Selecting a pricing strategy isn’t always easy- setting the right pricing strategy for your brand is a crucial step in the success of your business. Luckily there are a variety of pricing strategies out there, and once you learn about them, it will become apparent which strategy will best affect your bottom line.
The Parts of Pricing Strategy
Pricing strategy is comprised of two common elements: the cost of the goods and the operating expense. The cost of the good isn’t a flat rate, instead it’s necessary to consider every single cost that went into purchasing the good, including research time, the cost of the product, shipping and handling, etc. The operating expense refers to the business operations and includes overhead, payroll, marketing, office supplies, Point of Sale (POS) systems, taxes, and rent or building mortgages.
When considering which strategy is best for your business, keep in mind that the final retail cost of your products should more than cover the costs of goods and the operating expense.
Manufacturer Suggested Retail Price
Manufacturer Suggested Retail Price (MSRP) is the price that the manufacturer sets for the retailers. This recommendation helps create a standardized price for products that are widely sold. This strategy is beneficial because it saves you the time and effort of determining your own prices. On the flip side, if you opt to use the MSRP, you will be unable to gain any competitive advantage over other businesses. Instead you will have to rely on other factors such as availability, location, and brand to engage customers.
Keystone Pricing
In the past, keystone pricing was very popular amongst businesses. Keystone pricing allows business owners to simply double the cost paid for the merchandise to determine the final price. This simple pricing strategy ensures that businesses have a wide profitability margin. However, keystone pricing may offset your strategy from the competition; consumers may be able to easily find the same item for a lower price elsewhere.
Psychological Pricing
Psychological pricing is based on the foundation that consumers love sales. Psychological pricing often include rebates and coupons, and are often offered on a regular basis. If using psychological pricing, it is important to keep in mind how to discount your products to a level that will still ensure profitability for your business. It is also necessary to consider the impact of discount pricing on your brand. With regular sales and lowered prices, consumers may come to view your business as a bargain store, which can impact your future sales strategy as well as the type of new consumers you attract.
Competitive Pricing
Many consumers enjoy shopping around and finding the best price for the product they’re searching for. Using the competitive pricing strategy will allow you to stand out from the crowd. Competitive pricing provides two choices: pricing below competition and pricing above competition. Pricing below competition allows you to simply price everything below the competition and focus on price specials. Pricing above the competition allows you to charge more if you have an edge on the market, such as an ideal location or exclusivity.
Use caution as you determine you pricing strategy. While you can change your pricing strategy moving forward, it can be difficult to change the pricing perception you have set for yourself. Launch your strategy cautiously and you will be more likely to find success over time.
Does your POS offer your business the support you need? Are you ready to simplify your business with the use of a new POS? SilverEdge can help. If you are ready to talk with a SilverEdge representative about the right choice for your business, contact 970-800-2890 or email info@silveredge.com today.