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Do you want to know the quickest and easiest way to increase your sales and profits? Raise your prices! It doesn’t have to be a lot; pennies and percentage points count in retail.
Every independent retailer needs to have a pricing strategy, and no one strategy will work across the board for all your products. Choosing the right blend of strategies will maximize your profit and revenue and keep your customers coming back.
When setting the retail pricing strategy for your store, you have to think of more than just profit margins and mark-up percentages. You must consider your brand, your core group of customers, and your long-term plans and goals for your business. Suppose your objective is to be perceived as a luxury brand. In that case, your pricing needs to consider the expense of your business’s aesthetics, the services you will be providing, the expectations of your core customer, and more. The pricing strategy for a high-volume discount liquidator will be different. You also need to consider your competition when deciding on the correct pricing for your store.
While there are merits and drawbacks to every pricing strategy, you’ll find that different approaches work better for different products, categories, seasons, and promotions.
1. Keystone Pricing
This strategy has been used for years in retail and is outdated. Basically, you just double the price you paid for the item, and that is the retail price. Keystone pricing can be useful as it is simple, but do not use this as your overall pricing strategy. If your keystone price point falls short of your product’s true value, you’re cutting into your own margin. Remember that choosing the right pricing strategy is a means to an end, which is ultimately growth and profit for your store.
2. Perceived Value Pricing & Rounding up to Price Points
As you evaluate items to buy for your inventory, you must consider what your customers would be willing to pay for that item. What’s the perceived value to your customers – what will they think it is worth? If the perceived value is not at least double the cost of the item, do not buy it.
Price on value, not only on cost.
You probably have items in your store right now where you could increase the price, and it wouldn’t affect your sales on that item at all. It will, however, increase your profit.
Certain price points are proven to sell better than others. WhizBang! Training teaches that a great place to grab some extra margin is to round up to psychological price points. 2, 4, 7, and 9 are the best numbers to have right before the decimal point, with 4 and 9 being the best. So, round up your prices to numbers like $24.99, $29.99, $34.99, and so on…
However, 9 is the most powerful. For some reason, customers react favorably when they see prices that end in a 9. In an experiment tested by MIT and the University of Chicago, a standard women’s clothing item was tested at the prices of $34, $39, and $44. They found that the item sold best at $39.
3. Loss Leader & Discount Pricing
As part of an event or for a promotion or just to draw in more traffic, you may bring in an item(s) to sell at a very low margin or even at or below cost. These “loss leader” deals can bring traffic to your store, and once they are there, your trained sales associates, your excellent product assortment, and your fabulous store will all work together to encourage them to purchase even more.
While loss leader pricing can work with a few items every now and then, a better strategy is to look for deals you can mark up to markdown. Be sure to ask every vendor and rep about closeouts and discounts when you are purchasing. With the extra margin built-in, you can mark these items at what their regular retail price would have been at full price and then put them on sale while still maintaining a healthy margin.
4. Bundle Pricing
In this strategy, you combine complementary products as a group of items that can be purchased as a bundle. Bundling products is a great way to build your bottom line and increase profits. It also makes the buying decision easier for the customer and automatically sells add-on items. You don’t have to discount the bundle; it may just be a convenient way to help customers get all that they need. Or it can be a great way to move some less successful items and offer more value to your customers. Bundles are everywhere in brick-and-mortar retail and e-commerce. Just look at Amazon if you want some examples. If you can create a bundle that meets your customer’s needs and satisfies your margin goals, you’ll find a happy medium that pushes products off the shelf while keeping your store profitable.
5. Use .99 Endings for Prices
We learned this lesson back in the ’90s when Beanie Babies were very popular. Our standard pricing ended in “.95”. After selling thousands and thousands of Beanie Babies, one day, we had the bright idea of raising the price to end in .99 and sold thousands more. Then we changed every item in the store to end in .99 and over the years made thousands of extra dollars with that simple change. To distinguish our premium products and brands, we then priced them on the even .00. Just raising your prices by four or five cents really adds up over time.
PRO TIP: How to Compute Prices for Individual Pieces of Sets.
Do you ever purchase items in a set and wonder the easiest way to calculate the cost of each item to determine the best retail? Years ago, I was given a little card at market with this information, and I often referred to it. Click here to download your Quick Guide to Retail Mark-Up