9 Retail Pricing Strategies to Get Customers to Buy
Retailers need to have an effective pricing strategy in order for their business to be successful.
Pricing is more than just a number. It ties into value, status, and how it makes people feel. This article will discuss retail pricing strategies in more detail.
When we buy something, it’s often an emotional experience. It can be like opening a present and seeing what is inside or feeling that rush of satisfaction when you get the best deal.
How to Price A Product for Retail
Josh Pollack, a pricing expert at Parker Avery Group says that it is important to be aware of what your competition does in order to maintain profit margins. He adds that price levels are one way for companies to try and make their products more competitive.
One way to start thinking about retail pricing strategies is whether a product is a one-time or repeat purchase. And a lot of people are confused by the difference, says Abir Syed who specializes in CPA and e-commerce consulting.
“If something is a one-time purchase, like a pool table, you need to make back your money by taking into consideration the customer acquisition cost. But if it’s an item that people will buy over and over again—like protein bars—you can price lower knowing that once they are hooked on this product or service they will be loyal customers for life,”
Pricing Traffic Drivers and Margin Enhancers
Josh, of Parker Avery Group, has said that some items can be classified as “traffic drivers” because they are the ones with high sales and traffic. Other products might not sell very well but will improve profitability if prices are adjusted.
There are different approaches to retail pricing strategies.
- Pricing based on costs.
To do this, you need to have a good understanding of the cost of production and what it will take for you to break even after marketing and sales expenses are taken into account.
- Pricing based on competition.
Research similar products and see if you are cheaper or more expensive than others in the market, but also take into account that being too cheap can mean a loss in profit.
- Pricing that’s based on the product range.
This is when you sell an item at a lower price in order to attract customers into your store and hopefully, buy higher-priced items. For example, if I have three different types of shirts that cost $25 each but one shirt costs only $10 then my goal is for people who come in just looking for this cheap shirt will be more likely to buy something else from me because they’re already inside.
Wholesale vs Retail Pricing
Not every retail business is selling to consumers; some sell to other retailers. When it comes to wholesale pricing, you’ll need a different sales strategy that includes different overhead costs. Retailers will buy in bulk while wholesalers sell large volumes of products.
If you have a brick-and-mortar store, then there are other logistics considerations to think about. For example, if your company does fewer large shipments instead of many small ones directly to consumers that can bring in another overhead consideration for the distribution center.
9 Retail Pricing Strategies
There are many different ways on how to price items. If you want to know how to determine the retail prices for your products, read on.
1. Manufacturer Suggested Retail Price (MRSP)
The Manufacturer Suggested Resale Price (MRSP) is the price a product maker suggests vendors sell the product for. Manufacturers cannot dictate prices at every stage of distribution but they can decide who they will work with and what kind of pricing agreements are allowed.
2. Keystone Pricing
This usually applies to the sale of clothing. Keystone pricing is pricing at double what it costs wholesale. This is not that common anymore.
3. Multiple Pricing and Discount Pricing
When customers buy in bulk, they will get a discount. If you want to sell more of your products then it is best to offer them at a lower price if the customer buys multiple items.
4. Penetration Pricing
Penetration pricing is a form of discounting with one difference.
One way to think about this is by looking at the competitive world of video-on-demand streaming services. Think Netflix, Amazon Prime, and Hulu. In such a competitive environment, new entrants may use penetration pricing and offer low prices to attract customers.
Subscription pricing is on the rise, so it’s important to consider how you can offer a lower price for an initial period. This will hopefully get customers hooked and committed before they have to pay full price.
5. Value Pricing
Value-based pricing is a type of customer-focused strategy that is based on how much customers believe a product is worth. Value-based pricing attempts to balance price and quality, but it can also rely heavily on understanding what products they want and need. It may not always work because some businesses don’t have this knowledge about their own business.
6. Psychological Pricing
Pricing is often hard to untangle from psychology. Pricing has become a form of marketing, and the best marketers understand that people are more likely to buy goods when they have an odd price tag rather than even or round ones because it’s in our brains wiring.
Most products are priced at $5.99 because it makes them seem cheaper to customers who have trouble with numbers, which is why the price of something that ends in 99 or 9 seems like a better deal than if they were just one cent more. This is one of the most common retail pricing strategies.
7. Luxury and premium pricing
There are many brands and businesses that use pricing to create a feeling of status. Take Cartier or Gucci for example, they know their customers will buy the products because it makes them feel more affluent even if they can’t afford these things on an everyday basis. You need all aspects of your product, customer experience, and loyalty services at top-notch quality in order to make this work.
8. Bundle pricing
Bundling is a great strategy for retailers because it can help shift inventory that might not be popular on its own. For example, you could bundle some products together to create an experience or theme with the customer in mind. A deli might offer wine and cheese so customers have everything they need for a picnic, while butchers may want to provide barbecue-friendly meats when beef prices are high.
9. Markup pricing
Many retailers use a 100% markup strategy, which means that if they purchase an item for $20 from the supplier or manufacturer, it will be sold to shoppers at double the price of what was paid.
Amazon is notorious for forcing prices down in order to stay competitive. However, some retailers are able to compete with Amazon by selling products at smaller margins if they’re trying to sell high volumes of items or clear out perishable goods.
Final Thoughts on Retail Pricing Strategies
“Retailers have to consider many factors when pricing their products,” says Josh at Parker Avery Group.
There is a difference in how customers behave based on where they shop (brick-and-mortar or online) which complicates matters even more.
In the end, it is important to try different pricing tactics and experiment with them. This also depends on what you sell. A cloud-based point of sale can allow for adjustments in real time that are applicable to a variety of products.
Retailers should be aware that getting pricing right at the perfect time can have a huge impact on sales.