Pricing Project
Introduction
Consumers in the U.S, being rational, are always keen on minimizing their consumption expenses. This explains why most people in the US usually window shop in order to compare prices in different outlets. The same good with the same quality may have different prices in different stores. This research was done for a client who was interested in finding out whether the prices of essential goods were different in various retail outlets in the U.S. The researcher selected the two retails stores, Walmart and Kroger, because they are both popular among U.S shoppers.
Hypothesis and Literature Review
The null hypothesis was that the average prices of basic items are the same in all retail outlets in the U.S are equal. The alternate hypothesis was that the average prices of basic items are the same in all retail outlets in the U.S. are not equal. This hypothesis was appropriate because this study was interested in evaluating whether the average prices of essential goods in various retail outlets in the U.S. The hypothesis was not directional.
The prices of goods in different retail stores are different because of various reasons. First, different stores have different suppliers of goods and middlemen. Normally, retail stores add similar mark-up in determining their selling price of item. Therefore, stores that acquire a given item at a higher price will charge higher prices to consumers. Secondly, retail stores may base their pricing on their target market behaviour. If a retail store feels its target market is not price sensitive then it will charge high prices since it knows demand will not be affected. However, a retail store that feels its target market is not price sensitive then it will charge low prices since it fears charging high prices may affect demand negatively. Thirdly, the price charged by a retail outlet depends on its operational efficiency. Any business must set its price in a way that the collected revenue will pay its operating costs using the gross profit. If a firm is not able to cover all of its costs and make profit then it will run bankrupt. Therefore, retail outlets normally set margins that will cover its operating costs and make reasonable profits. Retail outlets that are less efficient have higher operational cost. Therefore, such retail outlets will need higher margins to cover their operational costs. It is expected that such retail outlets will have higher prices that retail outlets that are efficient.
Methods
A sample is a segment of a target population that is used by a researcher when conducting a study. To form a sample, this study used simple random sampling and judgement sampling. The researcher selected the two retails stores, Walmart and Kroger, because they are both popular among U.S shoppers. The researcher then selected 30 items at random which were used for this study. A sample of 30 was appropriate because the researcher had limited time and limited resources for conducting this study. Random sampling was appropriate because it removed biasness during sample selection; it improved objectivity of this study as well as the study’s internal and external validity.
T-test for comparing means was used with the help of SPSS. T-test for comparing means was appropriate because this study was interested in evaluating whether the average prices between the two stores are the same or different. Besides, there are only two set of items making t-tests for samples that are paired appropriate. Z-test was inappropriate because the sample size was small. Z-test is normally used for samples that are larger than 30.Regression analysis was not appropriate because there are no variables that explain changes occurring in other variables. Chi-square test was inappropriate because the researcher was not comparing prices observed with predicted prices.
The study used a 5 per cent significance level. This is because SPSS provides statistics with 95 per cent confidence level.
Results
A sample of 30 items from each of the two stores was used. Items from Walmart had a mean of $ 5.759 and a standard deviation of $ 4.62567. Items from Kroger had a mean of $ 6.2133 and a standard deviation of $ 4.9062.
The t-test had a t-value of -358 with equal variance assumption at 58 df and a mean difference of -45433. The p-value was of the t-test was 0.714 which is higher than p-critical.
We don’t reject the null hypothesis since 0.714 > 0.025
Discussion
There are no significant differences in the prices of items in Walmart and the prices of similar items in Kroger at 95 per cent confidence level. I will report to my client that the prices of items in the two retail stores are relatively the same. However, these results have a 5 per cent chance of being incorrect. These results are different from my predictions. The results may have been different because there are some fundamentals in the retail industry that I did not understand. Further research may be necessary to explain the findings of this study.
References
Engle, J. (2007). How to Open and Operate a Financially Successful Retail Business (illustrated ed.). New York: Atlantic Publishing Company.
Gliner, J. A., & Morgan, G. A. (2005). Research Methods in Applied Settings: An Integrated Approach to Design and Analysis, Second Edition (Illustrated ed.). London: Routledge.
