Businesses have to be able to adapt to changing market situations. Customer preferences are constantly shifting which impacts demand of a product or service, and thereby its pricing. In such a scenario, pricing goods can be a tough call with so many market forces coming into play. Yet, a business' prime objective is to make profit, and over the years, store owners have devised ways and strategies to remain profitable. Smart pricing of goods is one of the major areas through which maximum profit can be ensured.
For factoring cost of a product, the two key elements are operating expense and cost to manufacture and distribute the product. A primary thumb rule is that the retail price of a product has to be enough to cover the costs of obtaining and marketing the goods along with the expenditure in connection with operating the business.
Strategies for Retail Pricing
One of the often-used strategies is to set the price lower than the competitors. If the retailer negotiates the best prices with the supplier, develops a marketing strategy focusing on price specials, and cuts down on cost, only then can this work.
Up and Above
This is a strategy where the price set is pretty high, but it is usually for luxury items and high-end products - jewelry, property, and the like. This is mostly put to use in case the value of the product is based on and recognized by the premium and luxury market segment.
It is about the Psyche
Another strategy is psychological pricing. When the consumer wants to see the prices to be fair, after they are set at a certain level, that is when this is put into use. The most common practice is to set a price at an odd figure. For instance, if the price is USD 9, it is set to USD 8.95; rather than USD 30, it is made USD 29. This has a psychological impact on the consumer.
On account of a number of advantages like ease in calculation and administration, many sellers opt for cost plus pricing. A number of variations are involved in cost plus pricing, though the most widely used method is calculating the average cost of the product and addition of some percentage of markup or profit margin. It need not necessarily be related to the production and sale of the service or the product. This strategy has received a lot of bashing, but is one of the most convenient ideas.
Suggest the Price
The Manufacturer's Suggested Retail Price (MSRP) or Recommended Retail Price (RRP) is a strategy where the manufacturer suggests a specific price to sell a product. The purpose is to standardize the price across locations.
In addition to these strategies, there are a few more like multiple pricing, where more than a single product is sold at the same price, and discount pricing, which is self-explanatory in itself. At the end of the day, it is for the retailer to decide which strategy would be most suitable to make profit.