Refers to the practice of using a price that ends in an odd number, typically
a 9. It has a long history in retailing. Because merchandise had an odd
price, salespeople typically had to go to the cash register to give the
customer change and record the sale, making it more difficult for
salespeople to keep the customer’s money. It is also used to keep track of
how many times an item had been marked down. Basing on the survey
research that the different firms done, people perceived that the price of
the product will always be the whole numbers and disregard the last digits,
example: ₱ 9.49 will be perceived as ₱ 9.00.
4.5Using Communication Programs to Develop Brand Image and Build
Customer Loyalty
A brand is distinguishing name or symbol, such as logo, that identifies the
products or services offered by the seller and differentiates those products and
services from the offerings of competitors. In a retailing context, the name of the
retailer is a brand that indicates to consumers the type of merchandise and
services offered by retailer.

 Value of Brand Image

Brand provide value to both customers and retailers. Brands convey
information to consumers about the nature of the shopping experience,
the retailer’s mix, they will encounter when patronizing a retailer. They
also affect customer’s confidence in their decisions to buy merchandise
from a retailer. Finally, brand can enhance customers’ satisfaction with the
merchandise and services they buy.
The value of that brand image offers retailers is referred to as
brand equity. Strong brand names can affect the customer’s decision-
making process, motivate repeat visits and purchases, and build loyalty. In
addition, strong brand names enable retailers to charge higher prices and
lower their marketing costs.

 Building Brand Equity

o Brand Awareness
It refers to a potential customer’s ability to recognize or recall that
the brand name is a particular type of retailer or product or service.
thus, brand awareness is the strength of the link between the brand
name and the type of merchandise or service in the minds of
customers. There is a range of awareness, from aided recall to top-
of-mind awareness. Aided recall occurs when customers indicate
that they know the brand when the name is presented to them.
Top-of-mind awareness, the highest level of awareness, occurs
when the customers mention a specific brand name first when they
 are asked about the type of retailer, a merchandise category, or a
type of service.

o Associations
Building awareness is only one step in developing brand equity, but
the value of the brand is largely based on associations that
customers make with the brand name. These are anything linked to
or connected with the brand name in customer’s memory.

Some common associations that retailers develop with their

brand name are as follows:

 Merchandise Category
The most common association is to link the retailer to a
category of merchandise. Example, National Bookstore
would like to have consumers associate its name with
reference books and school supplies, so when there is a
need of school supplies and reference books, consumers will
have to visit the think of National Book Store.

 Price/Quality
Some retailers want to be associated with offering unique,
high-fashion merchandise. Some others want to associate
themselves with low prices and good value.

 Specific Attribute or Benefit

A retailer can link its stores to attributes, such as 7/11’s
association with providing convenience. Shopping malls as
one-stop shop kind of convenience. And some restaurants
and tourism industry with high level of customer service.

 Lifestyle or Activity
Some retailers associate their name with specific lifestyle or
activity.

o Integrated Marketing Communications Program

Retailers need to develop an integrated marketing communication
program, a program that integrates all the communication
elements to deliver a comprehensive, consistent message to all
customers over time, across all elements of their retail mix, and
across all delivery channels. Without this coordination, the
communication methods might work at cross-purposes.

o Brand Image
Consist of set of associations that are usually organized around
some meaningful themes. Thus, the associations that a customer
might have about the retailers might be organized into groups.

o Extending the Brand Name

Retailers can leverage their brand names to support the
growth strategies. In some cases, retailers have pursued growth
opportunities using a new unrelated brand name. there are both
pluses and minuses to extending a brand name to a new concept.
An important benefit for extending the brand name is that minimal
communication expenses are needed to create awareness and a
 brand image for the new concept. Customers will quickly transfer
their awareness and associations about the original concept to the
new concept.
Retailers communicate with customers using a mix of
methods, such as advertising, sales promotion, publicity, e-mails,
blogs, and social media. In large retail firms, the communication
mix elements examined are managed by firm’s marketing or
advertising department and the buying organization.

