How Retailers Can Price Products Profitably

Small businesses generally have the misconception that high prices drive the sale. Though high price plays an important factor, there are many more considerations into pricing that drive sale for a business.

As a retailer, to create a price which will not only generate profit for your business, but also draw customers to you, it is important to create a good pricing strategy. In creating such strategy, the first question that must be answered is - ‘What will my target customer be able to pay for it?’

An important term every business owner should be aware of, especially in creating a pricing strategy is what is called a Profit Margin. This is the amount remaining from sales after all expenses have been paid.

The strategies usually employed by retail business owners around the world, and which may be good for you includes:

  1. Penetration Pricing: In penetration pricing, a business offers its new product or service at a lower price to attract customers. The idea is to get consumers hooked with a sale price, so they are willing to pay full price after the promotional period expires.

  2. Markup Pricing: Markup pricing (also called cost-plus pricing) is the one where you add a percentage of the base cost of individual items to create a profit — but you apply a different markup depending on the product.

  3. Psychological Pricing: Psychological pricing is a value-based pricing strategy. Also known as charm pricing, it depends on the customer’s perceived value of the item. For instance, instead of charging $6, retailers price a product at $5.99. The brain sees $5 and the consumer is tricked into perceiving a lower price. Note: Psychological pricing is best applied to non-essentials, as it encourages customers to spend impulsively.

  4. Premium Pricing: Premium pricing (also known as prestige pricing or luxury pricing) is another value-based pricing strategy. High-end retailers sell their products at an additional markup that gives their customers the sensation of status.

Of all the strategies we’ve shared, no single pricing tactic will be enough. Small business owners should experiment and combine tactics to develop the right pricing strategy to ensure their company’s profitability.

This brings us to the end of this episode of #Buildyourbusinesswithpesabook. Thank you for reading this piece! We hope it helps you succeed in your business!

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