Pricing Strategies: Set The Right Price
The main goal of a retailer is to turn a profit. One of the major steps taken towards making a profit is setting the right price. To determine how much a product should run at retail price, the first thing that needs to be done is to understand the costs that are associated with your products. The costs of goods include a variety of factors: how much paid for the product (plus any shipping and handling costs) and operating expenses such as overhead and payroll, office supplies, etc. No matter what pricing strategy you decide to go with, it absolutely needs to cover the cost of the goods and the business operating expenses.
Here are a few of the most popularly used pricing strategies for retailers:
Probably the easiest pricing strategy, but it isn’t always the most effective. This strategy involves doubling the cost paid for the merchandise for an automatic retail price. For example, if you purchased a blouse for $30 wholesale, the retail price would be $60. However, nowadays, with the cost of merchandise, it is really quite difficult to do this and cover all of your costs.
**Suggested Retail Price **
A strategy where the retailer doesn’t have to make any decisions on the actual retail price. Many manufacturers, suppliers, and/or vendors suggest retail prices for the store. Retailers don’t have to follow it, but it is a suggestion that many follow because it is easier than having to determine it on your own.
**Mark-Up on Cost **
Involves adding a pre-determined profit margin to the cost of the products. The markup therefore should be enough to cover any costs and expenses, or even reductions, anticipated or not, and can still deliver a satisfactory profit. And there can be different markups for different product lines.
**Psychological Pricing ** Involves pricing based on other popular price points and what the consumer believes are good and fair prices. Another form of psychological pricing is odd pricing, which involves making the price end in 5, 7, or 9.
**Competitive Pricing Above Competition **
Should only be used in special circumstances. For example, a retailer may have merchandise of established and well-known brands that aren’t available in other stores nearby, therefore they can afford to price above their competitors. Only if you have a special service or type of product should you price above your competition, and this also has to do with your location.
**Competitive Pricing Below Competition **
Is as simple as beating the competitor’s price. If you buy at the best prices, you can sell at the best prices. Follow an inventory plan, and design a good marketing plan so that you can concentrate on price specials.
**Discount Pricing **
As well as reductions in price are very common in retailing, and are actually a natural part of it. Discounting includes a variety of things, such as rebates, memberships and buying clubs, coupons, markdowns, and seasonal sales and prices. The type of merchandise will determine when and what type of discount will be made available, and also the amount of competition and whatever stock you have available.
**Multiple Pricing **
Involves bulk selling; selling a number of units for one price. For instance, 10 for $5.00. Retailers have found this to be a good strategy because it encourages larger commitments and purchases from customers. It also does well during clearance and regular sales.
It is difficult to ascertain which pricing strategy is the best over any other, and sometimes pricing models will depend on more than just your costs. But do keep in mind that the price consumers are willing to pay is the right product price. So choose wisely.