One of the secrets to growing and successful business is to sell their products/ services at the right price. If the goods are priced low, a business can sell more numbers but might not make any profit. On the other hand, if the prices are too high, the customers will switch to the competitors and you will end up losing the market share.
One tried and tested policy works almost for all retailers when we talk about pricing. The company needs to balance the production cost and customer trends, competitive pricing, and revenue targets. It is here that retail pricing strategy comes into the picture. Let’s dig a little deeper.
What is Retail Pricing Strategy?
Retail price is the amount that buyers pay for the finished product when it gets sold. The customers buy with the intention of using the product and not reselling it. The main objective of any seller is to optimize the profit margin while choosing a price point that buyers are willing to pay.
In a retail supply chain, manufacturer price, distributor price, and retail price are all different. The retailer has the power of determining the final price depending on the demand and supply. The pricing strategy for online retailers consists of two markups- the price charged by the manufacturer from the reseller and the price charged by the reseller from the customers. Sellers take into account many factors while setting the price and increase them for covering the costs to ensure profit. However, at times, as a part of the retail pricing strategy, some popular products are sold at a loss for attracting buyers.
Types of Retail Pricing Strategy
There are different types of retail pricing strategy which a business can choose from based on its objectives. Here’s a look at them:
1. Discount Pricing
Discount pricing is when the seller sets a lower price for their products to boost the sales. It is one type of high low retail pricing strategy wherein the products are offered at a high price initially and then lowered when the demand decreases. Electronic stores implement this pricing strategy often.
Computers, phones, and laptops are quite expensive when introduced. As and when the new models are launched, the older ones are sold at a discounted price. Discounted pricing works well when you wish to get rid of the unsold inventory and boost the sales volume.
2. Bundle Pricing
It is yet another discounted pricing strategy which helps in selling the related products which can be packaged and sold together. This way a company can personalize the customer experience and boost the sales volume via up-sells and cross-sells. Meal combos, mobile and TV plans are examples of bundle pricing.
3. Penetration Pricing
Penetration pricing is when a business offers a new product/ service at a lower price for driving more customers. The idea is to attract the customers with lower prices so that they get ready to pay the increased or full price even after the promotional phase is over. It is one of the online retail pricing strategies that work well for the subscription products such as Netflix, Spotify, etc.
4. Psychological Pricing
It is also known as the charm pricing strategy. It is value-based pricing where the seller’s price the product in odd numbers. For example, the seller might price the product at $7.99 instead of $8. The mind sees 7 and gets tricked into believing that the price is lower than it actually is.
5. Competitive Pricing
A competitive retail pricing strategy is about setting a lower price to gain a competitive advantage. It works well in an industry where there are several similar products and only pricing sets you apart from the competitors.
For example, two companies selling soaps will try to set the price in line with each other and advertise the features and quality of the product to stand out.
6. Premium Pricing
Premium pricing is also known as luxury pricing and it is another technique for value-based pricing. Premium businesses charge an additional markup on the products to offer a sense of status to their buyers. It is feasible only when the product quality matches the price tag, for example, Ferrari, Audi, Apple, etc.
7. Dynamic Pricing
It is a retail pricing strategy where the prices get changed based on variations in demand and supply. As it can be applied in real time, the strategy is suitable for e-commerce. While selling the products online, data and technology helps in selling the same product at different prices depending on the buyer.
Airline shifting the seat prices depending on the seat types and remaining seats is an example of dynamic pricing.
These were some of the popular retail pricing strategies with examples to show how each of them works.
Factors Affecting Retail Pricing Strategy
Factors that affect pricing strategy retail are divided into two- internal and external.
Internal factors are those areas of the business which are within the company’s control. Some examples of internal factors are value chain, processes, retail shipping prices, manufacturing
prices, labor costs, import fees, overhead costs, and money spent on advertising and marketing. All of these factors are important as they enable a business to establish its baseline, i.e., the revenue they need to make in retail sales for staying profitable.
External factors are the ones that are outside of a company’s control. These are variable factors such as competitors’ price range and consumer’s purchasing power. It also consists of macro trends like global, national, or regional economies as they have a significant impact on the buying behavior of the buyers.
Objectives of Retail Pricing Strategy
1. Optimize short and long- term profit margins
2. Enter new markets
3. Increase long-term stability
4. Boost sales volume
5. Increase market share
6. Create awareness and interest in new product
7. Sustain during a low period of business
Pricing is an important component that supports any business and its objective of increasing the profits. A good retail pricing strategy like PriceIntelGuru’s always focuses on raising the margins and growing the business.
Benefits of Retail Pricing Strategy
1. Maximizing Profit Margins: Crafting a pricing strategy tailored to your products and market dynamics can boost your profit margins significantly. By strategically aligning your costs, competitor prices, and perceived value, you ensure that every sale is a step towards enhancing your bottom line.
2. Market Positioning that Resonates: Your pricing is your brand's voice. A thoughtfully designed pricing strategy helps you position your products in the market precisely where they resonate most with your target audience. It's not just about numbers; it's about the message you send to your customers.
3. Capitalizing on Perceived Value: We've all witnessed how perceived value can make or break a purchase decision. With the right pricing strategy, you can create an impression of premium quality, leading customers to willingly pay a bit extra for the value they perceive.
4. Navigating Competitive Waters: The e-commerce landscape can be ruthless, but a solid pricing strategy can help you stay ahead. By analyzing your competitors' pricing and strategically adjusting yours, you can find that sweet spot that appeals to customers while outmaneuvering the competition.
5. Bolstering Customer Loyalty: Pricing isn't just about attracting new customers; it's about keeping the existing ones too. A transparent and consistent pricing strategy builds trust and loyalty, as customers feel valued when they see consistent, fair prices.
6. Flexibility for Promotions: Promotions and discounts are powerful tools, and a smart pricing strategy gives you the flexibility to run promotions without hurting your profit margins. You can create compelling offers while ensuring a healthy bottom line.
7. Predictable Revenue Streams: A well-structured pricing strategy contributes to predictable revenue streams. When your pricing is aligned with your brand's value proposition and market demand, you can forecast your income with greater accuracy.
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