When it comes to price strategies, we can speak for days on end about the many that exist. Perhaps you are already familiar with a few of them; economy pricing, premium pricing, bundle pricing...the list of pricing strategies available to you is near-endless. Rather than reciting and defining them all monotonously, I will let you in on a secret: there is an easier way to navigate the countless pricing strategies your business can use.
The true “best” pricing strategy can be found by constructing your own model that is tailor-made for your company, your customers, and your objectives. And with the right data and tools, constructing your own pricing model is easier than you might think.
Big Data: Why it is important for your pricing strategy
Let’s start by talking about the backbone of any good pricing strategy: data. Without thorough data collection and analysis, price modeling is impossible to do, as you have nothing to compare your company to and will be blind to patterns in buyer behavior.
Eight out of ten customers compare prices between stores before purchasing their products, so it is important that you have a competent price comparison tool to do the same. Your price monitoring software should be able to give you up-to-date information on the prices, stock, promotions, and other non-pricing information about your competitors. With a good competitive intelligence software, you will always have a good idea of your price positioning within your market, and attract more customers as a result. This data will allow you to utilize multiple pricing strategies and help you construct a strategy that gives your company a competitive edge; many companies using the competitive data we provide on our pricing platform saw revenue increases of up to 8%, and up to 60% growth in sales within just a few months .
Three major pricing strategies in retail
With that in mind, let’s talk about the most popular pricing strategies currently used by retailers. Whether your company is relatively large or small, online or offline, these pricing strategies are likely implemented by your competitors, and can be the basis of your own pricing strategy as well.
There’s a reason that competitive data and price scraping from websites is so important in regard to data collection for your pricing strategy. Competitive pricing is nearly always used to some extent in any successful price model, and refers to basing your prices on the prices of your key competitors. The extent to which you base your prices on market competition depends on your position within the market.
There are many important aspects of your own business to consider here: are you selling private label, unique products? If so, you might not need to worry about competitors’ prices to the same extent as other retailers. Are you seeking to be the best deal on the market with the lowest prices, or does your company have better offers (e.g. shipping) which give you grounds to maintain slightly higher prices than your competitors? Answering these key questions can help you better understand how much your prices should correlate to the prices of your competitors. Regardless, competitive pricing is a very popular pricing strategy that often results in higher sales and profit margins when used effectively.
Nearly every online retailer is familiar with dynamic pricing. This strategy involves changing prices of products depending on changes in demand and other market insights that can be gathered from data analysis. Depending on how fast-paced your market is, it may be beneficial for you to change your prices often – sometimes even multiple times per day – to help increase sales without sacrificing your profit margin in the process. Amazon is notorious for using dynamic pricing to the fullest extent, repricing millions of items several times per day. This pricing strategy is most useful for online retailers, though both online and offline retailers use dynamic pricing to some degree in order to remain competitive.
It should be noted that psychological pricing and pricing based on neuroscientific studies are not exactly the same thing, but they revolve around the same idea of attracting customers by considering their emotions and various psychology tricks which persuade them into buying products. Psychological pricing on its own refers to practices such as pricing an item as 299$ instead of 300$, as people will naturally consider the first number they see and consider this lower number a better deal.
There are a multitude of other pricing tricks your company can use based on solid neuroscientific research, though. One strategy that is becoming very popular is offering multiple deals for the same product, allowing customers to essentially choose their own price. Perhaps one offer has faster shipping, or a better warranty, and is therefore priced higher than the standard offer. Customers enjoy this idea of choosing their own prices in any case, so depending on the products you sell, creating multiple deals for them could be a defining aspect of your pricing strategy.
Additionally, another common psychology trick being used by retailers is taking the commas and extra digits out of prices (e.g. 2000$ instead of 2,000$, or 2,000.00$). The simplicity of the price shown appeals to the eye of the potential buyer, and despite being the exact same price, tends to “feel” like a better offer to them. Many simple psychology tricks are at your disposal to make your offers seem more attractive to customers, so keep an eye out for these scientifically-proven so-called “mind hacks” that you can incorporate into your pricing strategy.
Crafting your own “winning” price strategy
As you may have noticed, these three main pricing strategies are not exclusive. They can be used in conjunction with each other to varying degrees, and be combined into one unique pricing strategy that is fine-tuned to your business and your position within the market. Now that we have a basic idea of the three main pricing strategies being used by most retailers, we can look at your own pricing strategy, and what information you should keep in mind considering the topics we have covered.
Consider your Competition
It goes without saying that full, fresh competitive data should be a pillar of your pricing strategy. Even for retailers who have more unique products or can rely on their brand and customer loyalty heavily still benefit from having a constant and clear perspective of their competitors. The competitive data that you receive should not only focus on your key competitors, but should also include both pricing and non-pricing factors of their business model. In addition to auditing information on prices, assortment, and promotional deals of your competitors, it is a good idea to monitor their social media presence or sign up for their email campaigns to take a deeper look into what they offer their customers.
With all of this information in mind, you can utilize both dynamic pricing and competitive pricing efficiently, increasing your sales and revenue as a result. High-quality competitive data can also help you determine what other pricing strategies may be useful for your business (e.g. bundle pricing) if you see that your competitors are using these strategies successfully as well. No matter the size of your business or what you sell, competitive data should be the backbone of your pricing model.
Consider your Customers
“The customer is always right” is an idea that should be applied when creating your pricing strategy. In addition to competitive data, information on consumer behavior is vital for any company seeking to attract more customers and increase sales. ML-based software can help you identify trends in buying patterns which can help you construct better promotional campaigns and price your items in a way that catches your customers’ eyes more effectively.
Information on consumer behavior can also help fine-tune a dynamic pricing strategy and help personalize your offers. For example, accurately predicting the items customers tend to buy in a certain region during a holiday allows you to create a promotional campaign for this region specifically, increasing your sales without sacrificing the profit margins potentially lost by giving the same promotional campaign in regions where it would have less of an impact. With our pricing platform, you can collect this data to utilize dynamic pricing effectively..
Considering the consumer’s perspective when setting your prices is fundamental when implementing psychological and neuroscientific-based pricing strategies. Understanding a customer’s willingness to pay for your products and taking into account their subconscious thinking processes when shopping will help you create the most attractive offers on the market. In addition to data on consumer behavior, also try to incorporate one or more of the many “mind-hacks” that psychologists have discovered in your pricing strategy; this way, once you have set the right prices for your products, you will also be able to present them in a manner that appeals to the average buyer.
When it comes to pricing strategies, it is both easier and more important to understand when and why to incorporate various strategies in your pricing model versus knowing them all by heart. Multiple strategies can be used to varying degrees according to your market position, company objectives, and other factors to create your own strategy. Having a solid understanding of your competition and your customer base can help you determine which pricing strategies will be most successful for your company, and when your pricing strategy needs to be readjusted. Now that you have seen the three major strategies used in retail and understand the importance of the data behind them, you can model your own pricing strategy in a way that will generate more sales and revenue no matter what market you specialize in.