Strategies for Profitably Pricing Your Retail Products
Probably the most challenging aspect of being involved in retail is learning how to price products for maximum profitability. As much as we would like to find a one-size fits all approach to pricing, there is no scientific rationale or logic behind how to best approach retail pricing strategies. Instead, much of it is touch and go, and something that can take time and patience to grasp.
Pricing low may seem like an efficient approach, but it can be deadly for business if you fall below your profitability line time and time again. On the other hand, going for an approach that sets items at the higher end can create the feeling of an upscale store, thus attracting a small crowd of wealthier customers; however, there may be too few of them to do much good. A lot of how you price your items has to do with your location and your target audience, so what can you do for retail price optimization?
Your Pricing Decision
Honestly, the final decision is up to you. How you lean, toward high-end or low-end pricing, will both set the tempo for your store and determine how well you are reaching customers that fit your demographic. So, if you are wondering how to achieve maximum retail price optimization, read the list of the pricing concepts outlined below. This compilation should provide you with a decent overview of how to best approach probability pricing for your retail products.
1. MSRP (Manufacturer Suggest Retailed Price)
Just like the definition implies, this pricing strategy follows the suggestions outlined by the manufacturer to help a retailer successfully maximize profit. This method allows a standard set of pricing across the board for the wide variety of retailers that sell the product. Manufacturers naturally obtain benefits by doing this, but if retailers are distributing products that are primarily mainstream, they can expect to price at other retail outlets for similar concepts to be set across the board. Using the MSRP as a retailer will certainly make pricing easy and straightforward for you, but you may find that you aren’t able to gain an edge over your competitors with pricing when doing this.
2. Keystone Pricing
Keystone pricing is the equivalent of taking what you, as the distributor, paid for the item, and doubling it. It’s certainly an easy and straightforward approach, but it may not always fall within the scope of a good target price range for your clients. Therefore, you can’t count on it to be always right. The effectiveness of Keystone pricing is also going to depend on your product. If you tend to sell things that are hard to find or cost a lot to ship, then Keystone pricing is not going to be adequate for you. However, if you are the type of retailer that tends to sell things people can find without much searching at other stores, keystone pricing might work well for you.
3. Multiple Pricing, AKA Product Bundling Pricing
Two places you’ll see this strategy effectively utilized are clothing stores and grocery stores. Sometimes electronics stores capitalize on it as well. When you see an outlet labeling a wide variety of products at one price (for instance, a store that sells all of its items, no matter what they are, for ten dollars; or, even more widely known, ninety-nine cent stores utilize this approach). This idea is practical for making people think they are always getting a value when they may be driving up what a store makes monetarily simply by bulk. However, once you settle on this strategy and use only one price, you’ll be hard pressed to change it, as your customers will be less than happy with you if you do.
4. Discount Pricing.
All shoppers love buying off the sales rack, or shelf. Any markdown is attractive for a consumer, and discount pricing is the strategy that uses the price slashing approach to attract customers to stores. A well planned and efficiently marketed short term sale could help bring more customers to your doorstep while getting rid of hard to move inventory. The markdown might also catch the interest of consumers who may have otherwise ignored you if it weren’t for the word “sale” imprinted on signs decorating your store. However, you need to be careful with the timing of this one. You want to give the perspective to your customers that your products are high quality and the more bargains you give, the cheaper the perception of your retail offerings to potential clients.
5. Loss-leading Pricing
If you have a favorite and expensive product also offered by your competitors’, you might price slash that one thing to attract buy that popular new item. Say they manage to buy four other unintended things while at your store. If those unintentional extra item purchases happen, you’ve hooked your customers on loss-leading pricing. While your consumers may think they are saving money, they wind up spending more, and this can create a boost in retail sales. While this is very beneficial, it works the same as sales pricing in the fact that timing is critical, and you do not want to overdo it.
6. Below Competition
A retailer using this approach takes a look at his or her competition and uses those prices as a marker to beat on the low-cost scale. While this is an excellent way to sell things quickly, you may not get the best advantages monetarily for your hard work. However, what is certain is that it will entice customers to visit your store.
7. Above Competition
This notion is opposite of the previously presented below competition approach. The strategy aims at pricing above others that distribute the same product. This approach creates an unusual but standardized effect on customers: people will tend to think the items you are selling are better, or your store has more to offer because the prices are higher. It makes your direct approach create that “keeping up with the Jones’s” effect, because shopping at pricier, higher-end stores is a status symbol for many people.
If You Sell Online, Globalize Language
Now, all of these strategies have been primarily discussed within the scope of a local retail store, but can be applied effectively to an online retailer as well. However, if you are selling online, one thing you need to do is to think globally about pricing, and this is where retail analytics software can come in handy to globalize your pricing effectively on a worldly scale. With a multilingual software, you can compare your prices to your competitors across markets irrespective of the catalog display language. This, thus, enables retailers and brands, like yourself, to be as competitive as possible.
It’s Your Retail Store and Your Decision
What you decide to do with your pricing is entirely up to you, just remember that you will need to wind up owning your decision, just like you own the responsibility for your store. The most effective strategy for you will not only help guide the sales of your store but also the general aura and mood of the consumers you attract, so choose wisely. And also remember, that when deciding on pricing, the type of success and atmosphere you generate will be dependent on your products, goals, and the impact of your competition on the market.
Author: Yasen Dimitrov , Co- Founder and Chief Analytics Officer ,Intelligence Node, a data analytics company that helps brands and retailers to optimize their pricing, product and merchandizing operations by using real time data.
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