Top 6 Pricing Methods
to Become a Retail Winner

Companies have a  variety of pricing methods to choose from that are
founded by either a  single or a  mixture of one of the umbrella terms: cost,
demand, and competition. But what exactly is a pricing method?

How to choose the pricing method?

Selecting a pricing method is a struggle across all companies because so many factors are at play. For instance, not only should the price be relevant based on the market at the time, but it should also be able to cover the cost of making the item. Making sure that a profit is made from the item is yet another aspect that must be taken into account when setting the price. On top of that, businesses can’t neglect to monitor how their rivals are pricing their items
Make pricing transparent for every stakeholder

Why choose Competera?

Competera is an all-in-one pricing platform with a disruptive pricing approach leading to touchable results for omnichannel retailers.

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  • Turnkey solution Reprice thousands of SKUs from Day 1
  • Suits any portfolio Manage any number of categories
  • Technological transparency Feed in dozens of constraints

Let us guide you

  • Individual pricing design 4⁴ pricing solution combinations
  • Well-balanced pricing Millions of cross-impact simulations
  • Short-term forecast Up to 98% forecast accuracy

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  • Subscription-based mode Minimal subscription - 1 year
  • Fast integration Integration & first profit - in 60 days
  • PoC-proven results Duration up to 90 days
  • Guaranteed projected profit ROI 600%-800%

What are the main strategies?

It’s imperative that you choose the right method, or a combination of them, or else your company is headed towards the gutter. That’s why you must thoroughly research the market of the item and the customers interested in it. It’s recommended that you don’t just follow what your competitors do. An alternative to that would be competition-based pricing, which we’ll get into down below. However, first of all, let’s begin with cost-based pricing.
Make pricing transparent for every stakeholder

Which pricing method is yours?

Become a retail winner by selecting the right pricing strategy or a combination of them. The six top ones include cost, demand, competitor, value, psychological, and product based methods.

Competitive-based pricing

When businesses utilize this pricing method, they are taking into account the prices of their rivals in order to determine the price of their goods. It’s up to them to price it either higher, lower, or just as their competition has the item priced.

This can be seen with airplane ticket prices. The price tends to remain very similar across all airlines. It’s typically accomplished with the help of pricing software, which helps automatically track the prices of rivals.

Competitive-based pricing

Demand-based pricing

This pricing method helps determine the price of an item depending on the demand for it. When there’s a lot of demand, then the price is raised because the company understands that consumers are willing to purchase the item regardless of the price, thus allowing them to make the most that they can off of the item. This is when a profit is made because consumers are paying a lot more than the item is worth. This can be accomplished successfully if the correct analysis is made of the demand. It’s often used by airlines. Their demand shifts depending on the season.
Demand-based pricing

Cost-based pricing

In cost-based pricing, a percentage of the entire cost of producing an item is added to set the final price. The amount added on is the profit that’s desired. This has been the easiest method for setting an item’s price. A fixed price, also known as the markup percent, which is essentially the profit made, is added to the final cost of the production of the item to determine the price. This method is especially prominent in manufacturing companies.

Perceived value pricing

When trying to build a loyal customer base, this is the pricing method that’s typically used. Here, items are usually priced low for the more quality items. This is due, in part, by the fact that prices are determined based on how consumers perceive the value of it to be, which is often lower than it actually is. Through research and testing, cheaper ways to produce an item are figured out, but not at the expense of the quality of it.

Psychological-based pricing

In this case, prices are determined based on how they’ll influence consumers psychologically. Here, consumers make decisions based on their emotions rather than what’s logical. For instance, today, the majority of items are priced a cent under the full dollar. $5.99 looks a lot more appealing than $6.00 because the first number is 5 instead of 6, which is typically the only number that shoppers look at. As you can see, there’s no significant difference.

Loss leader pricing

Here, the item is initially priced considerably low in order to grasp the attention of buyers. This helps lure in customers. As soon as they’re in the store or the website, there’s now a chance that they’ll also purchase other items as well. The placement of loss leaders is incredibly important. The items that surround the loss leader should be ones that shoppers need. Those items should also be priced higher in order to cover the cost of the loss leader.

It’s almost impossible to pack over 15 years of retail experience into a short checklist. Seems like we managed to though. We hope that our guide will help you emerge as a leader in your market in these trying times!

Vladimir Kuchkanov
Vladimir Kuchkanov
Pricing Science Lead
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