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when the consumer walks into a retail store he has some standard items based on whose price he decides whether the store is expensive or not. Consumers when they walk into a store will have a perception that this store is a bit on the expensive or the prices in this store are higher than other stores. It is proved that consumers decide that by looking the price at some of the products called Known Value Items. Retailers generally do their best to keep the prices of KVIs low and not changing them, just to not create any perception. For example, a consumer walking in may find the onions price low or unchanged because it is one of the known value items based on which the consumer will have a perception of the store. So, the retailers generally don’t change the price of KVIs, but they offset for that in increasing the prices on some other items.
Prices perceived to be lower than the benchmark price of a KVI leads one to believe that the store offers great prices and hence lot of savings. This is an example of the Halo-effect theory. This is more relevant in non-MRP categories like vegetables, groceries, and fruits. Even with the MRP, the retailer price “Our Price” is a very effective perception driver. Also most consumers think of price w.r.t. standard volumes/weights like one kg, eventhough we may be buying less/more we still calculate in that way. Retailers understand these perception dynamics and come up with different pricing strategies in different categories.
Hi. Sir..
Within a customers normal shopping (weekly basket) there are a few items that are so regularly purchased that the customer is aware of the "market price" for the item. These are known as KVI (Known Value Items). These are sold in two ways. Normal KVIs virtualy have a "price fixing agreement" (which is illegal and known as a "cartel"). In effect everyone fixes their price to the "market price" so there is no advantage in going to a "cheap shop" for them. Buy Local. In a pharmacy this is basic paracetamol. Lem-sip. You get the idea. How much is an elastic support for a knee injury? You will have no idea - you have never bought one. So that's where the money is and that's what they charge.These KVIs are sold below cost. The theory is that if you understand that the supermarket is cheap on these items - mind blowingly cheap - you assume they are cheap on everything. So you shop there. These items are regularly purchased low value items as a rule. Tins of "value" beans, basic sliced bread, butter, etc. You CANNOT make a load of beans in tomato sauce for the price of "Tesco Value" baked beans. Tesco can't make them that cheap either.
KVI = products that customers require on a daily basis for example: cetain types of fruits & vegetables, rice, water, body soap, diswashing liquids, bread, milk, etc.
Retailers keeps the prices of these types of items very low GP in order to drive sales and build customer confidence and loyalty.
