Corporate India’s unwillingness to see fraud as a strategic risk poses a grave threat to firms as they start experiencing frauds of the future, indicates the KPMG India Fraud Survey 2012.
Cyber crime, intellectual property fraud including counterfeiting and piracy, and identity theft were rated as the top fraud concerns for the future by survey respondents across all sectors. This underlines a shift in the fraud landscape with fraudsters increasingly targeting organisational knowledge (data, code etc) and not physical assets to defraud companies.
“Over the last decade knowledge has emerged as a key organisational asset. It is only natural that fraudsters will target these assets, as they are much more valuable to companies today,” said Rohit Mahajan, Partner and co-Head, Forensic Services, KPMG in India. The futuristic frauds identified rely on technology and allow fraudsters to work in groups to leverage their full might. Irrespective of size, sector and operations, every company was vulnerable, said Mahajan.
“Technology is changing the fraud landscape and challenging the boundaries of fraud risk management. By misusing technology even relatively simple frauds like those in procurement, can become sophisticated and difficult to detect. The frameworks that were sufficient to mitigate simple frauds are no longer effective against these sophisticated frauds“, he said. This is evidenced by over 70 percent of survey respondents claiming they had no effective mechanism in place to mitigate risks from futuristic frauds.
Highlighting the under-preparedness among companies to tackle futuristic fraud, the survey noted that nearly 78 percent of respondents were unaware of the risks associated with intellectual property infringement, counterfeiting or piracy. In case of cyber crime, while over 80 percent respondents had policies on accessing external websites and social media from their office networks, 40 percent said their companies did not have specific guidelines on the kind of information that could be shared on social media. Around 53 percent of respondents said they had faced identity theft (either by way of password sharing, social engineering or malwares) and yet did not have a policy to mitigate these incidences.
There was high reliance on internal mechanisms such as general process controls and compliance frameworks to detect and prevent futuristic frauds, the survey noted. While whistleblower hotlines were identified as an efficient method to uncover fraud or misconduct within organizations, only 50 percent of respondents said they had established such a hotline in their organization. Further, only half of the respondents said they had implemented process specific controls, employee and third party due diligence, whistleblower hotline, and a framework to monitor compliance with the Code of Conduct/ Code of Ethics. Apart from challenging business processes to unearth gaps in existing controls, and forming internal teams to research on emerging frauds, there was little that companies were doing to tackle these frauds, the survey revealed.
“A one-size-fits-all framework cannot help mitigate emerging fraud risks. This is because each risk manifests itself uniquely. Companies need to be aware of the various possible modus operandi, perpetrators and gaps in internal controls. Only then can they develop an effective risk mitigation framework,” said Rohit Mahajan, Partner and co-Head, Forensic Services, KPMG in India. He cited comprehensive information security measures, protection of personal information, physical security measures, and robust access protocols, along with periodic reviews as some measures that could be adopted to tackle futuristic frauds holistically.
Although a majority of respondents were impacted by various types of futuristic frauds, around 71 percent felt fraud (of any type) was an inevitable cost of doing business, implying that fraud mitigation and risk management ranked low on their board level agenda. This attitude, to some extent, was supported by various survey findings – Increase in the number of frauds discovered (making one believe that no amount of risk management could help); the tendency among companies to undermine the threat of employee fraud; inadequate fraud risk management controls to tackle futuristic fraud; reluctance to rely on external experts during an investigation and a high degree of tolerance for well known forms of fraud such as bribery and corruption.
Financial Services and Information & Entertainment were identified as sectors most prone to frauds, owing to their high dependence on technology, large transactional data in electronic form, as well as the confidential information they held.
Bribery and corruption continues to be an issue the industry is reluctant to discuss and close to 70 percent of respondents said they faced no significant threat from it. Around 72 percent of respondents said their organisation had a mechanism to address bribery and corruption, however, only few respondents chose to answer questions pertaining to such a mechanism, indicating high levels of organizational tolerance to bribery and corruption.
