Retailers Who Raise Prices Will Lose Volume: True or False?

Some interesting retail pricing myths: Price is the most important factor for your customers, Right? If retailers lower prices, they will make it up in volume, Right? The market sets the price, retailers sell to the market, Right? "Everyone has perspectives about pricing" writes Scott Francis of Strategic Pricing Solutions. Scott bases his reactions on strategic pricing principles that have been developed through years of studying customer behavior and analyzing cause and effect.

Below are some common pricing conundrums, Scott's perspectives on the pricing principles, and I also add my own perspectives on the pricing principles, supported by lots of examples from blog posts we've done over many months.  Think about the possible answers before you read the perspectives. Where do you stand on each point? I'd like to hear your viewpoints in the comments section of my LinkedIn site, Competitive Pricing for Online Retail.

1. Myth or Reality? Price is the most important factor to your customers.

Scott Francis' (SF) Perspective: Price is important, but frequently not the most important factor.

Upstream Commerce's (UC) Perspective: We've written a lot about this. Refer to our polls and blog posts on "Is The Prime Reason Customers Shop Online Price Or Convenience? Which One? Are You Sure?" for what customers say are the most important elements to them.

2. Myth or Reality? If we RAISE prices, we will lose volume.

SF Perspective: Not all customers & products are equally sensitive to price changes.

UC Perspective: If you do lose volume, it will be mitigated by having a select, differentiated group of serious buyers, and you'll be getting more value for each sale. See How Retailers Can Avoid The Pitfalls Of Raising Prices.   

Also, see Commandment #10 of 10 Commandments Of Price Optimization Retailers Don’t Want Their Competitors To Know, which is: Thou Shalt Know Who Thy Customer Is.  

3. Myth or Reality? If we LOWER prices we will make it up in volume.

SF Perspective: Those economics rarely work.

UC Perspective: Think about how you can make up sales in volume if you are already working with competitive prices that are too low to be profitable. See 3 Retail Pricing Strategies That Put Your Sales At Risk.   

4. Myth or Reality? The market sets the price; retailers sell to the market.

SF Perspective: The market is determined by actions and reactions of competitors and customers. Each transaction is an opportunity to influence the market – for better or worse.

UC Perspective: C'mon folks. You know the answer to this one with your eyes blindfolded. One of the purposes of using sophisticated Pricing Intelligence solutions is to know what's going on in the marketplace, what's going on with your competition and to help you act temperately and intelligently in that framework, while exercising your own pricing strategies. See The Magic Formula For Retail Profit.  

5. Myth or Reality: Our customers demand additional services but won’t pay for them.

SF Perspective: Customers will pay for differentiated services if they provide value.

UC Perspective: We've already shown that the customer really desires service and is willing to pay a premium for it. See 5 Trend-Defying Reasons For Retailers To Know What Shoppers Really Want. 

6. Myth or Reality: We don’t have the data to be more scientific.

SF: Perspective: Most order management systems have the transaction details needed to determine opportunities.

UC: With the advent of "management of big data," (data analytics) there is actually a ton of relevant information available that can be analyzed and put to use by savvy retailers. See several articles on Big Data In Retail

7. Myth or Reality? Our business is too complicated to manage pricing at the customer level.

SF Perspective: Shareholders expect managers to capture the value they provide to customers.

UC Perspective: The question is about managing pricing at the customer level.  A wealth of information on customers and personalization has been, and is being, assembled. Retailers are capturing, analyzing, and using the data for these very purposes.  See articles on Assortment Planning & Management and how to know what the customer wants.  

Bottom Line For Your Bottom Line:  

Retailers must use sophisticated retail intelligence solutions, including retail analytics, to keep ahead of the strategic pricing trends.

As I wrote in: Retail Intelligence Of The Future: Will Retailers Lead Change Or Just Look In Their Rear View Mirror: "In 2013 and beyond, it will be impossible for retailers to do without a full Retail Intelligence Suite, as will be available from Upstream Commerce, for price, assortment, promotions, industry benchmarking, product life cycle, automated rule-based price changes, and the ability to make recommendations and predictions."  

I also suggest you take a look at 5 Wizardly Ways To Maximize Profits With Competitive Pricing Intelligence & Competitive Pricing.

*This blog post is based on Scott Francis'  "Myths And Realities Of Pricing."  Scott developed his strategic pricing principles and perspectives through years of studying customer behavior and analyzing cause and effect. 

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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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