The price of your product can have a direct impact on your sales. Of course, there are other factors as well, but if the price is too high, people might go away to other vendors, whereas if the price is too low, consumers might take it as the quality of the product isn’t right. Besides, a small price will eat away your profit margin.
Therefore, you must start focusing on value based pricing. You need to consider lots of things, such as production and business costs, revenue goals, and competitor pricing.
Let’s have a look at different pricing strategies and how it can impact your sales.
- Retail Price
Many retailers across the globe double the cost of the product. This not only helps them set a healthy profit margin, but it also reduces the headache of calculating the cost of product operations.
However, depending on your market’s situation, you will want to price your products higher or lower.
One of the best ways to calculate your retail price is by dividing the cost of the item with the difference between 100 – markup percentage multiplied by 100.
Retail Price = [(cost of the item)/(100-markup percentage)] X 100
Remember, this is just a general formula and does not apply to every business.
- MSRP (Manufactured Suggested Retail Price)
MSRP is the price suggested by the manufacturer. It helps you choose a standardized price which can be used across multiple locations.
MSRP ensures stable prices across various retailers. This will not only help you keep up with your competitors but also guarantees the best price to the customers.
Besides, it will help you save time.
- Keystone Pricing
In the keystone pricing, a retailer would simply double the wholesale cost they paid for a product to determine the retail price. There are lots of factors that determine whether the price of the product is low, high, or just right for your business.
If the products you sell are unique or scarce in some sense, you have an advantage over your competitors and keystone pricing might not be the best strategy for you.
The biggest benefit of keystone pricing is that it guarantees an ample profit margin.
- Bundle Pricing
Bundle pricing is a comprehensive strategy in both the apparel and grocery stores. With multiple/bundle pricing strategy, you offer more than one product at a set price. This can help you attract lots of customers.
One of the great examples of bundling strategies is Nintendo’s Game Boy handheld console. Nintendo sold maximum products when it bundled the device with a game instead of selling the equipment alone.
Ensure that you bundle similar products. Don’t sell socks and shirts together. Instead, pack shirts and pants together. Socks and shoes together.
- Penetration and Discount Pricing
People love sales, discounts, coupons, and other related offers. You can use this to boost sales. Discount pricing can help you offload unsold inventory, increase footfall in your store, and attract a price-conscious group of customers.
Whether you’re looking to increase sales or empty your inventory, discount pricing can be the most-effective strategy.
In Penetration pricing, you can lower your prices (by reducing profit margin) to gain a higher market share. You can then slowly increase your costs.
Things to Consider When deciding Your price
There are lots of things you need to consider when you are choosing prices for your products.
How much the product costs you? How much the transportation costs you? Are there any other expenses related to your products? You will need to understand all of these things to generate a profit.
How much are your customers willing to pay for your products? Are they price conscious? Is quality more important for them than the price? You will also need to understand what influences them to purchase the product.
How much your competitors are charging for the same product? Is the quality of their product is same as yours? Do they charge any additional price for extra services, such as home delivery?
Deciding a pricing strategy isn’t tough. All you need to do is identify how much it costs you and how much profit margin is enough for you to run a sustainable business. If you’re struggling with price, follow the value-based approach i.e., sell at a 20% above what it costs you.