There’s a fine line between maximizing profit and keeping retail customers happy and encouraging brand loyalty. Retail pricing is a calculated process and various strategies exist to guide retailers on the optimal pricing structure.
As experts in the retail consulting industry, There are a range of pricing strategies that we believe that every retailer should know about and consider implementing.
Benefits of Applying Appropriate Retail Pricing Strategies
How do you choose between low pricing and high pricing strategies? The real question should be what the appropriate pricing strategy is to achieve your retail objectives.
Depending on the chosen strategy, a retail store can enjoy the following benefits:
- Maximize revenue, including products that are least sold
- Enter a new market
- Attract new customers
- Cover costs of products and supply chain
- Boost customer perception
- Improve brand loyalty
- Gain competitive advantage
Internal and External Pricing Factors
Before you can choose the most appropriate strategy, you need to consider the various internal and external factors that will impact the best option for you.
Internal Pricing Factors
The internal pricing factors are controlled by the business and can be changed or adjusted as needed. Some examples include;
- Revenue goals
- Production costs
- Purchasing price
- Organizational structure
- Marketing efforts
- Business goals and objectives
External Pricing Factors
Other pricing factors are out of the control of the business, and include;
- Macroeconomic conditions such as inflation, interest rates, etc…
- Inventory accessibility and costs
- Change in consumer demand
- Competitive advantage or concerns
- Demographic data, such as the influence of Gen Z in fashion manufacturing and retail
Both internal and external pricing factors should be considered when brainstorming the most appropriate retail pricing strategy.
Retail Pricing Strategies Every Retailer Should Know
There are various retail pricing strategies to apply to your business and the most appropriate strategy can be explored with the help of experts in the consultancy industry. As a starting point, consider the following options.
The retail industry is constantly changing and dynamic pricing allows for the price of your products to adapt to market conditions. Depending on the retail niche, these changes could occur on a daily, weekly, or monthly basis. While changing prices according to the market is valuable, it can also trigger warning signs with consumers, so adapt discreetly.
When using an anchor pricing strategy, retailers create a reference point for shoppers that they can use as a favorable comparison. Anchor pricing can be done in various ways, such as listing a discounted price next to the original price to inspire a purchase.
Manufacturer Suggested Retail Price (MSRP)
In some instances, a manufacturer may recommend a selling price. Sticking to this suggestion is one method of pricing. The original purpose of the MSRP is to control the market position of the product and preserve brand value but it also offers an easy and effective pricing strategy.
Did you know that premium pricing can attract certain consumers, especially when it’s difficult to determine the value of a product? Premium pricing means selling your product at a higher price than the competition and can encourage the impression of your brand offering better quality and service. However, great care must be taken when adopting this strategy to avoid losing sales.
Psychological pricing involves the strategic use of numbers to charm consumers into making a purchase. Psychological pricing, which typically includes the use of odd numbers, can trigger impulse buying by creating the irresistible perception of a deal. Other tactics include creating urgency, prestige pricing, and even bundling.
Assessing competitor behavior is a key strategy to staying ahead, and this includes competitive pricing strategies. Once you’ve researched the retail price of competitors, you can choose to undercut them, mimic their strategy or charge a higher price. Take the time to gather relevant data to help guide your decision. This pricing strategy is especially relevant for brands in a highly saturated market.
As the name suggests, discount pricing involves the sale of a product at a discount and is a short-term solution for moving seasonal or slow-selling products. Discount pricing should only be used in certain situations for optimal results.
Keystone pricing is an easy and effective way to ensure a profit by doubling the product’s wholesale price. Adjustments can be made when needed to stay ahead of competitors and ensure that the price is just right for your organization. The simple markup formula is widely adopted but discretion is advised depending on the availability and demand of a particular product.
Bundle pricing allows retailers to boost the sale of non-leader products by grouping them with leader products. Bundling involves the sale of multiple, related products for a single price. It offers the perception of high value for a low cost and helps retailers move more items (when the bundles are selected strategically).
Loss-leading pricing involves the sale of a product at a significantly lower rate to hook a customer. The main goal is to increase brand awareness and encourage a sale, so often there is no profit made on the product. As a riskier strategy, the loss-leading model relies on a consumer to purchase another item with a higher profit margin to cover the loss.
Penetration pricing is effective when entering a new market. By lowering your prices in a highly competitive market, the low-cost appeal attracts new customers. When combined with quality and excellent service, the strategy can inspire brand loyalty.
A channel-based pricing strategy considers the sales platform and how it impacts the overall cost of the product to the company. For example, a product may sell at a higher margin in a brick-and-mortar store compared to an online shop to cover the overhead of rent. To avoid suspicion, some retailers offer discounts or coupons on more affordable platforms.
Determine the Best Retail Pricing Strategy for You
Understanding the pros and cons of each retail pricing strategy can be an overwhelming exercise, especially considering how customer demands are constantly changing and the ever-developing technology in the retail space.
Ollen Group is one of the leading consumer goods and retail consulting firms in the Middle East & Africa region (MEA) offering retail design services with turnkey solutions from strategy to execution. Our retail management consultant and strategy consultants will help your through your journey.
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