Due to fluctuations in analytics, business support tools, and pricing methodologies traditional retailers have struggled recently to compete with future digital-first businesses.
There is no doubt that advances in big data, mobile and omni-channel eCommerce are the face of the retail industry. But, you must have what it takes to keep up and craft the best pricing strategy for the business.
Defining a pricing strategy is a lot more complex than pricing your products to make profits. For an effective pricing strategy, you must consider custom pricing for different customers and channels to maximize value perception and business results like site traffic, order values, and margin to increase customer engagement and loyalty.
Importance of Price List Management
Setting prices for your business might not feel like a big deal, but it’s a vital part of product management. Pricing has a crucial impact on both sales and financial performance.
For example, if you set high prices, then it may deter customers from buying from you. On the other hand, lower prices may mean you are losing money and cutting on the profits.
Hence, it’s essential to stay on top of price list management for the products and implement an effective strategy. The right strategy will place your business in the best position to move maximum inventory and bring fair profits in doing so.
What is Retail Pricing?
Retail pricing is a core aspect of a business selling products to customers. Consumers care about several factors while making purchasing decisions, but its price to pay is always among the top concerns.
While setting prices for products offered at your retailer, there are various approaches you can take, depending on the short and long-term business goals.
However, the retail price must include the cost of that item plus any markups that you make to gain profits from selling that item. The pricing approach can be summarized with the formula as given below:
Retail Price = [(Cost of item) / (100 – Markup percentage)] * 100
Now, let’s learn about Retail Pricing Strategies and their types.
Manufacturer Suggested Retail Price (MSRP)
As the name suggests, the price the manufacturer recommends you use to sell their products to consumers. The more conventional the product (like paperback books or vehicles), the more you can expect the prices to be standardized for individual products. Hence, less room for variability.
The approach may mean less work for you, but it also means that you are less likely to have a pricing advantage over competitors.
Multiple pricing bundles the products to create a higher perceived value at a lower cost, ideally leading to larger-volume purchases. As per a study on product bundling, back in Nintendo Game Boy, more units were shifted while selling products with a game vs by themselves.
Remember that bundling products at a lower cost lead to customers being unwilling to buy individual products at high prices.
Many retailers choose to stick by the tried-and-true methodology of keystone pricing, doubling the wholesale cost to determine the retail cost. It is an easy strategy but doesn’t consider important factors such as the scarcity of products you sell or the competitive environment.
There are many instances where using the keystone method would mean pricing the products too high or low. For example, if the product is highly commoditized and is available online through various sellers, then using the keystone method will price you out of the market.
Discount pricing is one of the most popular pricing strategies used to catch your customer’s eye. It’s one of the best tried-and-tested ways of attracting price-sensitive consumers to your store and offload unsold inventory.
However, it’s essential to be aware of how often you choose to indulge in discounting as it gives off the impression of being a bargain retailer and tarnish your reputation. Also, it is not sustainable for longer durations and can eat into your margins.
Above/ Below the Competition
Many businesses choose to develop a pricing strategy entirely depending on competitors’ pricing. Pricing above the competition may work for companies that position themselves as an exclusive or luxury brand.
On the other hand, pricing below the competition is a good strategy if you are able to secure a good deal with suppliers that let you make a healthy profit margin. Direct-to-consumer eCommerce businesses such as Everlane, Casper, and Dollar Shave Club are examples of competitive pricing.
Ever shopped online or walked into a store to buy a product on sale to end up buying other full-priced products as well? For example, a shirt you have been eyeing is on sale online for $59, but you need to spend $80 for free shipping. Hence, you end up buying a hat and a pair of socks to bring your total to $91.
It’s called loss-leading pricing in action, and it’s a way of enticing customers to make purchases by pricing a product at a loss and encouraging them to buy additional full-priced products.
Loss-leading pricing is usually effective, but it can often result in customers expecting low prices from you as standard ones.
Price List Management with Orderhive
The above strategies are not an exhaustive list, and they are just a taste of some of the pricing techniques useful for your business.
With Orderhive, you can add and update prices and product listings using built-in templates. Once you have imported your data, you can manage all aspects of different price lists from an easily accessible dashboard, meaning no more pricing spreadsheets.
Our inventory management software helps you update and track the pricing strategies in the same place where you manage all the orders and inventory. You can see how much you bought the merchandise for, its wholesale value, and what you list it for.
Dev Upadhyay enjoys writing on a variety of topics and takes pleasure in immersing himself in learning about new and exciting areas. He loves to binge-watch documentaries about science and society. Being a travel freak, he's very adventurous and fun-loving.
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