Pricing Strategies in retail for 2018

Retail Pricing Strategies for 2018

Pricing strategies will encounter a demanding future – the retailers will consistently need new tactics and models. The companies which fail to adjust and continuously improve their pricing models (just as value creation and propositions) will topple down.


Pricing strategies

According to e-commerce forecasts, the online retail sales in USA in 2018 will surpass 461.582 mln dollars (compared to 409.208 in 2017). Online sales grow averagely by 9.32% every year, but taking into account the last year’s indications, we are on our way to surpassing the estimates.

This numbers mean even more competition among retailers. That’s also one of the main reasons why pricing strategies will forever be in a state of flux: someone can always differentiate by means of pricing, and if that becomes successful, others will do the same and there is the next pricing trend.

The changes to come: general observations

User behavior will be triggered and new differentiating services will be introduced by new market-entrants, so a retailer in 2018 will constantly have to change his pricing tactics and models.

Accurate market data will become even more essential as a key to perfect pricing analytics and adjustment. Its freshness will become crucial because of development of data collection technologies and competitive growth.

Fixed pricing will be more and more inferior to dynamic pricing, because pricing will have to correspond to real time changes in the market to meet customers’ expectations on cost of goods. Those expectations will grow in 2018 because, as mentioned before, there will be even more online shoppers having an exact idea of what a product should cost, so retailers will learn how to influence the customers’ price perception.

Price perception and competitive factors will make the basis for predictive pricing. That’s modeling of the optimal attainable for a customer price, which should constantly be changing, because even it if works fine in the short term, it may become less accurate over time.

Understanding human buying patterns

Can we get into customers’ heads to realize whether they are willing to pay more and to determine the best price? Yes, if we’re applying neuroscience to pricing! Neuroscience can truly help improve retail pricing strategies in the near future. According to Deloitte, it reveals customers’ actual willingness to pay, predicting subconscious perceptions of prices. In particular, the anchor pricing was studied in order to understand its impact using special brain scans.

Looks very futuristic, doesn’t it?

Anchoring is a systematic pattern which describes the general human tendency to rely too much on the first piece of information proposed (the “anchor”) for choosing between several products.

Studies by Deloitte show that the customers were ready to pay more than the company was charging. Anchor prices influence consumers in buying decisions. As long as consumers aren’t able to evaluate absolute prices, they estimate the value of a service or a products based on relative price differences.

Their willingness to pay the offered price comes mostly from experience and in particular unconscious and unintentional anchor prices.

Recommendations for adopting pricing models on the basis of neuroscientific studies will be extremely valuable for enterprises in 2018.

Companies that will take the subconscious thinking processes of their clients into account, will improve their results qualitatively (product quality perception) and quantitatively (sales & profit). Neuroscience based pricing together with the concept of anchor pricing can help companies understand and elaborate clients’ willingness to pay.


Retail pricing strategies

Price-setting has to consider customers’ unconscious thinking to be most effective.

Will psychology pricing strategy still be in need?

Pricing based on neuroscientific researches shouldn’t be confused with psychological pricing. The last one is rather a set of tricks making the price seem lower. It will be in need in 2018, just as in 2017. Here are some of them.

Understand the price lining. If a retailer wants to sell an expensive item and puts it next to the even more expensive product, we call it price lining. E.g., if a shop is selling three types of beds. Usually customers will buy the middle priced item. Customers don’t want the cheapest items but they also avoid the most expensive ones. So they’ll aim for the mid-priced product, because they subconsciously associate the product quality with its price. The price difference helps them take a decision even if the products are more or less similar.

Don’t price similar items the same. According to Yale research, when two similar products have same price, people will less likely buy anything than if the prices are a little different.
Researchers made an experiment where they had customers choose to make a purchase (or keep the money) of different packs of gum. Just 46% bought gum when both packs were priced at 63 cents.
But when they had different price—at 62 cents vs. 64 cents—much more consumers decided to get a pack (77%).

