What Can Gold Prices Teach Retailers About How To Price Strategically & Increase Revenue?

Retailers can learn a great deal about changes in demand by looking at commodities like gold. The truth is, retail goods are also subject to big price shifts based on demand. Remember, a 1% improvement in price can lead to an 11% increase in profits. (How Retailers Can Increase Profits 11% By Using Price Optimization). In the increasingly competitive retail landscape, this makes pricing that much more critical to success. This means you need to have a pricing strategy on hand to ensure you are maximizing profits. And the best way to have information for your pricing strategy and execution is the use of competitive pricing intelligence tools.  

To learn about pricing, take a good long look at the price of gold:

Gold’s value has soared more than 200% in the last ten years. Why has this incredible rise in price occurred? In reality, the price of gold increased because the demand for gold’s unique value increased. Simple, right? Yes, but demand is not just a consideration for commodity traders. Let's talk about why demand is a critical element you need to manage in your retail pricing strategy:

Gold’s value as a hedge against risky assets drives demand in uncertain times. There is a finite amount of gold on earth. Gold has a firm lower bound based on the amount produced by nature. This lower bound provides unique value to buyers of the commodity who profit from their investment when other assets become unstable.

What Does This Have To Do With Increasing Retail Revenue?

Retail Prices are also affected greatly by demand. Retail sales have long been a key metric used to measure consumer confidence. As the economy improves, demand for retail products usually goes up. During recessions, retail demand usually goes down and retailers are forced to slash prices.

Retailers need to adapt their retail pricing strategy to account for demand. Consider this quote from Vincent Nijs, assistant professor of marketing at the Kellogg School of Management: “If there’s one thing you would assume from basic marketing principles, it’s that prices should be adapted to changing demand conditions.”

Keeping an eye on your competitors is an important part of maintaining an elastic pricing plan. If retail sales drop off relative to your competition, you may be pricing too high. If sales surge, you may be leaving per unit profit on the table. You do not want to enter into a price war with other retailers, but it is important to know if prices are trending downward or upward.

Retailers need to adjust to the fluctuating demand for their products. They will want to test customer willingness to pay certain prices. You will also need to monitor how your competitors price their products. Again, pricing intelligence tracking and monitoring is in order.

As demand changes, your customer’s willingness to pay for your product will rise and fall. Also, note whether the rate of purchases starts to drop off at a given price point. You will need to test your customers' sensitivity to different prices until you arrive at a fair value. You can accomplish this by offering discounts, running sales, or simply adjusting your prices downward or upward. Only by price variation and testing will you be able to capture your customers’ true willingness to pay.

Editor's Note: To learn more, check out Price Intelligently's Pricing Strategy ebook and pricing strategy blog!  

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