pricing Retail Products

6 Strategies on How to Price Your Retail Products Correctly

By: Sunder Singh

One of the biggest challenges retailers have is balancing the price point of their products. There are several different methods to determine the best prices on products and services, such as paying close attention to customer buying behavior and industry trends.

Another more high-tech tool that has gained traction in recent years among retailers who need a hand with pricing is a point-of-sale (POS) system. It can be helpful when it comes to leveraging important information about their operations, inventory and customers. Both these methods rely on understanding customer behavior and trends and how they can influence product pricing.

In any case, there isn’t a “one-size-fits-all” piece of advice to cover pricing issues you may have, but here are 6 commonly used strategies that can help maximize your profit, streamline your inventory, and deliver more value to your customers.


Strategy #1: Cost-plus pricing

This involves calculating the cost of a product to you – such as materials, labor and overhead – and then marking it up to determine the cost to your customer. This method is also known as “mark-up pricing,” and as simple as it may seem, it’s very important to understand exactly what the costs are and where they are coming from. Otherwise, you could end up overcharging for a product and turning customers away, or undercharging and hurting your profit.


Strategy #2: Competitive pricing

This involves setting a price based on what your competition charges for the same – or similar – product. In particular, you decide to charge less for a product than what your competition charges, if it means getting more customers to come to your store instead of theirs. Or you can charge more than what your competitor does in order to give potential customers the perception that your product – or your brand, for that matter – is more prestigious, unique, innovative, etc.

To gain an edge using this pricing method, it helps for you to have comprehensive and accurate knowledge of your market, competition and target customer.


Strategy #3: Price bundling

Price bundling is a pricing tactic that involves selling multiple products as a collective bundle at a lower price compared to selling each item individually. This technique can positively impact your business in two ways: streamlining inventory levels by moving unsold products taking up space in your store and making customers see perceived value in their purchase because they believe you are giving them something for free.

Bundle pricing is an especially effective method for businesses that sell complementary products. For example, a cafe may use bundle pricing by including coffee with every purchase of a pastry during lunchtime on weekends. This is where it would be useful to analyze your franchise POS data, as the information you glean from the system can help you create product offerings that match your customers’ behavior.

Ideally, any profit you earn on the higher-priced items should compensate for any loss you take on the lower-priced items.


Strategy #4: Price Skimming

This strategy involves setting a high price for a product during its launch or introduction, then gradually dropping the price as the market evolves – such as when your competition decides to launch a similar product. This method allows you to maximize your profits in the early stages of your product’s life cycle, i.e. when early adopters buy your product as soon as it is released.


Strategy #5: Penetration pricing

The objective of a penetration strategy is to enter a competitive market by attracting customers through low prices. This method may result in initial loss of income for you, but through time, increased awareness should result in profits and a stronger brand. Once new companies have matured and sufficiently penetrated their market, they end up raising prices on their products to reflect their market position.

Penetration pricing can also be used by new businesses to divert attention from competitors.


Strategy #6: Psychology Pricing

Psychology pricing encourages consumers to respond emotionally, rather than logically. For example, pricing a product at $299 has been proven to entice customers more than by setting it at $300, even though the actual price difference is very small. A psychological response is induced when consumers notice the higher hundreds digit of the $300 price compared to the $299 price – making them veer towards the latter price instead of the former.

Another strategy of psychology pricing is by increasing the demand for a particular product by offering limited deals or by offering premium add-ons, for instance. This effect creates a perception of enhanced value for the product and entices customers to purchase it as a result.

As challenging as pricing may seem, remember that there are methods and tools at your disposal. From being an astute observer of industry trends to analyzing your customers’ data regularly, there’s a wealth of information available to help your business improve its bottom line.


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