Pricing is one of the vital marketing strategies that business owners shall not leave behind. Well, this is important for two reasons. First, the variance between what you charge customers and what you pay for products identify your margin. This would impose an immediate effect on your business’ profitability. Secondly, price does have a direct effect on your products’ demand. Thus, retailers must always choose to price the products right for prices can attract customers.
Before making a decision with regard to pricing, the following questions must be answered with consideration:
- How much do customers are willing to pay for my product?
- Do I want my products’ prices to be compared as equal, above, or below with my competitors?
- What’s the suggested retail price (SRP) proposed by the supplier?
- What is/are my products’ unique selling proposition (USP) compared to other products of the same product line?
Pricing Strategies
In the current retail industry, the most common pricing strategy used by almost all of the retailers is cost pricing. Meaning, you just add profit on all your calculated expenses—be it direct or indirect. Also, one of the commonly used pricing strategies is competitive pricing. Here, you are meeting the going price for similar products in your local market. Meaning, you don’t include the cost you paid here. Another one is market-value pricing wherein you look at what the market will accept. In this kind of pricing, you can take higher markups. But, it is only applicable to those businesses that offer unique products or services with little to no competing products in the market.
The specific prices you execute within your price line are what we call price points. Its importance was strengthened by a research that suggests: more people will buy an item at one price than at another—even if the difference between the two is only a few cents. Take, for example, you are selling a milk shake product at $5.95 and your competitor is selling the same product for only $4.50. Then there, you have observed that people are patronizing his product rather than yours.
As a retailer, you must always stay with the lower price as long as it won’t compromise your sufficient gross profit, and as long as your store image remains. Also, with this circumstance, your suppliers can help you select the best price point.
Three Pricing Principles to Achieve Your Business Goals
- Divide your Price Lines
The first principle is consisting of dividing your price lines into these three zones:
- Prestige – The prestige price zone is the one placed at the top of the line that will actually make the image of your store improved and would actually develop the rest of the line—but won’t chase customers away.
- Popular – The popular zone shall be placed in the middle where most of the consumptions and purchases are being completed.
- Competitive – The competitive zone is at the bottom. Here, you might want to price an item merely to compete with another store/s nearby.
- Always try to pick merchandise that will surely be appropriate for your predetermined price lines and points. Buyers—specially those who are practical and wise buyers—are particular with their sellers. These kinds of buyers are in knowledge of the schemes that would attract customers under current market conditions. Perhaps, price predetermination is one of the self-disciplinary skills all retailers must try to acquire. To keep every new businessman from kicking off with a wrong inventory, setting specific price points before going to vendors can do the magic.
- Always keep yourself from being locked into fixed lines and price points. There may be various factors and reasons that affect the price points and adjustment of price lines—upward and downward—but you must always stay its level with the economic conditions, consumer buying habits, and with your competition in all platforms.