Retail Dogma

Pricing Strategies Considerations

There are different pricing strategies used to price any type of product or service. In many cases, a mixture of strategies get applied, rather than sticking to one pricing strategy only; which is our preferred method.

Many businesses base their pricing solely on the cost of the product, and add a specific markup to it. Others base it on the different market factors that dictate the best price.

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In all cases, there are certain factors to take into consideration, before deciding on the right product pricing strategies for your business.

In this article, we will discuss those considerations.

Important Pricing Strategies Considerations

1. Supply & Demand

The first and most important factor to consider while setting pricing strategies is the supply & demand of the product.

If the product you are selling is available everywhere in the market without differentiation of any kind (for e.g plain white cotton t-shirt), then the market will determine its price, and not its cost.

That’s because every other player will try to compete on the same customer and will typically reduce the price to get the sale. In this case, you have no other option but to set the price at the current market level.

Read Also: Pricing Power

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2. Entry Barriers

Technology has made it very easy for anyone to start a retail business from their living room, and so it lowered the entry barriers to this industry.

You no longer need to know the technicalities of setting up & maintaining a website in order to have an online shop. You just pay the monthly fees for an ecommerce platform, and have a running store, day & night.

All this has affected the price levels of goods & services worldwide, because there has never been a time when it was easier to start a retail business and sell directly to customers.

3. Category Roles

Not all product categories play the same role in your portfolio, and based on their different roles, their pricing strategy will be determined.

Read Also: Category Management 8 Step Process

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For example, when I source my products, I always look for few items that can drive traffic to my store due to the fact of them either being basics or in high demand or not supplied by the competition.

For such products I actually don’t mind having a low margin, so that they would drive the customers through my doors. I then compensate on this margin from my other products, which I want to cross sell those customers on.

Read Also: Loss Leader Pricing

4. Promotions & Markdowns

When you set your initial pricing strategy you can not assume that you will sell your entire stock at full price. Normally, you will sell a portion at full price and as the season goes by, you will start discounting.

Also throughout the year, you will be running different promotions to drive traffic.

So if your business requires you to give discounts and do markdowns to clear merchandise, make sure you consider this while setting the initial prices of your products.

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Read More: Intake Margin Setting

A Pricing Blueprint

Access our members area and read our step-by-step Pricing Blueprint on exactly how to price your product portfolio, using a mixture of pricing strategies for different product types.

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