3 Retail Pricing Strategies That Put Your Sales At Risk

Do you have a particular product that everyone snaps up without hesitation? Do you think you've got a wonderful product, but nobody is buying it? Do customers haggle over your prices? Well, pricing, after all, is the most potent variable in marketing and here's the bad news about retail pricing strategies that put your sales at risk: -- If everybody thinks your product is a big bargain and they are snapping it up, you might be pricing too low and missing the potential profit in your sales.

-- If nobody is buying your products, you might be pricing too high.

-- If your pricing policy is not clearly defined, the customer senses that there's wiggle room, and they want to haggle.

Of all the components of the marketing mix, pricing is the most important -- and the most neglected. Price is the lifeblood of your business. Price is the primary determinant of sales and profits. To a pretty great extent, your company's whole existence is affected by your pricing decisions.

The truth is, figuring the best price to sell your product or service is no simple task. There's no end to "costly" mistakes a retailer can make with pricing. Let's take a closer look at some pricing mistakes and the benefits of using the correct pricing techniques:

1. Cost-plus pricing is probably the messiest pricing strategy.

Cost-plus pricing is based on the supposed amount of money it takes to produce the product. In operation, cost-plus pricing basically involves a retailer deciding to charge some percentage above the costs as the best price."

The reality of cost-based pricing is that it's hard to know your true costs since figuring out the overhead can be quite complex. If the overhead value that you use is too high, a price ends up too high and nobody buys the product. And when the overhead value is too low, the price that is set results in an actual loss on the product.

2. Price increases or decreases poorly executed ruin a good strategy.

Consumers are generally more willing to accept price increases relative to the reference price if they know that the actual cost of goods sold increased.

Alternatively, by bundling products or focusing on the net benefits to the consumer, marketers can "soften" the actual cost of goods sold or change the reference price itself.

Another pricing technique used by some retailers is to start with a high price until they see the market dwindle for those willing to pay the price at that level. Then they LOWER the price in increments, gaining new audiences that are willing to pay at each particular price bracket. For more on price increases, see my blog post on "8 Secrets To Setting Your Competitive Retail Prices Wisely.  

3. Customer & retailer perceptions and expectations of value are an important strategy worth fulfilling.

How much does the customer believe an item is worth? Retailers have to do some work to create an atmosphere, not only of the inherent value of the product, but how to differentiate themselves, provide added service or build on the prestige that comes with using or wearing a particular brand or product. For more good information, go to "5 Wizardly Ways To Maximize Profits With Competitive Pricing Intelligence & Competitive Pricing."

Bottom Line For Your Bottom Line:

The most important part of any marketing strategy is developing the (correct) pricing for your product or service. Retailers have to maximize their pricing potential through the use of sophisticated pricing and assortment intelligence solutions and retail analytics that will show them what's happening in the marketplace, what their competitors are doing, and the mood of the consumer -- using the right tools at the right time for the right price for the right profits.

Smart retail pricing strategies can dramatically increase the revenue brought in by products and services. By really intelligent pricing, retailers can turn their pricing minefields into goldmines -- of profit.  

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Gilon Miller, CMO

About Author

Gilon is a seasoned marketing, sales and business development executive with over 15 years of experience in the software and Internet business. He is the Founder and CEO of GuruShots. Previously, Gilon was the CMO of Upstream Commerce, VP of Marketing at iMDsoft and Director of Global Marketing at SAP. He earned an MBA at the MIT Sloan School of Management and a BS in Electrical Engineering from Tufts University.
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