4.6Methods of Communicating with Customers

For any communications campaign to succeed, the firm must deliver the right
message to the right audience through the right media, with the ultimate goal of
profiting from long-term customer relationships rather than short-term
transactions. Reaching the right audience is becoming more difficult, however, as
the media environment grows more complicated.

 Direct Marketing
Is marketing that communicates directly with target customers to generate
a response or transaction. Direct marketing contains ta variety of
traditional and new forms of marketing communication initiatives. The
increased use of customer databases has enabled retailers to identify and
track customers overtime and across purchase situations, and this has
contributed to the growth of direct marketing. These information were
taken directly from the customers through the use of credit and debit
cards.

o Direct Mail
Includes any brochure, catalog, advertisement, or other printed
marketing material delivered directly to the consumer through the
mail or private delivery company. Retailers have communicated
with their customer through the mail as long as the mail existed.
The direct mail piece can go to all customers, to a subset of the
customers according to their previous purchases, or even on a
personalized basis to individual customers.

o Email
Is a direct marketing communication vehicle that involves sending
messages over the internet. E-mail, like other forms of electronic
communication, can be personalized to the specific consumer and
thus is similar to communications delivered by salespeople.
However, when the same message is delivered electronically to all
recipients, electronic communications more closely resembles
advertising. Retailers use this kind of media to inform their
customers that they have the merchandises that their customers
might be looking for, offers the product, make the transaction,
confirm the receipt of an order, and they will indicate when the
customers expect to receive the parcels and disclose what type of
transportation they are going to use to deliver the parcels.

o Mobile Marketing
Is marketing through wireless handheld devices, such as cellular
phones, and e-commerce or mobile commerce involves completing
a transaction via mobile devices. This time and age, cellphones are
commonly used as a tool in placing orders of different kinds of
goods and services. They use these handheld devices to call, text,
 or through different applications in placing orders, offering
products, and/or completing a transaction. Example of which is
SHOPPEE where people look for what they need through their
mobile devices, select the good that they want or need, place
orders, select payment methods and the application will also
calculate how much to pay and when to expect the arrival of the
parcel in your place or on your door step.

 Online Marketing
o Websites
Retailers are increasing their emphasis on communicating with
customers through their Web sites. Retailers use Websites to build
their brand images to inform customers their store locations,
special events, and the availability of merchandise in local stores.
Through their websites, they can also offer and sell their goods and
services.

o Blogs/Vlogs
A blog contains periodic posts on a common Webpage. A well-
received blog can communicate trends, announce special events,
and create word-of-mouth, which is communication between people
about a retailer. On the other hand, Video blogs through the use of
social media, such as YOUTUBE and FACEBOOK, can also be a
platform to promote the goods and services of a firm. They can use
this type of marketing to show through videos the past events,
current products and offerings as a form of advertising.
o Social Media
It is another online vehicle for word-of-mouth communications,
online social media enables the consumers to review, communicate
about, and aggregate information about products, prices and
promotions. The consumers can also directly ask about the
products offerings or ask anything about the products and may
have immediate response with all of their queries. It eliminates
boundaries between the firm and the customers.

 Sales Promotion
Are special incentives or excitement-building programs that encourage
consumers to purchase a particular product or service. they are typically
used in conjunction with other advertising or personal selling programs.
Like personal selling and telemarketing, sales promotions are a form of
offline/interactive communication. Many sales promotions, like free
samples or point-of-purchase displays, attempt to build short-term sales,
whereas others, like loyalty programs, contests, and sweepstakes, have
become integral components of retailer’s long-term customer relationship
management programs, which they use to build customer loyalty.

o Coupons
It offers a discount on the price of specific items when they’re
purchased. These are issued by the manufacturers and retailers in
newspapers, on products, on the shelf, at the cash register, over
the internet, and through mail. Retailers use coupon to invite new
customers, turn first timers to regular users, and make the regular
users as loyal customers. I also attract customers to purchase large
volumes and increase usage of the products.
 o Rebates
It provides another form of discounts for consumers off the final
selling price. In this case, however, the manufacturer, instead of the
retailer, issues the refund as a portion of the purchase price
returned to the buyer in the form of cash. It is given when the buyer
is able to pay the full price of the purchased product in advance of
the agreed term.

