12 Best Retail Pricing Strategies for Businesses

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Increasing profitability in a retail environment is what every retailer is chasing after. How to maximize sales units without sacrificing profit is the key. Cost structure and pricing strategies impact how a retailer functions, and how far its profits go.

Finding the right pricing strategies for a retailer can take some experimenting, but it’s well worth when it comes down to the rewards. Here are twelve possible retail pricing strategies you can try for businesses:

1. Premium Pricing Strategies

Premium pricing involves setting prices high for a retailer. These retail pricing strategies work in segments, industries, and brands where this is justified. For example, Porsche is a premium brand, Gillette is, and so many others are.

Premium pricing can require some A/B testing to get the value-to-profit just right. Although marketing can take time to build value in a premium brand, for those that succeed, rewards are significant.

2. Penetration Pricing Strategies

Penetration pricing is used by new brands and retailers wherein prices are set artificially low to build market share quickly and to gain awareness in the marketplace. When a new product is launched by a semi-established or unestablished brand, penetration pricing is almost a necessity.

After a promotion period is over or after market share objectives are achieved, prices can be raised. That said, some brands can lose market share after the price range increase thus it’s something which should be done carefully.

3. Price Skimming Strategies

When you have brand new products or services, price skimming is a common retail pricing strategy some use to help maximize sales profits by setting prices high. Businesses set prices high to profit from consumers looking to adopt a product or service early, building from anticipation, marketing, and what’s trendy.

In time, after early adoption profits have been maximized, prices can be dropped to attract the more price-sensitive. These retail pricing strategies are flexible based on their effectiveness in the consumer market.

4. Psychological Pricing Strategies

Psychological pricing is when prices are set at a certain level where the consumer will perceive the price to be fair or a bargain. There are many subcategories of psychological pricing, such as odd-pricing which uses figures like 5, 7, or 9, such as 4.97 or 4.95. This is because studies show consumers will, in their minds, round down a price of 4.97 to $4 as opposed to $5 resulting in a perception of affordability.

5. Vendor Pricing Strategies

Manufacturer suggested retail price (MSRP) is a common retail pricing strategy used by smaller businesses in an effort to avoid price wars without sacrificing profit. Do note that some products have a minimum advertised price (MAP) and may not allow for products to be sold below the MAP.

6. Keystone Pricing Strategies

Keystone pricing doubles the cost paid for merchandise in order to set the retail price. This was once the rule in retail however a significant increase in competition meant these margins could not last.

Even so, some retailers still use keystone pricing although they are few and far between. Many retailers selling high-end goods with less sensitivity to price may be persuaded to adopt keystone.

7. Markup Pricing Strategies

Markup on cost includes an industry-standard profit margin percentage on the cost of merchandise. The percentage markup is determined by dividing the dollar markup by the retail price.

So, let’s say your markup is $10 and your product retails for $20, this means percentage markup is $10 divided by $20 is .50 or 50 percent. Markup should be high enough to accommodate price reductions and discounts, to cover thefts and shrinkage, and any anticipated expenses. Different markups for different product lines are needed and can be adjusted according to business needs or processes.

8. Multiple Pricing Strategies

Multiple Pricing involves selling multiple products for a single price, such as ‘x’, ‘y’ and ‘z’ for $2. Markdown and sales events will commonly use multiple pricing to move more product. Also, consumers are purchasing in larger, bulkier amounts today than ever before. For some, multiple pricing in retail is exactly what they need to bring attention to their brands.

9. Pricing Below Competition

Pricing products lower than the competitor’s price is a smart retail pricing strategy but will affect your profits. As a retailer looking to negotiate low buying prices from suppliers or looking to implement marketing around price specials, this pricing strategy will attract customers. It’s a competitive pricing strategy that can set you up for success if/when you need it most.

10. Pricing Above Competition

Pricing above the competition does happen, depending on location, if you want exclusivity perception, or if you have a unique service model that accommodates a higher price. Alternatively, if you’re stocking high quality merchandise that isn’t available at other locations, pricing strategies can accommodate higher price points.

11. Discount Pricing Strategies

Discount pricing refers to merchandise priced below cost to be used as a ‘loss leader’. Retailers recognize they won’t make a profit on these discounted items. However, the hope is that by bringing customers in with attractive POP displays and incentivize them to purchase other products at higher margins. If enough consumers arrive, the formula for discount pricing should eventually mean profit for a retailer.

12. Economy Pricing

Economy pricing is common to food suppliers and generic discount retailers, focusing on attracting the most price-conscious of consumers. Costs are minimized in retail and made up for by also minimizing the marketing and/or production. Product prices kept down can be challenging to maintain and should be strategized intelligently to ensure a retailer remains profitable.