Imagine you're walking through a grocery store, overwhelmed by choices. A sea of similar products beckons, each with a price tag whispering its value proposition. But how do these prices come to be? The answer lies in the fascinating world of retail pricing, a strategic dance between profitability, customer perception, and market competition. This comprehensive guide, packed with facts, data, statistics, engaging testimonials, and practical examples, dives deep into the world of retail pricing, empowering retailers, owners, and entrepreneurs to unlock its full potential.
Retail Price: The Definition and Its Significance
The retail price, also known as the selling price or the end-user price, is the final price at which a product is offered to consumers in a retail setting. It's the price you see on the shelf, the one that determines how much your customers pay at the checkout counter. This price encompasses not just the product's cost but also factors in various expenses incurred by the retailer, such as transportation, storage, marketing, and a profit margin to ensure the business remains viable.
Budgeting and Decision-Making: Customers use the retail price to compare products, evaluate their value proposition, and make informed purchasing decisions within their budget constraints. A study by the National Retail Federation [https://nrf.com/] found that 64% of consumers consider price to be the most important factor when deciding where to shop. This emphasizes the significant role retail price plays in customer purchasing decisions.
Perceived Value: The price tag often influences a customer's perception of a product's quality and worth. Higher prices can lead to perceptions of higher quality, while lower prices might lead to concerns about quality. For example, a customer might be willing to pay a premium price for a pair of designer sunglasses due to the perceived higher quality and brand association, compared to a generic pair of sunglasses at a much lower price.
Price Sensitivity: Customers exhibit varying degrees of price sensitivity, meaning they are more or less willing to pay specific prices depending on the product category, brand perception, and individual needs. For instance, customers might be more price sensitive when purchasing everyday items like groceries, while they might be willing to pay a premium for luxury goods or experiences.
Data-Driven Decisions: Analyzing Competitor Prices
Utilizing online tools and resources, or even physically visiting competitor stores, can provide valuable insights into their pricing strategies. This information can be used to set your prices competitively.
For example, an electronics store owner might monitor online retailers like Amazon and Best Buy to track price fluctuations on popular laptops, allowing them to adjust their prices accordingly to remain competitive.
Strategic Undercutting: Offering a Lower Price
This strategy involves setting your retail price slightly lower than competitors for similar products. It can be a good tactic to attract price-sensitive customers and gain market share, but it's crucial to ensure you can still maintain profitability with this lower price point.
Example: A grocery store might undercut competitor pricing on a specific brand of cereal by a few cents to entice customers to switch and potentially purchase other items while in the store.
Premium Pricing: Commanding a Higher Price Through Value
This strategy involves setting a higher retail price than competitors, often justified by factors like superior quality, unique features, or exclusive brand perception.
For example, a high-end clothing store might price its designer garments significantly higher than competitors due to the premium materials, craftsmanship, and brand reputation associated with the products.
Identifying Customer Needs and Pain Points
Understanding your target audience's needs, wants, and pain points is crucial for this strategy. By effectively addressing these concerns through your product's features and benefits, you can justify a higher price based on the perceived value delivered.
Example: A company selling organic, locally sourced vegetables might highlight the health benefits, environmental sustainability, and support for local farmers to justify their premium pricing compared to conventional grocery stores.
Quantifying the Value Proposition of Your Product
Once you understand your customer's needs, translate the benefits your product offers into quantifiable value. This could involve highlighting time saved, convenience offered, or improved quality of life achieved through using the product.
For example, a fitness tracker company might showcase how their product helps users track steps, monitor sleep patterns, and achieve fitness goals, justifying their price point compared to a simpler pedometer.
Setting a Price that Reflects Perceived Value
Based on your understanding of customer needs and the quantified value proposition, set a retail price that reflects the perceived value your product offers. This price should be high enough to cover costs and generate profit while remaining attractive to your target audience.
