Pricing is one of the most difficult aspects of running any business but with increased competition and slimmer profits, this can set a dangerous pattern of constant price decreases into motion which if not addressed, could spell the end of any business.
Here are a few tips you can implement to ensure you're not getting the raw end of the deal every time.
1. Don’t Be Afraid to Raise Prices (Price with Confidence)
Wouldn’t it be great if making the sale was always guaranteed even if it meant negotiating the price with every single interested customer? The reality is that sometimes you just have to stand your ground and price with confidence.
Price increases aren’t always the wrong thing to do and in some cases, they’re absolutely the right strategy to adopt. Laying all cards on the table, price increases aren’t going to win you retailer of the year nor would it send thousands of new customers flocking to your store, but what it can do is grow your business by increasing the lifetime value of each customer.
This strategy could also aid customer segmentation, separating good and great customers from the poor to average customers, allowing you to focus more on the quality of the sale. This strategy could certainly could prove more successful and cost effective than trying to grow your business by increasing volume sales.
2. Don’t assume all Customers are Price Sensitive
Your business and/ or website may be the cheapest in the market but dropping the ball on other key areas that consumers perceive as valuable could see your prices fast become the least of your worries. Does the service you provide around the products you sell match the retail price set for the product? Customer service? Delivery dates and times? Returns Policy?
Price sensitivity depends on the perceived value customers place on your products and brand. To keep price sensitivity to an absolute minimum, intelligent retailers focus efforts on attracting customers classed as value seekers (they see pricing as part of their purchasing decision making process) as opposed bargain hunters (whose sole basis of their purchase decision making is driven by price).
Customer sensitivity to price may begin to creep in if two or more of their value criteria i.e. service, quality or price are better matched by the competition. The key here is for retailers to create, clearly communicate and demonstrate unique attributes that differentiate them from their competitors.
3. Conduct Competitor Price Monitoring Daily
The increase in the number price comparison websites setup to help consumers find the best deals for products they want is evidence that price still matters. If your customers are using price monitoring software to track prices, then you should ensure that competitor monitoring plays its role in your pricing strategy.
The retail landscape has never been more competitive. Today’s increasingly savvy consumer has the world at their finger-tip with immediate access to the internet from their mobile device making showrooming an increasingly popular practice especially when they are spoilt for product choice and delivery options.
Every retailer understands that using price tracking software provides visibility across key competitors providing opportunities to compare and benchmark prices and deals across some or all their assortment. This also provides data to aid swift decision making should the retailer choose to take proactive, re-active or no action at all.
Intelligent retailers have customized and automated their competitor monitoring activity not only because it is most effective but is also cheaper and quicker. Automated price tracking software also provides analysis and reporting functions, providing intelligence on competitor pricing trends, stock availability and much more (depending on the quality of your supplier).
4. End Prices with Number ‘9’
The power of the number ‘9’, is undisputed in the retail as the most effective end number when pricing to maximise sales. It has been assumed that the number ‘9’ makes the price look lower, while others see it as merely a retailer habit with no supporting research but truth be known, research from the journal Quantitative Marketing and Economics, MIT and the University of Chicago documented the science behind what the industry terms as ‘Charm Pricing’.
Research from the Quantitative Marketing and Economics Journal found that prices ending with ‘9’ outsold lower prices for the same product. Pricing tests on women’s clothing prices at $35 and $39 respectively, found that the clothes prices ending with ‘9’ outsold the others by approximately 24%. They did find that discount prices i.e. “Was $70, reduced to $55” did out-perform number ‘9’ but once the number ‘9’ was introduced to the discounted price i.e. “Was $70 reduced to $59”, it outsold the lower price point again.
Researchers at MIT and the University of Chicago also drew similar conclusions. Tests with an item of women’s clothing priced at $34, $39 and $44 found that the item sold best at $39 even compared to the same product priced at $34.
5. Keep Pricing Simple
Research in the Journal of Consumer Psychology found that prices set with more syllables appeared significantly higher to customers. The research that tested the following pricing formats; $1,499.00, $1,499, $1499 found that the former two prices appeared higher based on the way the numbers would be spoken out loud. I.e. “One thousand four hundred and ninety-nine,” compared to “fourteen ninety-nine.”
Too many consumers suffer from “analysis paralysis” where they end up not making a buying decision because many similar items are priced the same. Research from Yale University found that the probability of a customer purchase increases when similar items are priced even slightly differently.
So, what can you do? Help the buyer understand what is for sale and exactly how much it costs as clearly, quickly and as simply as possible. Make it easy for them to compare prices with other similar products that have a clear pricing difference to help them make a buying decision. Based on research, product features, benefits or any other information you have, address any potential questions they might have. Most importantly, provide a clear, visible and direct call to action.
6. Always Test Prices (Especially on New Products)
The internet is littered with opinions around testing your pricing strategy. Many believe it’s a must, some think it’s a good idea, and others are yet to be convinced, all with credible reasons to support their point of view and there are those who rely on their gut feeling (please don’t. Just don’t!).
It can’t be denied that consumer opinion around the impact of price on their purchasing decisions is completely subjective and dependent on other factors that influence these decisions. How did researchers conclude that prices ending in ‘9’ would prove the most attractive to consumers or that prices set with more syllables appeared significantly higher to customers? They had to test this.
Now, price testing has to be an ongoing activity consisting of various elements. You may want to generate more profit per sale and decide increasing product prices would be an effective strategy to achieve this. How would you identify the most profitable price point for business that is also palatable for your customers? You would refer to your competitor monitoring initiatives, comparing market prices and test various price points especially if you’re stocking a new product?
However you choose to label it, A/B pricing test, pricing test the A/B/C pricing test (insert another industry term here), intelligent retailers see this as a crucial element of their price setting strategy.
7. Understand Your Costs
An absolute no brainer but nevertheless a fundamental price setting commandment, you must understand your costs. Most commercial enterprises are in business to make and sustain profitability but it is widely accepted that before the ‘right price’ can be set, key costs must be factored. Failure in retail is absolutely imminent for retailers who continually trade below their operating and cost of goods expenditure.
At a high level these include product costs from manufacturing, labour, distribution and marketing to operational costs including expenses, debt re-payments, human resource, to name a few.
8. Understand Seasonal Impact
It is widely accepted that seasons and trends have a key part to play in setting prices. End of season sales and new season fashion collections are industry norms across several product sectors but the fiercely competitive nature of retail has seen key retailers begin to redefine seasons and trends to their advantage which forces other retailers to follow suit or give up their competitive edge.
Alongside traditional discount seasons such as Boxing Day and January sales, Amazon launched Black Friday in the UK as a single day discount event in 2010. Since its introduction, The Black Friday phenomenon has since grown to a week-long event defined as Black Friday Week as retailers looked to maximise sales volumes. Black Friday 2016 saw Amazon run Black Friday month, providing customers with discounts as early as 35 days before Black Friday.
The hardest lesson, however, is also a bitter pill: you can’t please everyone and regardless of any strategies you have in place, they just won’t buy. Painful? Yes, but sometimes, that’s just how it is. The great upside to our interconnected world is that there is almost always another customer happy with your prices.