Determining a reasonable pricing structure is one of the most daunting tasks a business faces, especially with the arrival of the internet.
The spread of digital media has made it even harder in setting competitive price. However, festive periods create an opportunity that allows you, the retailer, to set prices you want for your products/services.
Traditionally, festive periods bring a huge increase in revenue. It is a time that customers are geared towards spending money, because they believe that this period offers lower prices and major sales. They look for deals that will maximize their budget coverage while they shop for the perfect gifts for family and friends.
Therefore, this is the perfect time for you to have a pricing strategy in place in order to take advantage of the increased patronage to increase your profitability.
In this article I will show you seven pricing strategies that big retail companies use to make money while satisfying their customers. Rather than focus only on big sale days like Black Fridays, you can start now.
This is one way to get customers to pay more for products/services. It refers to pairing related items together to create the perception of a deal. This pricing strategy encourages consumers to spend a little extra on an item they otherwise would not have purchased.
Example: If you sell kitchen utensils, you could pair a set of pots with a set of cutleries together to create a deal.
- Cost of pots = N6,000
- Cost of cutleries = N2,500
- Bundle package = 8,490
This type of sales are the perfect way to market your products/services and encourage more spending, particularly when sales coincides with big shopping days such as Black Friday. You can use any of these strategies:
- a. Buy one and get one free! Example: buy a pair of shoes and get a pair of socks free!
- b. Sales that make customers to make a future purchase by offering a gift card or discount. Example: get a 20% discount when you buy two pairs of shoes!
You can’t afford to give discounts at this time without making a loss? Offer them an alternative!
Consumers like to get a deal. And one way to get them to spend money without discounting your prices is to use decoy pricing. That is the use of a more expensive alternative and sometimes a cheaper one to create an illusion of a mid-priced item. When customers see mid-priced item, they think they are getting a good balance of quality and price, encouraging
them to make a purchase. Just make sure the mid-priced item is almost as appealing as the higher-priced item, and significantly more appealing than the lower-priced item.
UK designer gown = N15,000
Turkey designer gown = N10,000
China designer gown = N5,000
By creating this distinction, the customer is likely to choose the Turkey gown. It’s a win-win situation.
Research your competition
Get to know your competition and create a contrast price list. You can do this by:
- a. Pricing your items higher to create an illusion of more value. This works if you can offer a guarantee or any tangible improvement, no matter how little.
- b. Discounting your prices. If your items are like what your competitor is offering, you can lower the prices a bit to entice their customers to purchase from you.
Utilize anchor pricing
Anchoring refers to the tendency of consumers to heavily rely on the first piece of information offered when making decisions. Research has shown that people consider an item on sale when the original price of the item is placed alongside the new price. They view the piece of information offered first as highly reliable.
How can you use this to your advantage? Practice anchor pricing! If an item is on sale, display the original price first, followed by the sale price.
Set of pots –
Phycological pricing refers to a type of pricing meant to trigger emotional, rather than a logical response in a buyer. Example: consumers are more likely to buy a product at N499 rather than N500.
Setting a price this way creates the illusion of lower price, although the difference is just one Naira. Here the consumer feel they’ve saved money or received greater value.
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Customers are more willing to pay for a product if there is an option for free shipping. One of the ways to use this strategy is to include a disclaimer. That is, free shipping is available:
- a. With minimum purchase amounts, like orders above 10k
- b. For certain items only
- c. During a specific time periods, like three weeks before Christmas. To ensure you don’t lose money you can factor the shipping cost into the price of the item but offer “free shipping”
When choosing a pricing strategy, you need to have a good understanding of your target customer and be aware of the key factors that drive consumer behavior. Keep in mind, that the more customers you successfully attract and satisfy, the more likely they will be back to shop from you during regular seasons.
Uju Unuegbue is a digital content creator, writer and columnists for Bloomgist under our Academy writers department, Column 60.