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?

Pricing method is an approach used by the business to set and maintain prices for goods or services. Depending on a factor or combination of factors considered while calculating prices, diverse pricing methods are distinguished.

The examples of such factors include the competition, demand patterns, pricing rules, product type, etc.
What is the pricing method?

How to choose methods of pricing

Smart portfolio segmentation in coherence with the business goals plays a crucial role while choosing a pricing method.

It means that for some products, like KVIs, it is crucial to consider the market trends and other players’ prices which means that a competition-based pricing method would be the most appropriate.

In contrast, for other types of SKUs, the demand-based pricing method would fit best. That’s why the data-driven portfolio segmentation is crucial while choosing the pricing method.
How to choose the pricing method?

Why choose Competera?

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

Forget the manual analysis of cross-product dependencies. Switch to category-level methods of pricing with algorithmic price recommendations driven by demand patterns for each repricing cycle.

Efficient and fast pricing management for any number of price lists. A powerful alternative to time-consuming and sporadic traditional repricing.

Repricing takes not more than four clicks for any pricing scenario. Competera doesn’t require specific skills and can be mastered in hours.

What are the main strategies and pricing tactics?

The main pricing strategies and tactics could be classified into competition-based, demand- or elasticity-based pricing. The other more specific types of strategies and tactics include premium and penetration strategies, as well as cost-plus, dynamic, value-based, bundle, and psychological pricing methods.

It’s imperative to choose the right method, or a combination of them, or else your company is headed towards the gutter. It’s recommended to use a flexible pricing strategy combining the elements of different pricing method for each product type or portfolio segment.
What are the main strategies and pricing tactics?

Which pricing method is yours?

Once you know what is pricing method, select the right pricing strategy for products or a combination of them.

6

Top methods of pricing include

Competition-based pricing

This pricing method is based primarily on the market trends and competitors’ prices. Depending on a seller’s price positioning, the prices are set either lower, higher or equal to ones by competitor.

Example of use: a data monitoring tool tracks the competitors’ prices in real-time and once a price per particular SKU is detected, retailer’s price for the same or similar product is adjusted automatically

Psychological-based pricing

Psychological pricing strategy implies setting prices based on how they’ll influence consumers psychologically. In this case, consumers make decisions based on their emotions rather than rational thinking.

Example of use: products are priced a cent under the full dollar, e.g. $5.99 instead of $6. The idea is that such a price looks more appealing for customers while the financial difference is insignificant for the business

Cost-based pricing

Cost-based pricing is the simplest pricing method that many businesses use at the early stages of development. As the method is based on the gut feelings of a pricing manager while ignoring many important pricing and non-pricing factors, cost-plus pricing is fairly considered a rather unsustainable method.

Example of use: an AI algorithm processes millions of historical and fresh data points to reveal both the implicit and explicit dependencies between particular price changes and responses of the demand curve. Based on the findings, the price recommendations are generated by the pricing system

Value-based pricing

This pricing method implies pricing a product depending on its value in the eyes of customers as well as their willingness to pay. Typically, the value-based pricing method is applied for premium and luxury segment products.

Example of use: because of a popular brand and customers’ high willingness to pay, a seller sets up a price which is much higher compared to the product’s production cost. The last collection Gucci handbag could be used as an example of SKU towards which
value-basedpricing is applied.

Price leadership pricing

Actually, there are two sides of the price leadership method, the leadership pricing itself and the so-called ‘price followership’. In the first case, a retailer is a pricing trendsetter while, in the latter, the business relies on a reactive pricing approach.

Example of use: If a unique product is introduced, a retailer is the first to set up the price and, eventually, become a pricing leader. In contrast, reacting to competitors’ prices (like, in the competition-based pricing) would be an example of price followership
method.

Demand-based pricing

This pricing method helps determine the price of an item depending on the demand for it. The historical data analysis helps to make accurate forecasts of the demand patterns and adjust the prices accordingly.

Example of use: an AI algorithm processes millions of historical and fresh data points to reveal both the implicit and explicit dependencies between particular price changes and responses of the demand curve. Based on the findings, the price recommendations are generated by the pricing system.

Software to power your pricing

Competera is an industry standard software offering a unique technology blend to manage different pricing method easily and effectively

Our elasticity-based portfolio pricing is driven by demand patterns, non-linear dependencies and products cross impact — calculating 20+ internal and external factors which guarantee gross margin.

No more manual analysis of outdated competitor pricing — our self-learning competitive data platform provides real-time access to all of your competitors’ prices with the matching quality of up to 98% accuracy.

Unlimited scale & usability — our user-friendly dashboards and personalized analytical reports are easy to use for merchants and pricing managers and can be scaled to an unlimited number of products and categories.

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