Due to the rapidly changing nature of modern retail, there’s only so much guidance marketing and e-commerce textbooks as they struggle to keep up with the latest developments in competitive pricing techniques.
Here are seven actionable retail tips on pricing that once implemented, can boost your sales performance immediately.
1. Research alone isn't enough.
When setting prices for the first time, your first step is likely to involve some market research on other retailers to see what their price ranges are, and then to conduct research on your potential customers to find any information the competition might have overlooked.
While it can be important to stay competitive in your pricing model, this kind of direct research can sometimes lead to difficulties. The primary issue is that it expects the consumer to actually know what they would be willing to pay, which often is quite different from the reality of their shopping habits. It also ignores many of the psychological effects that various product positioning strategies can have, including some that we'll discuss later on in this post. Lastly, it can mean replicating pricing errors made by the competition instead of leveraging them to your advantage.
In short, research is a good base to start your pricing from, but it shouldn't be the only tool you use to formulate your final strategy.
2. Price yourself into the market you want.
'Race to the bottom' competitive pricing may seem like an easy way to break into a new market, but it can often send an unintended message to your customers. Pricing too low can create the impression that you're selling a low-quality product, regardless of the actual quality of your product offering.
Consider the example of the Apple iPhone. The iPhone essentially create the modern smartphone market, but even now that the market is growing saturated, Apple still holds the crown for perceived value due to the strategy they use to price their devices, known as 'Minimum Advertised Price'. They're not more powerful or capable than any other smartphone, but they have still turned Apple into one of the most valuable tech companies in the world - all by pricing above the competition.
3. Comparative pricing can backfire.
Many retailers go out of their way to make it easy for customers to compare the cost of various products, but this can have some unexpected consequences. A study conducted by researchers at Stanford University suggested that by explicitly showing customers a comparison between two competing products, the customers became more risk-averse and less prone to buying either of the options.
Curiously enough, when the customers took the initiative themselves to do a direct price comparison, there was no corresponding increase in risk-avoidance. So while it may seem advantageous to make the comparisons between two competing products explicit, it's a much better strategy to make it seem like the customer's idea.
4. Anchor pricing on steroids: the 'useless' price point
The flip side of the comparative pricing issue comes from leveraging the customer's search for good value. Author and cognitive psychologist Dan Ariely noticed a surprising example of this on the subscriptions website for The Economist. They offered 3 different subscription price tiers: a web-only subscription for $59, a print-only subscription for $125, and a web + print subscription for $125.
Obviously, at first glance the middle tier appears useless. But Ariely was so intrigued by this apparent anomaly that he conducted a study to determine why it was included at all. Essentially, the 'print-only' tier urges customers to purchase the equally expensive 'web + print' subscription because it provides a better value. Without it, customers were more prone to convince themselves that they didn't really need to go for the 'web + print' option, but when it was included, the 'web + print' option at the same price seemed like a much smarter choice.
5. Dynamic surge pricing.
Long a staple of the largest players in the hotel and airline industries, dynamic retail pricing is an emerging strategy enabled by advances in technology. In its early stages it was too expensive for most retailers to implement, leaving the benefits to massive retailers like Amazon. Amazon leveraged the strategy in its early days, but was later discovered to be showing different prices to different customers at the same time which is illegal in most countries.
Once that was discovered, they quickly adjusted the system to display prices fairly but they never stopped updating prices regularly, as often as every 10 minutes by some estimates.
Thanks to advances in price monitoring technology and services, this kind of dynamic pricing model is now more accessible to retailers. While your business might not need constant up-to-the-minute price adjustments, it's still worth implementing in order to maintain a financial advantage over the competition.
6. Price comparison has never been easier.
With the undeniable rise of online retail shopping, consumers are growing more and more savvy about comparing prices at competing retailers. Rather than having to actually leave a brick and mortar store to compare prices, the next big store is just a few clicks away.
On top of that, a wide range of price comparison websites exist to make the task even easier. In order to stay competitive, retailers need to leverage every available piece of data on their competition. Fortunately, for every tool that's available to the general public, another far more sophisticated tool is available for retailers looking to capitalise on pricing intelligence data.
7. You're never done pricing.
Perhaps the most important thing to remember about retail pricing is that you're never done with it. Costs and consumer attitudes are constantly shifting and the retail market itself is in constant flux, so you can't simply set your prices and forget about them. Maintaining a competitive advantage in a crowded marketplace requires constant attention, but that can take a great deal of time to do manually.
If you're looking to maximise your competitive advantage, price monitoring and comparison tools are one of the single most effective methods you can implement. Competitor Monitor offers an industry-leading suite of competitive intelligence tools, and you can start today with a free 14 day trial to see just how much we can help your business.