There is so much talk about the fiscal cliff and consumer uncertainty these days. Luckily, pricing is one key lever that you can almost always pull to stabilize your business and, thankfully, price tracking software is available to aid with rational retail pricing. Remember, a 1% increase in price can lead to a 11% increase in profit, as discussed in How Retailers Can Increase Profits 11% By Using Price Optimization.
Increasing revenue is a science. For retailers, that science revolves around managing product demand. Demand comes in two flavors: manufactured, and natural:
Natural demand is beyond your control. In the depths of a depression, it is impossible to lower prices enough to get people to buy your product. There are plenty of examples of natural demand: There is always demand for water, a demand for food, and, if you live inside Mega Maid: a demand for air. (See Spaceballs, The Movie).
Natural demand is a fairly straightforward concept. The most important thing you can remember is that it lies outside of your control. If you sell horses, for example, natural demand for your product will dry up as the car becomes widely adopted. (Another example of natural demand will be that hand-held devices and smartphones will ultimately push out the need and demand for laptop computers).
Manufactured demand is much more interesting. It is possible to give consumers more incentive to buy more of your product, or purchase your product at a higher price. You can do this by lowering prices. Or you can restrict demand to raise perceived value. Diamond dealers are infamous for reducing the supply to the market, driving up the cost of a relatively-common stone.
You needn't be a diamond dealer to drive demand for your products. You can reduce prices through sales, or by lowering your prices across the board. You can also create scarcity by showing you stock only a limited number of units. GILT Groupe often displays the number of remaining units to drive urgency, e.g. "just three left."
You must track your competitors' prices with price monitoring software and determine how you can position your offerings to appear more compelling. This could mean offering sales at times of the year when most companies are raising prices. Or it could mean using email lists to craft urgent messages that draw customers during busy shopping times. If you want to compete on price, you’ll need to know when exactly is the best time to raise or lower that price. The best way to know is by following your competitors' price changes through the use of a price monitoring service.
You can also decrease the risk to your profits by gauging customer willingness to pay for certain products. Exposing your customers to different prices and measuring conversion is one way to achieve this. You can also perform customer surveys or gauge response to email offers. The important thing here is that you are establishing a feedback loop. Remember, pricing is a process. (10 Golden Rules Of Pricing: Video by Jon Manning of Pricing Prophets)
In retail, you cannot control natural demand for products and services, but you can "manufacture demand" to stabilize your business. Be careful when you do battle on price though. Price wars eat away at profits. Not only do you risk missing an important discussion about value, but always remember that pricing strategy is a process, and should be constantly revisited. The use of price tracking and monitoring software enables retailers to always have the latest competitive pricing information with which to work.