Did you know that almost half of all shoppers will leave a store if they can’t find the price? This is one example of why retailers need to understand and leverage strategies of pricing. Businesses can increase sales and profits by using the right strategy at the right time while providing value to their customers.
When it comes to pricing, retail businesses have a lot of options. There are a variety of pricing strategies that can be leveraged to increase sales and profits. This blog post will discuss these strategies and how retail businesses can use them to their advantage.
What are pricing strategies in retail?
Retail businesses have a few different options for pricing their products. The most common strategies are cost-plus pricing, value-based pricing, price skimming, penetration pricing, and competitive pricing.
Cost-plus pricing: Many retail businesses use cost-plus pricing, setting the price at a markup above the cost of the good. For example, if a product costs $10 to produce, the retail price may be set at $15. The markup percentage can vary based on the product type and the business’ profit margins. Some advantages of cost-plus pricing are that it’s easy to calculate and ensures that the business makes a profit on each sale. Also, customers may perceive products that are priced using this strategy as being fair and reasonable. On the downside, cost-plus pricing doesn’t consider what the customer is willing to pay, which may result in lost sales.
Value-based pricing: With value-based pricing, businesses set their prices based on the product’s perceived value. Businesses consider the quality of the product, the brand, and customer needs when setting a price. This strategy aims to charge a price that the customer perceives as a good deal. Some of the advantages of value-based pricing are that it can help businesses increase sales and profits, and it can also build customer loyalty. Additionally, this strategy can differentiate a business’s products from its competitors. However, value-based pricing can be challenging to calculate, and it can also result in lost sales if the product’s perceived value is not high enough.
Price skimming: Companies often use price skimming when introducing a new product to the market. With this strategy, businesses set a high price for the product to maximize profits. The goal is to “skim” the market by charging a high price for a limited time before eventually lowering the price. This strategy can effectively generate quick profits but can also result in lost sales if the price is too high. However, if a business can successfully “skim” the market, it can use a different pricing strategy, such as competitive pricing, to capture a larger market share.
Penetration pricing: Whenever a business enters a new market, it may use penetration pricing to gain market share quickly. With this strategy, businesses set a low price for their product to attract customers. In some cases, the price may even be set below the cost of production. The goal is to quickly gain a large market share before raising prices. Some advantages of penetration pricing are that it can help businesses quickly gain market share and increase sales in the short term. On the downside, this strategy can result in losses in the long term if the price is not raised after a certain period.
Competitive pricing: There are three competitive strategies of pricing; co-operative pricing, aggressive pricing, and dismissive pricing. Co-operative pricing is when companies in the same market work together to set prices. This is often done to avoid cut-throat competition and price wars. Aggressive pricing is when a company deliberately sets low prices to gain market share. This can be an effective strategy, but it can also result in losses if not done correctly. Dismissive pricing is when a company ignores the prices set by its competitors and instead sets its price. This can be an effective way to differentiate a business’ products from its competitors.
What pricing strategies are deployed in retail?
Several different strategies of pricing are commonly used in retail:
Competitive pricing: Retail businesses often use competitive pricing to stay ahead of competitors. With this strategy, businesses set their prices based on the prices of their competitors. This helps to ensure that businesses can offer the lowest prices possible and attract customers.
Discount pricing strategy: Businesses often use this strategy to clear out old stock or promote a new product. With this strategy, businesses offer a temporary discount on their products. This can help to increase sales and also helps to attract new customers.
Everyday low pricing strategies: This is a pricing strategy where businesses offer a low, consistent price on their products. This strategy aims to build customer loyalty and attract new customers.
High low pricing strategy: With this strategy, businesses offer a high price on their products for a limited time before eventually lowering the price. This can help to generate quick profits and also attract new customers.
Economy pricing strategy: This strategy is often used by businesses that sell essential products. With this strategy, businesses offer a low price on their products to make them affordable for everyone.
Why do businesses need to deploy pricing strategies?
Businesses need to deploy pricing strategies for many reasons:
To attract customers: By setting a low price, businesses can attract price-sensitive customers who may not have considered the product. This will help to increase sales and market share.
To increase sales: Another goal of pricing strategies is to increase sales. This can be done by offering a discount on products or setting a low price. In some cases, businesses may sell a product below the cost of production to increase sales.
To stay ahead of competitors: It is essential for businesses to stay ahead of their competitors. This can be done by offering a lower price than your competitor or a unique pricing strategy. Many retailers use competitive pricing to stay ahead of their competitors.
To build customer loyalty: Customer loyalty is vital for businesses. By setting a low price, businesses can build loyalty among their customers. This can help increase long-term sales as customers will be more likely to return to the business in the future.
To differentiate products: In some cases, businesses may use pricing strategies to differentiate their products from their competitors. This can be done by offering a unique product at a higher price. This will help to attract customers who are looking for a specific product.
How do they work?
Pricing strategies are deployed in many different ways:
Discounts: Businesses often offer discounts on their products to attract new customers or to increase sales. This can be done by offering a temporary discount or setting a lower price for specific products.
Bundling: This is a pricing strategy where businesses offer a group of products for a single price. This can be done by bundling similar products or offering a bundle of products at a discounted price.
Penetration pricing: This is a strategy where businesses offer low prices on their products to attract new customers. The goal of this strategy is to increase market share.
How can automating your pricing help your business?
Utilizing technology to automate your pricing can save your business time and money. Automating your price changes and product information can also help to reduce errors and improve efficiency. Digital Smart Labels™ by Danvation are micro e-paper displays that, combined with our QuickSync software, can be used to instantly and remotely update pricing on the store shelf. In addition, automating these processes can help to improve the customer experience by providing accurate and up-to-date information including more product information including reviews, QR codes, and access to promotions.
Digital Smart Labels™ are essential for businesses because they provide accurate and up-to-date information on the store shelf. Visit Danavaiton for more information on how we can help you automate your pricing and paper labeling via Digital Smart Label ™ technology.