If you’re an independent retailer, you’ve probably got a much tougher job than your competitors who are part of a chain or a franchise.
While chain stores generally have most of their decisions made for them at a head office level, independent retailers need to select their own product range, set their own prices, merchandise their own stock and come up with their own promotions.
Of course, you’ll need to do all of this while managing employees, creating schedules, and dealing with your store’s financials.
Even for experienced retailers, all of these areas can present their own, unique challenges.
Let’s take pricing. A successful pricing strategy for a retailer, contrary to popular belief, is more complex than just working out your markup and breakeven point. There are a number of pricing strategies you can implement that can make you more competitive. Today, I want to look at a few of those strategies.
How it works: When adopting a high-low pricing strategy, a retailer will generally price their stock higher than the competition. They’ll then run a promotion or campaign which offers consumers a lower price on some key items. This offering attracts customers to the store, where they are then offered both the discounted item, as well as the store’s regular (i.e. higher priced) items.
An alternative (if less ethical) way of utilising high-low pricing is to inflate the price of a product for a brief period, then ‘discount’ it to its actual price, thus making customers think they’re getting a great deal.
Is it for you? High-low pricing works well to establish the value of a product in the minds of the customers. If you have, for example, a $300 leather jacket in store, then reduce it to $200, the customer is happy that they got a jacket they perceive to be worth $300 for $200. They’ll also feel that they’ve saved $100, which they’ll very possibly spend with you as well.
For this to work, your brand needs to have some cachet, as does the product you’ll be discounting. If a competitor has a better reputation, and has similar quality leather jackets at a fixed price of $200, a high-low strategy may not have the impact you want it to.
How it works: Bundle pricing occurs when a retailer bundles a group of products together, and offers them at a reduced price. You’ll most often see this as a ‘Buy one get one free’ (also referred to by the unfortunate acronym of BOGOF) offer, or a ‘Buy one, get the second item for $1!’ offer.
Retailers from all walks – from convenience stores to supermarkets to clothing stores – employ bundle pricing.
Is it for you? To look at whether a bundle pricing strategy would work for your business, you first need to look at the two kinds of bundle pricing.
The first – where an item is offered for free (the aforementioned BOGOF) or for a token amount, is a great strategy for clearing excess stock, and is particularly used by retailers who are keen to make floor space for new season stock.
The second – where items are packaged together at a discounted price (such as furniture package deals, or fast food value meals) – not only serves the purpose of moving more stock, but also helps to increase the average transaction amount, which helps boost sales.
How it works: This is a pricing strategy that you’ve seen everywhere – you just may not know what it’s called.
Psychological pricing is simple – it’s the practice of pricing something at, say, $9.95 or $9.99 instead of $10 – and used extensively in almost all retail environments, from apparel to FMCG. It can also be used on luxury items – pricing, say, a Chloe handbag at $1,950 instead of $2,000 can help consumers justify spending such a huge amount.
Is it for you? As I mentioned, psychological pricing is used pretty extensively in retail, so much so that $29.95 seems like a far more familiar price point than $30. While most consumers are savvy enough these days to realise that $9.95 is ostensibly $10, there’s likely to be little harm, and some benefit to implementing psychological pricing in your own store.
How it works: Premium pricing occurs when a retailer sells their products at a higher price than the competition, in order to foster a more prestigious image among consumers. In general, this is utilised by high-end brands – think fragrances, designer labels, jewellery or cars.
Is it for you? If you’re planning on selling any kind of high-end, premium product in your store, premium pricing may be something that will work for you. However, keep in mind that a premium price doesn’t just pay for a premium product – it also pays for a premium service. If you don’t think you’re equipped to provide that level of service, premium pricing may not be for you.
How it works: More or less the opposite of premium pricing, discount pricing is a strategy where a retailer will undercut the competition on price, while still making a profit.
You’ll see this most often at discount chains, where they have enough purchasing power to buy stock from suppliers at a far better price than smaller operators. Discount pricing does also occur in independent retail stores, but these stores will often make discounted prices viable by purchasing items of lesser quality than their competitors.
Is it for you? Discounting can be a good way to get the upper hand on the competition, but it’s a strategy that needs to be used judiciously, as discounting too much can devalue your brand. Since discounting means you’ll need to sell more stock to make the same amount of money, it’s best used as a short term solution for most retailers.
For any retailer, big or small, getting the mix of product, price, place and promotion right is crucial to success. Pricing is a complex area, but always remember that you’re not obligated to use just one pricing strategy at a time, and you’re allowed to tinker with your pricing until you get it right.