Volume pricing, simply put, is pricing inventory stock for volume or bulk sales. Though it may seem counter-productive to price items lower, this is a strategic pricing technique when the name of the game is to increase profits. However, it is worth taking the time to understand the psychology behind volume pricing, your customer and how it can all work for you.
How does volume pricing work?
Volume pricing is when a discount is offered to a customer when they purchase the stock in a large volume. They essentially pay a lower price per unit, which equates to the company receiving less per unit, however the result is they shift more inventory stock, which cuts down on storage costs. When a customer buys 10 products compared to just one, the labour associated with the production batch, marketing material and sale of the products is divided by 10, meaning the cost is lower per unit. This phenomenon, coupled with reduced storage costs and a lowered risk of the inventory becoming obsolete or expired, saves the company money and increases the bottom line.
Why should a company offer volume pricing?
Customers buying in bulk often do so because they are a large entity with a large customer-base and require a significant amount of product to satisfy business. This means the customer will inevitably, no matter how cheap the price tag is per unit, pay a large sum of money. As soon as this large investment occurs, the customer will be extremely interested in being offered the lowest price possible which of course, makes them prime candidates to be poached by companies offering greater discounts. Therefore, it is imperative to reward large volume purchases through significant discounts and woo customers away from any potential competition.
To be heard in the retail world, you need to speak the same language as the customer. If the competition is able to provide volume pricing, then you also need to find a way to do so in order to remain a viable vending choice. When a customer considers where to shop, they look at the product and ascertain its value to them. If the inventory you have on offer can be found elsewhere and is comparable in terms of variety and quality, then price becomes one of the leading factors in the customer’s decision-making.
Psychology of Sales
Offering to discount the price of a second item is a very effective way of capturing more sales, and it is all about the psychology. Someone may wish to purchase an item which they have put a lot of thought into and carefully selected the specific product they want. They then spot a sign stating there is a current deal where they will receive 50% off a second item if they choose to purchase two. Instead of thinking that they will end up paying 50% more than what they had planned for an extra item that they had not realised they needed or wanted before now, the customer may well briefly browse for a second item simply to take advantage of the discount offered. The result for the company is the sale of another item, albeit discounted, without having the reduce the cost of the first item.
In the hunting ground that is the retail world, where every person is out to snap up their customers and ensure they make the sale, loyalty and trust is everything. By offering volume pricing, the company essentially opens up the doors to a relationship with the customer, effectively locking in their future loyalty and guaranteeing sales.
Pricing models are fundamental to a business and a necessity to optimise to be profitable in the retail world. However, it is not as simple as simply charging more and expecting the customer to pay. It is time to get creative and consider how everyone can win with the pricing strategy you choose. Volume pricing is just one example which may be right for your company.
Looking for another pricing strategy? Check out this article on discount pricing.