Competitive pricing strategy

Make the price seem smaller. There are many tricks out there to make a price seem lower, the “$9.99” pricing is the most common one. Though, there are less obvious tricks to influence on customers’ price perception. In a CMU study, a DVD subscription raised by 20% after the pricing message “a $5 fee” was corrected to “a small $5 fee”. As it is said, the devil is in details.

Less syllables! The prices which contains more syllables seem higher to the customers, according to a research paper from the Journal of Consumer Psychology. Which one of this pricing structures seem to be the best?

  • $1,499.00
  • $1,499
  • $1499

As to the customers, the third price seemed far lower to consumers because of the way people would verbally express the number. Though, customers don’t actually need to speak the number evaluate to have this price perception.


Pricing method

Let the customers choose what they pay. There is more examples of “choose what you pay” approach than the Radiohead album. Actually some shops are proposing their customers to choose from several price options. They are really clear here: each price option mentions the profit which company will make and how the store will use it. Not all customers prefer the best deal! Some loyal customers may choose the higher price to support the favorite brand’s growth.

Improve the shipping. Retailers will propose some more advantages like free shipping and take it into account while setting the price for an item. Why it will be important in 2018?

  • According to BigCommerce, shipping cost is one of the top three factors (80%) that are extremely influential in determining where customers shop, the others are price (87%) and discount offers (71%).
  • 66% of online customers decide not to buy a product because shipping is too expensive.

There’s a popular pricing strategy called “Free + shipping” which works best for retailers selling relatively cheap products. For example, if your product price is under $3, add a “Free” section on your online store. This item may cost 2-3 dollars to ship. So, an average retailer would charge $9.99, but with a Free+ model a retailer may charge less to make the customer feel like he got a deal because the product itself was free. But the product wasn’t truly free, because the shipping is less expensive than some retailers claim.

Private-label products to grow pricing pressure in 2018

The apparel sector will be under some stress in 2018 as Amazon and other reseller giants are expansioning their private label. Good quality won’t be an attribute of expensive brands anymore. The margins won’t be their focus as they are going to concentrate on customer satisfaction. In categories like sportswear private labels will acquire up to 20% of the market. That should make large brands feel stressed, as long as every next generation becomes less and less loyal to brands.

Promotions: to discount or not to discount?

The same BigCommerce report mentioned earlier has shown that 60% of female respondents invest time to find the best deals (vs. 46% for male counterparts) and once every two times search for coupon codes to have discounts (48% among women vs. 29% among males).

Retailers will get more insights about possible changes in customer expectations and expected profit improvements when preparing their promo campaigns. Pricing and category managers should have tools of predicting these consequences, just as competitive reaction, because both of them mean a lot for retailer’s long-term pricing success.

Not to be forever labeled a discounter, the temporary discounts should be implemented (let’s stress here on the word “temporary”) to attract customers and to make them feel they are getting a good deal. They will hope for further discounts in the future on the goods they are willing to try or they usually purchase.

Pricing personalization

Personalized dynamic pricing will be an important trend in next year’s retail. We’re discussing this notion in details in our blog. Generally speaking, by adding a few data collection tricks and implementing behavioural research a retailer may drastically improve user experience and propose his client personalized offers to persuade him to make a purchase in a particular shop.

Competitive pricing to nail your pricing strategies in 2018

In this article we offered you some ideas on how to improve or innovate your pricing strategies in 2018. Some of them (price lining, psychological pricing, competitive analysis) may be easy to apply, and some still sound a little futuristic (pricing personalization or neuroscience-based pricing).
Any of this strategies should take into account competitive analysis, which is of great use when deciding what tactic to implement. A deep look at the competition will show unexplored markets, or possibilities for segmentations, as well as unserved needs or niches that the company may tackle.

Overlooking the power of pricing often leads to price wars. To avoid them and to adjust prices to the market retailers use competitive pricing which is also valuable for assessment of the effectiveness of a particular strategy in the arena.



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