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What Is Keystone Pricing?
Keystone pricing is a pricing strategy often used by retail stores. It is often related to the notion of pricing inventory. The key to the approach lies in setting a keystone price within the scope of resale at a particular amount which is double a wholesale price or cost of the total production. A keystone pricing is a pricing strategy often used with discounts.
Keystone pricing is a distinct pricing strategy have been used before the arrival of modern computational technologies. Before computers, small businesses established keystone prices be mere manual calculations. The keystone price or a keystone markup provided companies with enough foundation to afford the risk of discounting items while also making profits at the same time.
The method of keystone pricing is flexible. It means it can be attuned to producing any given profit margin. As a pricing strategy, the phenomenon can lead to the situation when customers are willing to pay more than the wholesale amount. It is possible that the keystone price can be set as a higher price to get more profits. Notably, keystone pricing is prevalent among retailers. It is done to compensate for shipping, storage, and handling costs.
As an example of the keystone pricing, one should check cls and provide the following example. Suppose a company offers a product with a cost of production being $100. The keystone price will be $200, indicating a 50 percent markup. The price also s applying a 50 percent gross margin to the product's sale. Many products in modern stores can be set at keystone price. While one should check cls first, it later presents to existing low margins and competitive prices.
Pros and Cons of Keystone Pricing
Keystone pricing as a distinct pricing strategy has its advantages and disadvantages. The quality of the phenomenon directly depends on a range of factors, including aspects like innovation and longevity. As a pricing strategy, keystone pricing brings the following advantages:
- Quick calculation. The basic formula for keystone pricing can be easily applied and calculated. At this point, keystone pricing can be used quickly and in a timely manner.
- High profits. Considering the overhead costs and high markup settlements, the keystone pricing creates a high-profit margin. It means that establishing the keystone price properly can result in higher profits.
- Flexibility. Keystone pricing is a flexible strategy. If rates need to be marked down, the price inflated by a keystone has a degree of flexibility.
While keystone pricing offers a range of advantages, particular disadvantages need to be considered:
- High prices. When it comes to marking up prices to receive a particular profit margin, products can become too expensive. When the yields rise in price, customers will look for substitutes and alternatives.
- Discerning between products. There is no pricing strategy meeting the demand of every business. Essentially, based on such logic, many companies focus on distinguishing between products they can apply keystone to or not. It creates certain challenges and forces firms to prioritize.
- Lack of information on the competition. Keystone based pricing, similarly to value based pricing, does not consider the competition factor. If a rival offers the same item at a lower or higher price, the formula for keystone based pricing needs to be adjusted, which can be problematic
These pros and cons show what keystone based pricing has to offer. In such a case, keystone pricing is similar to value based pricing. While making the key focus on the product and its price, the methods do not compensate for the information on the competition.
Who Should Use Keystone Pricing?
There are several key approaches to mention when it comes to indications on who should use the keystone-based pricing. The method was created and implemented predominantly in brick-and-mortar stores. There is a particular reason to find the most success using the strategy. Even with the increase in the online shopping phenomenon, there is enough evidence to suggest that people prefer conventional shopping methods. They engage in such a thing when shopping experiences are most enjoyable. The logic is that customers are willing to pay a higher price if a seller offers higher quality.
To understand who should use the approach, the management needs to recognize what a price indicates about the brand’s identity and product’s quality. A low-cost item can be often perceived as being cheap and as low-quality as well. In such a case, keystone pricing is similar to value based pricing. Quality plays a major role in determining the parties to use the method. In turn, high prices for an item, often presented through the means of premium pricing, can be perceived by customers as the seller setting high prices being a luxury brand. Yet, finding the middle ground is the direct way of attracting loyal consumers.
Terms of the ones who can use the keystone pricing are the following:
- Department stores
- Small businesses
- Sportwear stores
- Novelty stores
These are among the key examples of stores that can use the keystone pricing.
The keystone pricing is a distinct strategy used to set a 50 percent markup for any product. The method often appeals to the clients’ willingness to pay more for high-quality products. Particular advantages and disadvantages are coming to align with the strategy.
Find answers to some of the most common questions people have regarding the use of Competera.
What is a keystone markup?
A keystone markup is a position where a retail store determines the current retail price by doubling the wholesale cost paid for a product to set a healthy profit margin.
How much should I mark up my product?
It is crucial to reach a higher price to mark up a products to mark up a product. To do that, you need to take the sales price and exclude the unit cost while further multiplying it by 100 to determine the markup percentage