Example: A company selling a premium coffee blend might highlight its unique sourcing, roasting process, and exceptional flavor profile to justify a higher price compared to mass-produced coffee brands.
Odd-Ending Prices: The Allure of $9.99
Studies suggest that customers perceive odd-ending prices (e.g., $9.99) as being slightly lower than round numbers (e.g., $10), even though the difference is minimal. This tactic can create a subconscious perception of a better deal.
Example: An online clothing retailer might price a t-shirt at $19.99 instead of $20 to leverage the psychological effect of odd-ending prices.
Bundling and Discounts: Encouraging Larger Purchases
Offering product bundles or discounts for purchasing multiple items can incentivize customers to spend more. This strategy can increase your average order value and boost overall sales.
For example, a software company might offer a discount on a bundled subscription package that includes multiple software applications, encouraging customers to purchase the entire package instead of individual products.
Strategic Sales and Discounts: Temporary Price Reductions
Offering temporary price reductions through sales or discounts is a popular strategy to stimulate sales, clear out inventory, or attract new customers.
For example, a department store might hold a seasonal sale to clear out summer clothing before the fall collection arrives.
Coupons and Loyalty Programs: Rewarding Repeat Customers
Providing coupons and loyalty programs can incentivize repeat purchases and build customer loyalty. This strategy can help you retain existing customers and encourage them to spend more over time.
For example, a coffee shop might offer a loyalty program where customers earn points with each purchase, which can be redeemed for free drinks or discounts on future purchases.
Factors Influencing the Retail Price Equation: A Deeper Look
Every retail price you set is influenced by a combination of internal and external factors. Understanding these factors is crucial for making informed pricing decisions.
This refers to the direct cost of acquiring the product, including manufacturing, materials, labor, and transportation. It's the starting point for calculating your markup rate and, ultimately, the retail price.
For example, a bakery might factor in the cost of flour, sugar, eggs, and other ingredients, as well as the labor costs associated with baking, to determine the COGS of a loaf of bread.
Operational Costs: Beyond the Product Itself
These are the indirect expenses associated with running your business, such as rent, utilities, employee wages, marketing, and administrative costs. These costs need to be incorporated into your pricing strategy to ensure profitability.
For example, a clothing store owner might consider the cost of rent for the storefront, employee salaries, and marketing expenses when determining the retail price of their clothing items.
Target Market and Customer Price Sensitivity: Understanding Your Audience
It's crucial to understand your target market and their price sensitivity. This involves considering factors like demographics, income levels, and shopping habits. Customers with higher disposable income might be more receptive to premium pricing, while budget-conscious customers might prioritize value pricing.
For example, a high-end jewelry store might cater to a niche market willing to pay premium prices for luxury items, while a discount clothing store might target a broader audience seeking affordable fashion options.
Brand Image and Positioning: The Value of Your Brand
The perceived value and image associated with your brand can influence the price premium you can command. Strong brand recognition and positive customer perception can allow you to set higher prices compared to lesser-known brands offering similar products.
For example, Apple products often command premium prices due to their brand image of innovation, quality, and exclusivity.
Supply and Demand: The Market Forces at Play
Market forces like supply and demand play a significant role in determining the optimal retail price. When the supply of a product is limited, and demand is high, you might be able to justify a higher price point. Conversely, if there is an abundance of a product and low demand, you might need to lower your price to remain competitive.
For example, the price of a popular video game might be higher during its initial release due to high demand and limited availability. However, the price might decrease as the game becomes readily available and the initial hype subsides.
Government Regulations: Ensuring Compliance
Certain products might be subject to government regulations that impact pricing. These regulations can include minimum pricing requirements, taxes, and labeling requirements. It's essential to be aware of and comply with any relevant regulations when setting your retail prices.
For example, some countries have minimum pricing regulations for alcohol or tobacco products to discourage consumption.
Now that you understand the various factors influencing retail price, let's delve into the basic formula used to calculate it:
Retail Price = Cost Price + Markup Rate
Cost Price: This includes all the direct costs associated with acquiring the product, as mentioned earlier.
