Retail Pricing Strategy

Retailers know that poorly executed pricing strategies can end up affecting the retail industry as a whole. Figuring out how to price a product is not always easy. Two key elements in figuring product price are what the goods cost and the amount of operating expenses and overhead. No matter which pricing strategy used, the retail cost of the products should cover the merchandise cost and all operating expenses.

Also, keeping your customers in mind when pricing merchandise is important. Customer service is not just about service but also about keeping your prices affordable and still being able to make a reasonable profit. Mandy Meads of Aeropostale, Lands’ End, Federal Reserve Bank, and a board member of Wet Seal says, “You have to know your customers, who is that customer, you really have to understand who they are and what they are looking for.” 

There are several types of pricing structure and strategies that can be used to accomplish this:

1. If markup pricing is used, cost can be figured by adding a preset percentage or profit margin to what the merchandise actually cost. When markup on retail is used, the markup is divided by dollar markup. By keeping the initial markup high enough to cover price reductions, discounts, and other expenses, a profit can still be achieved. If there is a varied product selection then you can use different mark up prices for each line of merchandise.
    
2. Vendor pricing, otherwise known as manufacture suggested retail price (MSRP) can be used to avoid price wars with other merchants and still make a profit. It removes you out of the decision making process by using the prices suggested by the vendor. The vendor you use may also have minimum advertised prices, with a preset price so there isn’t any advantage over the competition, which can also be to your disadvantage.
    
3. If competitive pricing is used, outstanding customer service will need to be provided to make your store or company stand out. If marketing strategy is developed which focuses on price specials, best prices and can still reduce cost then this will work well for you. However, if you carry high stock merchandise that isn’t available elsewhere, you can prestige price, which can justify higher prices because the merchandise is selective only to your store in that area.
    
4. Tweaking your prices is another strategy that can work. When the price is determined for the merchandise, set your price a little below it. A price of just below, for example $2.99 or $199.00, show customers you have a great deal to sell them. A round price such as $5.00 or $2500, signals a high quality product.
    
5. If you have customers that look for products on-line and you carry the same merchandise, offer straddle prices. This price straddles two price ranges and is always a round price. You can help to figure out what straddle price is optimal by using competitive pricing information.

No matter which pricing strategy you use, you need to price your products the right price.The price is the one the customer is willing to pay while providing a profit for you, the retailer.

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