Pricing Strategy Used by Metro Books - Case Study Example

PRICING AND STOCKING ASSESSMENT FOR METROBOOKS Name: Instructor: Course: Date: Executive Summary A metro book, a traditional book seller has been facing stiff competition from web-based retailers and there has carried a research to compare with its competitors to find out the real to cause to it losing in the market. In this report, three other retailers who are web-based have been put under consideration to compare the pricing and the stocking. Only books whose holding time had exceeded 60 days were taken into account. Analysis show that the pricing of Metro books was way above those from its web-based competitors whose prices was close to each other. There were also books that were retailing at a lower price than those from competitors though their holding time was more than 110 days. The pricing strategy used by the Metro books includes the skimming strategy and the loss leader strategy; it is recommended that the firm explores other pricing strategy in order to achieve higher profits. Table of content: 1. Introduction:……………………………………………………………..3 2. Method:………………………………………………………………….3 3. Results:…………………………………………………………………3 a. Competitors:………………………………………………..…..3 b. Lowest prices………………………………………………..5 4. Pricing strategy……………………………………………………… 6 5. Conclusion and recommendation:……………………… …………..8 6. References:…………………………………………………………..9 Introduction Metro books, a traditional bricks ‘n mortar bookseller with various stores located around Australia, is facing stiff competition from web-based book retailers and therefore it’s establishing its best course of action to remain competitive. In this report, there is a comparison of five books from metro books whose stock holding is more than 60 days with three other web-based retailers who are within Australia. There is an analysis of their prices and the deviation among the four retailers. Method: Book prices was retrieved online, the competitors analyzed include seek books, Boomerang books and Book topia. The books analyzed include: “Lunar Park”, “Deception Point”, “Point Blank”, “The Widow of the South” and “Born to be bad”. These books had a holding period greater than 60 days. Data was analyzed using MS. excels and the results are discussed below: Results: Competitors Retrieving the prices for these books was challenging and to some extend influenced the choice of the five books under consideration. The user interface in most online booksellers made it hard to search for specific books which were supposed to be considered with others requiring registration so one could sign in to search the book of the choice. Those sites that had no much procedure had much advertisement which interrupted the search or did not have a customized search so one could search for a specific book. Other web site contains the books under consideration but did not give the full details which included the price which was one of the major fields that was a necessity so as to make our comparison possible. The following sites were considered for the comparison; the seek books website, boomerang books website and book topia website were used. They had a friendly user interface which made the search easy. They had categorized their books accordingly with inbuilt search engine to search for the required books. The too displayed the details search as book name, author, price, approximate delivery time and other more details and hence made extracting of details easier. They also showed the featured book of the week, books on offer and the discounted books among other details... After extracting the information and displaying it in a bar graph, it was possible to compare the prices in the four outlets. The bar graph is shown below The following table shows the prices for each book at each store, Seek books Boomerang books Book topia Name Metrobook Price($) Total Total Total 1.Lunar Park $34.93 $19.14 $24.83 $24.83 2.Deception Point $11.19 $21.55 $26.95 $19.14 3.Point Blank $36.33 $10.56 $12.91 $15.07 4.BornTo Be Bad $34.93 $10.74 $12.91 $12.90 5.The Widow Of The South $10.50 $10.74 $23.71 $23.71 (Seek Books 2011, Boomerang books 2011, Book topia 2011) In the selection of the five books, those whose holding time had exceeded 110 days were considered then five books were taken at random to represent them. These would represent stocks (books) which had overstayed in the shops and therefore could help compare with online stores who were doing well in the market. Stocks that over stay are a representative of unfavorable products in the market and to the seller, they increase the operating cost and therefore was a good representative. They could also represent stocks that are ordered above the maximum order quantity and therefore could help the breakeven order quantity during ordering. Lowest prices: The lowest prices in the market were established and compared to the prices at Metro books, the following are the results: Name Lowest Price Metro book Price($) 1.Lunar Park $19.14 $34.93 2.Deception Point $19.14 $11.19 3.Point Blank $10.56 $36.33 4.The Widow Of The South $10.74 $34.93 5.Born To Be BAD $10.74 $10.50 The above results are represented in the chart below: The results indicate that majority of the books are over priced at metro books, however other book prices are relatively lower than the competitors. Pricing strategy used by Metro Books The pricing of books in the web-based retailers compared to that of Metro books varies with a big margin while comparing the prices within the online outlets alone; the prices are close to each other. Except for the two books i.e. “Deception Point” and “Born to Be Bad” the other three books have their prices way above the web-based ones. A book like “Point Blank” for example has the maximum holding stock days (123) and too when compared with the other the other outlets it is the most highly priced. This explains while it sale is low. The other two books have their prices below the other outlets but still have long holding days. This shows that it is a slow moving book and therefore its order quantity should be low. The prices at the web-based outlets are close to each other meaning that the other outlets take consideration of their competitors in the market before deciding on the pricing so that they may still remain competitive. Metro books should determine the break even quantity of stock of books especially those whose holding time is above 60 days so as to reduce its operating cost. In products whose pricing is way above its competitors should also be put under consideration so as to get a profitable and a competitive relative to web-based retailers. (Accounting for management 2011) The pricing strategy used by Metro books is Price skimming; this refers to a strategy where a firm will decide to have higher prices than their competitors in order to achieve higher profit margins although sales volume is low. The rationale behind this strategy is that the firm will still achieve high profits even without higher sales volume. (Gordon Mills 2002) The loss leader strategy is also evident where the firm may be using this strategy on the book “deception point”, this strategy is evident where a firm will decide to sell one product at a loss in order to increase the sales volume for its other products, this way Metro books realize a loss in selling this product but on the other hand helps it to increase the sales of other products that have higher prices than its competitors. (Gordon Mills 2002) Conclusion and Recommendations Metro books is facing stiff competition from its web-based retailers and therefore should act immediately so as still to remain a leader in the business. The competition mainly is as a result of poor pricing as manifested in the five samples that were put under consideration. Web-based outlets have a wide research on their pricing methods where they put their competitors under consideration while Metro books seem to have not realized this. Most of their books are slow moving because of overpricing and therefore losing their customers to the web-based ones. There is also overstocking of some type of books especially those that are slow moving. (Okun 2001) Although the pricing of some of their books is below its competitors, they still remain in stocks. These shows that there is poor advertisement strategy by Metro books whereas the web-based ones are making their advertisement as slide shows in their homepage and other sites as adds hence increasing their customer base. Metro books should start by shifting from traditional methods of stock management to the digital ones as this could help show how goods are moving, when the minimum reorder quantity has been reached to help in ordering. They should also consider researching from their competitors their mode of pricing so that their products are selling within the market price of the other similar books in the market. REFERENCE Accounting for management 2011, re-order level or ordering point or ordering point, Viewed 12th August, 2011, Boomerang books 2011, book prices, viewed 12th August, 2011, http://www.boomerangbooks.com.au/> Book topia 2011, book prices, viewed 12th August, 2011, http://www.booktopia.com.au/> Gordon Mills 2002, Retail pricing strategies and market power, prentice hall publishers, New Jersey. Okun, M. J. 2001, Prices and quantities: a macroeconomic analysis, brooking institution press, New York. Seek Books 2011, book prices, Viewed 12th August, 2011, < http://www.seekbooks.com.au/> Read More