Markup Rate: This is the percentage you add to the cost price to cover your operational expenses and generate a desired profit margin.
Let's say the cost price of a T-shirt is $10 and you desire a 40% markup rate.
Markup Amount = Cost Price x Markup Rate = $10 x 40% = $4
Retail Price = Cost Price + Markup Amount = $10 + $4 = $14
It's important to note that this is a simplified formula, and more complex pricing models might be used in practice, considering factors like discounts, variable costs, and competitor pricing.
As you gain experience and navigate the dynamic world of retail, you can explore advanced pricing techniques to optimize your strategies:
Dynamic Pricing: Adjusting Prices Based on Real-Time Data
This involves using technology to adjust your retail prices in real-time based on factors like customer behavior, competitor pricing, and market demand. This can help you maximize your profit potential and cater to dynamic market conditions.
For example, an airline might use dynamic pricing to adjust ticket prices based on seat availability, day of the week, and booking time.
Penetration Pricing: Entering a New Market with Low Prices
This strategy involves setting initially low prices to gain market share and brand recognition in a new market. Once established, you can gradually increase your prices as you establish your brand and customer loyalty.
For example, a new streaming service might offer a lower subscription price initially to attract users and compete with established players in the market.
Price Skimming: Targeting Early Adopters with Premium Prices
This strategy involves setting a high initial price for a new product to capitalize on early adopters willing to pay a premium for exclusivity and innovation. As the product matures and becomes more widely available, the price can be gradually lowered to reach a broader customer base.
For example, a company releasing a new smartphone with cutting-edge technology might initially set a high price point to target early adopters and tech enthusiasts, before lowering the price as the product reaches a wider market.
In today's digital age, various tools and technologies can empower you to make informed pricing decisions:
By utilizing these tools and technologies effectively, you can gain valuable insights and make data-driven decisions that improve your overall pricing strategy.
As you've seen, retail pricing is a complex and multifaceted area that requires careful consideration of various factors. By understanding the different strategies, formulas, and advanced techniques, you can equip yourself with the knowledge and tools to set effective retail prices that optimize profitability, attract customers, and ensure the sustainable success of your business. Remember, the key is to constantly learn, adapt, and refine your pricing strategies based on market trends, customer behavior, and your evolving business goals.
Answer: Imagine a product takes a journey from manufacturer to your shopping cart. The retail price is the final price tag you see in the store, the one you pay at checkout. This price incorporates various costs:
Therefore, the retail price is typically higher than the wholesale price because it factors in these additional costs and the retailer's profit margin. The wholesale price, on the other hand, is the price at which the manufacturer or distributor sells the product in bulk to retailers. This price allows retailers to add their markup and still make a profit when they sell the product to individual customers.
Answer: MSRP stands for manufacturer's suggested retail price. It's essentially a recommendation by the manufacturer on what the retail price of a product should be. Think of it as a suggestion, not a rule.
Retailers are not obligated to follow the MSRP and have the freedom to set their own retail price based on various factors, including:
Therefore, while the MSRP can provide a starting point, retailers have the flexibility to adjust the price based on their specific circumstances and target market.
Setting an effective retail price requires careful consideration of several factors:
By carefully considering these factors, you can set a retail price that balances profitability with customer value and market competitiveness.
Retailers use various strategies to attract customers and maximize profits. Here are some popular approaches:
Choosing the right pricing strategy depends on your specific product, target market, and business goals. Experimenting with different strategies and analyzing their effectiveness can help you find the approach that works best for your business.
In today's digital age, various tools can empower retailers to make informed pricing decisions:
Utilizing these technological tools can provide valuable data and insights, empowering you to make more informed and data-driven pricing decisions that optimize profitability and customer satisfaction.
The key to successful retail pricing is not a one-time fix. It's an ongoing process of learning and adaptation. Here's what you can do:
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