It is not always black or white when it comes to setting your products’ prices. You can’t say that low price is always ideal because it can drive sales without giving you any profit. On the other hand, putting high price on products may reduce sales and push away more budget-conscious customers.
When researching on how to set the right prices, retailers must think about vital factors such as competitor pricing, production and business costs, revenue goals, and consumer trends.
It is also important to understand that price setting for new products isn’t about pure math. In reality, it also require understanding about how human behavior affects our perception of price. To do so, one must be aware of basic pricing strategies and their psychological impact on your customers. Here are some:
- Keystone Pricing
Majority of retailers especially owners of small businesses use this strategy because it is simply doubling the cost of a product to set a healthy profit margin. Sometimes, that price is deemed perfect. However, there are a various instances that it won’t be effective. It can even result in over/underpricing.
If you have products that are rare or unique and have substantial shipping and handling costs, it will be unwise to use keystone pricing because you can collect more profit by using a higher markup formula and selling these in-demand products at a higher price.
Meanwhile, products that are highly commoditized and easily found elsewhere will be harder to sell if you use keystone pricing because it will be seen as unreasonable for you to sell them with a price that high. Therefore, we suggest that you only use keystone-pricing strategy if you want a quick-and-easy strategy to ensure an ample profit margin.
- Manufacturer Suggested Retail Price (MSRP)
As its name suggests this pricing strategy is about using the manufacturer’s recommended price when selling a particular product. MSRPs were first used to help standardize different prices of products across multiple locations and retailers. Retailers that are selling highly standardized products like electronics and appliances also commonly use it. It is recommendable if you simply want to save yourself some time when pricing your products. However, take note that MSRPs don’t support retail competitions on price because most retailers in a given industry will sell that product for the same price. It also doesn’t recognize other additional costs that you may have such as international shipping. So, it may not be suitable for you.
Another important point to consider is that regardless whether you use it or not, straying far from it may take its toll and lead to some manufacturers deciding not to continue their connection with you. So you still have to consider it along with your agreements with manufacturers.
In setting the right retail prices, you must start with thinking about how much do you think will customers pay for it. Then you have to research and come up with a price that works best for your products, marketing strategy, and target customers.
We hope that starting with these two common pricing strategies, you can make it a habit to be informed first before making a choice. By giving buyers the best price possible, you are creating a personalized shopping experiences for them.