As a retailer, it’s crucial to stay competitive. Retail pricing strategies will help give your boutique the competitive edge it needs to stay ahead of your competitors.
Why is pricing a product so hard? It shouldn’t involve emotions, so why do we have feelings about it? The reason is that pricing is one of the most challenging parts of owning a business. You want to be fair to your customers, to yourself, and of course, you want to make money.
You worry that if you price it too high, no one will buy it. Or, if you price it too low, it will sell out quickly, and you could have made more money by pricing it higher.
You are not the only one who worries about product pricing. The good news is that there are multiple retail pricing strategies to choose from, and you can use them all, just not at once.
First Things First
Before we share retail pricing strategies, it’s important to emphasize that you are in business to make money. You have to cover your costs plus make money. Before you start pricing any product, know two things: how much you paid for the item and how much profit you want to make on the item.
These numbers are the foundation of your pricing strategy. You will pair these numbers with a bit of retail psychology.
Okay, let’s get started.
1. Manufacturer’s Retail Suggested Price (MSRP)
You’ve probably heard customers talking themselves into a purchase. They say, “wow, the MSRP is so much higher.” They may or may not know what MSRP means. The basis is that the manufacturer offers you the item at a reduced price to mark it up and make a profit. This is one of the most straightforward retail pricing strategies, and typically, everyone gets a good deal.
A reason not to use MSRP is that you may get better deals on bulk items by working with a wholesale supplier. Plus, you will have more product options.
2. Bundle Pricing
Bundle pricing means more products leave the store at one time. You group two or three items and sell the bundle for one fixed price. Customers feel like they are getting a better deal when they buy a bundle. Bundling works great for things you want to move off the shelves. However, it can be challenging to break up the bundle and try selling them individually again. Customers then believe they are paying too much for just one item.
3. 5, 7, 9 Pricing
This strategy may be a psychological pricing master. The theory is that products sell better if the price ends in a 5, 7, or 9. Remember the infomercials that perfected this model? You can have this product for three payments of $19.99″. It can work in your boutique too.
Before choosing this strategy, consider your customer. If your boutique caters to the ultra-wealthy, this psychology trick may backfire. Some customers may connect 5, 7, or 9 to less quality.
4. Anchor Pricing
The anchor strategy is based on the theory of cognitive bias. You are helping the customer think they are getting a significant discount by providing them with the original and discounted prices. By showing them those two numbers on the tag, customers automatically feel they are getting a deal even though they have no proof that the original number is factual.
5. Premium Pricing
The premium pricing strategy has more to do with your customer base than with the product. If your customers prefer luxury, give them the feeling of luxury. Price your items higher than your competitors but make them feel special when they are in your boutique.
To use premium pricing, you must be able to prove you are a luxury boutique. Location, interior décor, amenities, and price must all match the customer you want to attract.
6. Penetration Pricing
Penetration pricing is a form of discount pricing. This strategy is for the majority of the population who love sales, markdowns, and coupons. Everyone loves to get a good deal. Discount pricing gets people in your store. Even if they don’t need anything or even want anything, they don’t want to miss out either.
Penetration pricing must be done on a limited basis, like once a month or seasonal. Otherwise, your reputation could become synonymous with discounts, which people may associate with lesser quality products.
For example, Wal-Mart and Target sell the same products. Target prices up, Wal-Mart offers discounts. Although the products are the same, people associate Wal-Mart with lower quality.
7. Keystone Pricing
Keystone pricing is simple, double the price you paid for the product. You know that saying, “If it seems too good to be true, it is”? Well, this applies to keystone pricing, unless you don’t have to worry about competitors’ pricing. This strategy is affected by outside factors, like how the store is pricing its products down the road.
8. Skimming Pricing
If you have products that may become less popular over time, you can lower your prices on the item gradually if they aren’t selling. This is called skimming the price. It is most effective when selling electronics or fad items. The cost of the product is based on demand.
Skimming is similar to the high-low pricing strategy, with just a tiny tweak.
9. High-Low Pricing
High-low pricing strategies work well in the fashion industry. It’s where you start with one price, and rather than drop the price gradually over time; you drastically drop it when you have a clearance sale or end-of-season blowout.
Discount retail pricing strategies like skimming and high-low effectively make your customers feel like they are getting a good deal on quality items. As mentioned before, discount retail pricing strategies can affect your reputation if done too often.
Successful retailers use a combination of retail pricing strategies, not just one. Most retail pricing strategies are short-term events. This allows you to use a trial and error process of figuring out which ones you want to keep.
Ultimately, you want to feel good about a pricing strategy. If these strategies aren’t working, keep researching or create one that does work. Don’t give up until you find the one that makes you and your customer happy.