The pricing strategy that your business uses can have a major effect on the likelihood of success of your business. If the prices are too high, competitors may steal your customers. Low prices mean you may not cover the cost. However, the pricing decisions that have to be made are never this easy.
Businesses, especially retail, have to take into account many other factors when deciding how to price their products.
Retail pricing strategies have to improve profitability of the business and also give the impression to customers that are products on offer are cheap. We discuss some of the strategies that may help your business achieve this.
“Loss leaders” are products that are sold for a loss! Surprised? Well, the benefit of selling these products below their cost is that they can attract customers that may otherwise not be interested in many of your other goods and services. This strategy is widely used in the retail business like supermarkets, where loss leader products are advertised at very low prices.
Businesses hope that customers will buy other products (priced higher) and this will offset the loss made on the especially advertised products. This strategy can be risky but very effective if the business is able to connect to loyal customers in the long-run.
Competitive pricing aims to attract customers by offering prices lower than those of close competitors in the market. In the 21st century, the average customer is very knowledgeable. Moreover, there are many sites online that allow you to compare prices of same good by different suppliers.
The chance that a customer will buy an expensive product is close to zero; that’s why competitive pricing is important for your business. However, competitive pricing only works if your business is more cost-effective than other firms in the market. Otherwise, your business may end up in loss.
Yet, having the lowest prices in the market means you will attract a large number of customers. These buyers will prioritize your firm and competitive prices can be a great strategy to boost sales in the long-term.
CUSTOMISATION PROFIT TACTIC
This pricing strategy balances well between high profitability and sending a “low-price” feeling to the customers. The idea here is to charge a comparatively low price on the core product to attract customers. Then, a high price is charged for modifications, customization and extras that go with the main product.
For example: an ice cream shop may advertise a very low price on a basic ice cream cup to interest the customers. The profit margin on this ice cream can be very low and the price for extra flavors, toppings, special cones and waffles, two scoops can be high to make up for the low earning on the basic ice cream. In many cases, the profit margin on the added extras can be as high as 200-300%.
For their pricing to be most successful, it is recommended that businesses try to combine the positives of the strategies described above.