Winning Retail Pricing Strategies To Attract New Customers & Extract Value From Existing Customers

Netflix made headlines this week with strong earnings and hints that they might test some new streaming offerings (Netflix Reports Strong Subscriber Growth, in the Wall Street Journal). Netflix currently offers unlimited streaming on up to two devices at a time for $7.99 per month; however, they are exploring other options. For example, they may offer a lower price point for streaming from only one device at a time, or a higher price point for streaming on more devices simultaneously. They could also consider offering a package of movies only, or their own series only. What does this have to do with retail pricing strategies?

They recognize that their customers come to them for a variety of reasons, and if they expand the range of choices they can attract more new customers and get more value from existing customers.

One retailer told me, “That makes sense for broadband and telephone providers, but in retail I have to give everyone the same price.” Well, Netflix, Comcast, Verizon and the like are all retailers too. They sell to consumers who do not all want the same thing. They have created packages that cater to the needs of different customer segments with different price points. All retailers can do that. Here are some examples:

• Men’s clothing stores periodically offer packages that include a suit, one or two shirts and a tie, at a price that's less than the sum of the individual prices.

• Grocery stores use their loyalty card data to identify which customers are price sensitive and then offer them coupons to try store-brand merchandise.

• Many retailers tailor their store-wide promotions to the specific stores where the promotion is likely to generate incremental traffic and volume, and do not offer all promotions in every location.  Another example: When I lived in Miami, Florida, I rarely saw promotions for hunting equipment, but now that I live in Pennsylvania, I see hunting promotions all the time.  

• Restaurants offer early bird specials for diners who want to eat early. Most of those diners are a little more price sensitive and by only offering the discounts to the early birds, restaurants can profitably serve customers for a longer period

• Intuit offers 4 different versions of Quicken software from the Starter version up through Quicken Home & Business. Each step up in software adds more features for the person who needs more, but at higher price points. That enables them to reach a wider variety of customers without dropping prices on the full set of features.

There are many more examples, but you get the point.

What's most important is that you can do the same thing:

1. Use your loyalty card data and transaction data to understand the different types of customers in your market and their needs -- and market directly to their interests.

2. Update your product lineup to have good / better / best choices so you can target customers at several points in the spectrum.

3. Create bundles of products or services that might attract new customers or generate more sales to existing customers.

4. Create specific promotions or incentives to generate new sales, but do it without cannibalizing existing sales of those same products.

Examine your own data and find many more ways to extract value from your customers.

Bottom Line For Your Retail Bottom Line:

When developing your pricing strategies, remember that one size does not fit all. Customers simply are not all the same, and they don’t all want the same things. To maximize your sales and your profits, it is important to recognize the various ways in which customers differ, group them into manageable segments and create offerings and prices that can attract the full array of customer types.  When retailers use their data to get a better understanding of the multiple types of customers -- and, use strategic pricing strategies to offer something for each type -- profits will increase.  


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Scott Francis, Guest Contributor

About Author

Scott Francis is the President of Strategic Pricing Solutions, a management-consulting firm helping clients with pricing strategies, data analytics, and pricing processes. Scott has more than 25 years of pricing experience both as a consultant and in roles leading the pricing function at large corporations. Scott's thinking is heavily influenced by the data-driven approach he learned studying finance and behavioral economics while earning an MBA at the University of Chicago. Prior to forming Strategic Pricing Solutions in 2005, Scott held a variety of corporate positions including CFO, SVP of Marketing and VP of Pricing. Follow Scott on Twitter@StratPricing and at
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