o Premiums
Offers an item for free at a bargain price to reward some type of
behavior, such as buying, sampling, or testing. Such reward builds
goodwill among consumers, who often perceive high value in them.
Premium can be distributed in variety of ways. They can be
included in product packaging – can be inside the box or is visible
to the naked eye, or delivered through mail.
o Samples
It offers potential customers the opportunity to try a product or
service before they make a buying decision. Distributing samples is
one of the costliest sales promotion tools but also one of the most
effective.

o Point-of-Purchase Displays
Are merchandise displays located at the point of purchase, such as
the checkout counter in the supermarket. Retailers have long
recognized that the most valuable real estate in the store is at the
POP. Customers see the products like a magazine or a candy bar
while they are waiting to pay for their items and impulsively
purchase them.

o Special Events
Is a sales-promotion program comprising a number of sales
promotion techniques built around a seasonal, cultural, sporting,
musical, or some other event. Special events can generate
excitement and traffic to the store. It can be book-reading of new
released books, cooking classes for grocery stores and the like.

o Pop-Up Stores
An extreme type of sales promotion is a pop-up store. Pop-up stores
are temporary storefronts that exist for only limited time and
generally focus on a new product or limited group of products
offered by a retailer. They are also used by some retailers during
the holiday season to increase exposure and convenience shopping
for their customers without having to invest in a long-term lease.

 Personal Selling
It is a communication process in which sales associates help customers
satisfy their needs through face-to-face exchanges of information. It is a
form of offline/interactive communication. The cost of communicating
directly with a potential customer is quite high compared with other forms
of promotion, but it is simply the best and most efficient way to sell certain
products and services. Customers can buy many products and services
without the help of salesperson, but salespeople simplify the buying
process by providing information and services that save customers time
and effort.
 Advertising
Entails the placement of announcements and persuasive messages
purchased by retailers and other organizations that seek information
and/or persuade members of a particular target market or audience about
their products, services, organizations, or ideas.

o Newspapers
Retailing and newspapers grew up together over the past century.
But the growth in retail newspaper advertising has slowed the past
years due to the use of other medias. Thus, some of the retailers
still uses this media to inform the market about the products that
the firms are offering the market.

o Television
Is still one of the most effective means of advertising a product.
Commercials can be placed on national network or local stations.
Retailers use this media to show motion pictures and to let them
easily understand what the advertisement wishes to convey. Thus,
it is one of the most expensive means of advertising. Retailers have
to pay a spot in television –the time it will be aired- and that they
have sometime relatively few viewers since the audiences uses this
time to do other things especially during prime times.

o Radio
Many retailers use radio advertising because messages can be
targeted to a specific segment of the market. Some ration stations’
audiences are highly loyal to their announcers. When these
announcers promote a retailer, listeners are impressed. Thus, this
kind of media can also be both advantageous and disadvantageous,
when the listeners are treating the broadcast as a background, they
have limited attention in listening the announcements or
commercials and the information may not be digested properly.

o Co-op Programs
Is a promotional program undertaken by a vendor and a retailer
working together. The vendor pays for part of the retailer’s
advertising but dictates some conditions. Thus, this type of media
has drawbacks. One of which is the conflict of interest between the
vendors and of the retailers. Another is when the vendor often is
used by several competing retailers and may list names and
locations of all retailers offering their brand. Thus, co-op ads tend to
blur distinction between retailers. Lastly, restrictions the vendor
places on the ads may further reduce their effectiveness for the
retailer.

