One of the most important decisions you have to make as a retailer is how to price your products. The struggle to set a price that’s not considered too high or too low is real for many retailers. If you set a high price for your product, you will be faced with the risk of losing potential buyers to your competitors. On the other hand, pricing your products too low is bad for business, as it translates to little or no profit.
The purpose of this article is to give you information that can help you nail your retail pricing strategy. If you are looking to learn about the different types of pricing strategies and how to choose an ideal pricing model, do well to read further.
Retail Pricing Model
Before going further into the article, here are five factors to keep in mind when building your retail pricing model:
Customer behavior – As a business that is focused on the market, it is important to consider customer behavior when building your retail pricing model.
End Benefit – What is the relative value or need for your products?
Differentiators – These are the distinct features that set your products apart.
Substitutes – Are there alternatives that are readily available?
Price expectations – What is the pricing history of your product(s)? Also consider factors such as the relative size of expenditure, price-quality perception, shared costs, and the competitive actions your competitors’ are likely to take in response to your retail pricing strategy.
Now that you have the above factors in mind, it is time to look into some of the top retail pricing strategies.
Retail Pricing Strategies
Keystone Pricing
Keystone pricing is a type of pricing strategy where a retailer sets their price by doubling the actual cost of a product. It’s rare to see retailers who use keystone pricing, as the strategy isn’t great for products that don’t have high turnover rates (products that don’t sell fast).
Bundle Pricing
Bundle pricing is a type of pricing wherein you offer your customers different products that are related all for one price. For example, cable TV bundles include scores of channels that most average consumers might never use. In a few cases, these bundles come with landline and internet services.
Bundle pricing is ideal for retailers. It makes the marketing and selling processes easier, as you don’t need to create promotions and campaigns for individual products.
Discount Pricing
This pricing strategy is exactly what its name suggests. When you sell a product at a discount price, you are practicing discount pricing. If you are looking to get rid of old stock or sell a product in high volumes, this is an excellent pricing strategy to implement.
Discount is an excellent choice for retailers looking to boost sales during off-seasons. You can choose to offer discounts to a specific group of customers (your most loyal customers, maybe). However, be cautious when using this pricing strategy, as you overusing it can condition your customers to buy products only when a sale is on.
Economy Pricing
Economy pricing is used by many retailers to attract price-conscious consumers. To use this strategy successfully, you have to devise an effective means to reduce marketing and production costs in order to keep your business profitable.
Having discussed some of the top pricing strategies, it is time to look into how to get your retail pricing model right.
The Best Way to Price Products for Your Retail Business
With so many strategies available for retail pricing, you must be curious to know which one is best for you. The fact is, it is not possible to elect any strategy the best amongst others, as a single strategy might not be the best fit for all your products. It is smart to experiment with a few strategies so you can find the best combination for your products. Just by learning about the different available pricing strategies, you can probably cross a few off your list. However, if you truly achieve impressive results with your pricing strategy, you should implement a concept known as intelligent pricing.
Intelligent pricing strategies take advantage of market data to optimize your retail prices. Intelligent pricing will also help you to update your prices as market trends change, ensuring that you remain competitive.
The information below will help you in creating your retail pricing model.
Factors Governing Markup
The prevailing tradition is that many retail products are marked up 100% (the keystone pricing strategy). Endeavor to carry out some research to confirm if keystone pricing works best in your industry before you lock in this markup. It is important to get this done to avoid getting stuck with stock you can’t move.
Set your markup to factor in your projected profit margins and the level of demand for the product in question. In a few cases, such as pharmaceuticals, the governing administration may fix a maximum retail price on products, and you are required to take account of this fact as you create your pricing model.
Retail Pricing Tools
Luckily, you don’t have to analyze all the variables and numbers associated with retail pricing on your own. There are several retail pricing tools that can assist you in making smart decisions. When choosing retail pricing tools, keep out an eye for features that address the unique needs of your business.
Point of Sale (POS) System
Another major player that can help in pricing your products well is your point of sale system. It collects all the data needed to help you keep track of your best-sellers and returns. Your point of sale system can also provide you with sales reports that can be used to analyze profit margin data and assess how effective your pricing model is.
You can get more from your point of sale system by using the point of sale software to get easy access to all your inventory and sales data, regardless of where you are.
Conclusion
For many retailers, getting the retail pricing model right is essential for growth. By studying the different retail pricing strategies and observing market trends, you can make the best choices to keep your profit margins at optimal levels and keep your customers happy.
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