6 Pricing Challenges Facing Retailers

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Pricing strategically is at the heart of all retail competition, but pricing products is no easy task. Getting it wrong can have a dramatic impact on your sales, directly affecting revenue streams. Although there are many factors that contribute to a consumer’s final choice, such as brand loyalty, purchase occasion, perceived product value, price is one of the most distinguishing factor. Ensuring you have an effective pricing strategy for your products is imperative for successful sales.

Brand positioning

Having an appropriate pricing strategy goes hand in hand on how you want to position your product in the market place. Setting a high price can suggest premium value in your product, and the opposite is true, sometimes cheaper prices can serve as indicator that your product is inferior to other brands.

Pricing for different consumers

It may be beneficial for your company to charge different prices for different sets of customers. For instance, one-off sales generally carry significantly higher costs than repeat business. Implement a strategy for customers who purchase regularly, or buy add-on or related products, are more valuable and you should think about rewarding their business by offering exclusive deals or memberships that encourages them to buy from you again and again.

Competing against other retailers

It is common to use competitive pricing to fill tactical rather than strategy focused needs. Competitive pricing initiatives should be used to understand the competitor’s price on individual SKUs as well as their total pricing strategy across their brand. Technological advances result more consistent, accurate and real-time data. This enables a retailer to look at trends within the marketplace, understand the actions of competitors, and use predictive analytics to ensure their company’s value proposition remains relevant to your target market. When reacting to competitor’s pricing and starting a price war, no one wins except for the consumer.

Varying prices

Varying your prices on products can increase your profitability. Some tactics include:

  • Being a loss leader by charging lower prices for high-profile products to capture customers who will also buy higher margin products
  • Charging different prices at different times of the day, week, season or year to reflect the changing demand. Food stalls might discount food at the end of the day to clear stock.

Knowing when to discount

Discounting needs to be worthwhile by achieving your company aims. For example, clearance discounts can help sell off old or otherwise soon to become obsolete inventory stock, releasing working capital and improving cash flow.

On the other hand, introducing discounts may encourage customers to try a new product, but the business risks creating the wrong image for your product or generate sales that are not repeated without the discount. It is also important not to fall into the trap of conditioning your customers to only shop at your store when you have a discount sale on.

Pricing for different channels

With the ability to use smartphones in store, shoppers have better knowledge of prices and products. Executives are reluctant to have different prices between online and physical sores, even though in-store products have a higher cost associated with them.

However, some businesses are able to charge different prices for each channel. For example, airlines offer different prices between online and phone bookings. To succeed in the modern world of retail, executives need to embrace web and in-store sales channels as unique operations that cater to customers with different needs and price sensitivities.

Pricing is a significant part of your product offering, and is important as it is where your company generates revenue. Being aware and understanding the challenges pricing strategies entail is vital for a retailer’s success.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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