 Public Relations
Involves managing communications and relationships to achieve various
objectives, such as building and maintaining a positive image of the
retailer, handling or heading off unfavorable stories or events, and
maintaining positive relationships with the media. In many cases, public
relations activities support other promotional efforts by generating “free”
media attentions and general goodwill.

o Event Sponsorship
 Occurs when corporations support various activities, usually in the
cultural or sports and entertainment sectors. Some retailers
sponsor sporting events such as PBA, NBA and the like, or event
cultural events such as GOTAD: Mr and Ms Ifugao.

o Product Placement
When retailers and vendors use this media, they pay to have their
product included in non-traditional situations, such as in a scene of
a movie or even on the television programs. An example of which
is, Shampoo brands that the artists are using, or other endorsed
products that will be featured in a movie.

4.7Planning the Retail Communication Program

 Establishing Objectives
Retailers establish objectives for their communication programs to provide,
1) direction for people implementing the program and 2) a basis for
evaluating its effectiveness.

o Communication Objectives
Although retailers’ overall objective is to generate long- and short-
term sales and profits, they often use communication objectives
rather than sales objectives to plan and evaluate their
communication programs. Communication objectives are specific
goals related to the retail communication mix’s effort on the
customer’s decision-making process. To effectively implement and
evaluate a communication program, its objectives must be clearly
stated in quantitative terms. The target audience for the
communication mix needs to be defined, along with the degree of
change expected and the time period during which the change will
be realized.

 Determine the Communication Budget

Most communications by vendors are directed towards building a long-
term image of their products. In contrast, retailers’ communications
typically used to announce promotions and special sales that generate
short-term revenues.

o Marginal Analysis Method

Is based on the economic principle that firms should increase
communication expenditures as long as each additional peso spent
generates more than a peso of additional contribution.

o Objective-and-Task Method
Determines the budget required to undertake specific tasks to
accomplish communication objectives. To use this method, the
retailer must first establish a set of communication objectives and
then determine the necessary tasks and their costs. The total of all
cost incurred to undertake the task is the communication budget.

o Rule-of-Thumb Methods
Uses the past sales and communication activities to determine the
present communication budget.

 Affordable Budgeting Method

 Retailers first forecast their sales and expenses, excluding
communication expenses, during the budgeting period. The
difference between the forecast sales and expenses plus the
desired profit is then budgeted for the communication mix.
In other words, the affordable method sets the
communication budget by determining what money is
available after operating costs and profits subtracted.

 Percentage-of-Sales Method
Sets the communication budget as a fixed percentage of
forecast sales. Retailers use this method to determine the
communication budget by forecasting sales during the
budget period and then applying a predetermined
percentage to set the budget.

 Competitive Parity Method

The communication budget is set so that the retailer’s share
of its communication expenses equals its share of the
market. To use the competitive parity method, the owner or
the manager would first estimate the total amount spent on
communication by all goods, example sporting goods,
retailers in town. Then the owner or the manager would
estimate his or her store’s market share and multiply that
market share percentage by good store’s total advertising
expenses to set the budget.

 Allocate the Promotional Budget

After determining the size of the communication budget, the third step in
the communication planning process is to allocate the budget. Allocation
decisions, like budget-setting decisions, should use the principles of
marginal analysis. The retailer should allocate the budget to areas that will
yield the greatest returns. A retailer may find that its customers have a
high awareness and very favorable attitude toward its products but do not
know much about their other products. In this situation, a peso spent on
advertising on other products might generate more sales than peso spent
on the prime products, even though the sales of the prime products are
greater than the sales of other products.

 Plan, Implement, and Evaluate Communication Programs

The final stage in developing a retail communication program is its
implementation and evaluation.
To realize a good advertising campaign and sales promotion
opportunities, the retailer should consider:
 The realized margin from the promotion.
 The cost of additional inventory carried due to buying more
than the normal amount.
 The potential increase is sales from the promoted
merchandise.
 The potential loss suffered when customers switch to the
promoted merchandise from more profitable private-label
brands.
 The additional sales made to customers attracted to the
store by the promotion.
The retailer should compare the performances of the stores that they are operating if the
communication programs that they had used were effective and really attracted the
customers to purchase goods and services. Some retailers track their expense if they
were effective in allocating communication budget and if they had spent too much on
communications.