Below a simple spreadsheet, you can use to check whether any of your strategies are broken.
Do not forget to click the name of any strategy if you want to learn basics.
Why this strategy could fail
You are either the leader or a follower. In the first case, you can slip up by setting the right tag with no consideration of shoppers’ reaction. In the latter case, you can define your key competitors wrong, or follow the unprofitable strategy of your rivals, or fail to set up the price gap from the leader attractive enough for shoppers to switch.
It’s another form of discrimination strategy, and therefore it mimics all its cons: customer’s loyalty—and profit margin—is always at the risk of failure.
You misunderstood the price point. The customer is willing to pay, set the wrong cost and lose either customer or profit
Apparently, this approach—like cost-plus pricing — doesn’t count the competitive landscape and customer’s perception, so your prices probably are out of the market.
The main issue of decoy pricing is to choose a product that has the value of the low-priced product but amount close to the expensive alternative. The wrong choice leads to low sales.
There is a fine line where discount-based pricing turns into discount-based fail. Did you already cross it? If so, your customers may perceive your products as cheap, your brand as low-quality, and so on.
Agile enough to consider different market variables including marketing mix, it’s a passive approach
. This strategy can turn against the retailer as long as it works with no prediction models
If you can set EDLP and stay profitable with a particular sales volume, there is only one reason this pricing strategy can be broken. You don’t have enough target traffic to grow your customer base and generate enough sales.
It’s great that you linked your pricing to how well you manage your inventory. If this pricing doesn’t meet your expectations, you probably forgot to consider different market variables alongside it.
If it doesn’t work correctly, you probably have chosen wrong set of low-priced products or underestimated marketing efforts to bring customers.
Probably you have held the low prices for too long, and now when you raise them, your customers are turning to your rivals. Otherwise, there is a competitor you are not aware of who sets even lower prices.
The only reason it could fail is insufficient data for pricing models you built to predict demand. Also, your historical data is incomplete or consists of mistakes. In either of these cases, setting the price is poor.
There is a poorly chosen product or service in the bundle for this pricing method. What else can it be!
Your customers found out you are using this strategy and now you are a “mean retailer” for them.
The differences between low and high price points are unclear, or market fluctuates in general.
This pricing does not work if your prices are much higher than competitors’. No matter how “psychological” you’ve made them look.
Like the cost-based pricing which considers costs of product and desirable profit, this strategy is standing far from the market reality, thus it can’t be competitive enough to attract buyers.
Market demand does not always justify this type of strategy. Therefore, the retailer is facing a drop in sales.
Similarly to discrimination, it could scare your customers off if they find out you are using yield pricing.
Of course, these issues are just a brief look at the problem. There are much more to say about every one of them. In the meantime, they are crucial, and you should check them before digging deeper into the case.