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Retail Pricing Strategies for Startups and Small Businesses

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Retail Pricing Strategies for Startups and Small Businesses

Pricing at the retail end is one of the most neve-wracking aspects of businesses, big or small, and has to be handled strategically and cautiously. Pricing is said to be both an art and a science that requires an on-going experimentation and an intuitive feel for how you want your brand and by extension, products to be perceived by the consuming public.

If you’re wondering what price to set for your products, then you’ll find this article very useful.  Price it too low and you’ll have thousands of sales, but you could be out of business in few months. Here are a few ways to price your goods.

Cost Plus Strategy

This is usually the basic among the pricing strategies. Retailers in Ghana, Kenya, Nigeria and other African countries use this type of pricing strategy without even knowing. It’s pretty simple.

Identify the cost of your product and add a profit margin to it as your retail price. However, the difficult decision is how much profit to add to it. If profit margin is expressed as decimal or percentage, then

Retail price = cost of item x (1+profit margin)

  • Advantage: Retailers save themselves the headache of using complicated formula. It’s straightforward
  • Disadvantage: You may not be able to sustain an advantage over your competitors when they are constantly varying their prices

Keystone Pricing

This pricing strategy involves retailers simply doubling the wholesale price. It is found in most agricultural produce like vegetables and fruits where retailers buy from wholesalers or producers and simply double the price for sale in our regular markets and grocery shops.

  • Advantage: Quick and easy rule of thumb that ensures ample profitability.
  • Disadvantage: Availability and competition may render it unsustainable

Manufacturer Suggested Retail Price (MSRP)

Retailers of drinks usually rely on a price set by the manufacturer for their products. In Ghana for instance, beer, soft drinks, water, and alcoholic drinks usually have the same price across several pubs and local bars. In few luxurious places, the price is higher but generally it’s the same price everywhere in the country.

This price is usually determined by the manufacturer, who makes room for decent and sustainable margins for the middlemen (retailers, wholesalers and distributors). If you find yourself in such industries, you have little choice but to sell at the MSRP

  • Advantage: Retailers save time and headaches as they are not part of the pricing decision.
  • Disadvantage: You are unable to compete on your own even if you’re very efficient.

Loss-leader Pricing

In a soccer match, there are times when a player takes one for the team. Luis Suarez blocked the ball with his hand in a quarter-final world cup match against Ghana in 2010. He prevented a goal as the ball was clearly heading for the back of the net. He was red-carded (sent off) for that offense leaving his team a man down.

Ghana missed the resulting penalty and Uruguay went on to win that match to qualify for the semis. Suarez took one for his team. Same strategy can be applied in pricing. You can price some products very low, even at a loss, knowing that a buyer of that product will definitely buy something else in your shop, which you’ll make up the loss with the sale. This is particularly successful with complementary products.

  • Advantage: Works wonders and helps slow moving products to move fast.
  • Disadvantage: Over-doing it will get people used to that price and you won’t be able to price normally again

Discount Pricing

Consumers everywhere love discounts. It’s not a secret. Discounts are reductions in price to attract more customers. They come in several forms but to the retailer, what matters to them is a lower price. You can periodically lower your price to take advantage of say, a festive season or other occasions to increase your sales volume. Discount pricing is not meant to stay throughout the year. Find appropriate times to implement it.

You could rake in thousands of sales at the end, if well marketed. In Ghana, discount pricing is experienced at Easter and Christmas.

  • Advantage: Great for attracting a large number of buyers and getting rid of out-of-season stock
  • Disadvantage: It is not sustainable throughout the year. Also, if used too often customers get used to it and you may not be able to go back to regular pricing.

Below and Above competition

Sometimes, it’s just easier to look at what the competition is doing and price accordingly. The reason is simple; they are the reason why customers will not buy yours. It’s also simple and not time consuming. Filling stations often do this, even if it means they are making losses for a while.

If your cost structure is close to or same as your competitors then you can usually price your products a little below or a little above them to attract and retain customers. Usually, pricing it a little below brings customers through the door but pricing it a little above will not send loyal customers away either, as you earn extra revenue.

Psychological Pricing

Retail is a numbers game and amazing things happen when traders take advantage of the different ways customers perceive their pricing. Studies show that when consumers spend money, they experience a pain or gain, but if retailers can help minimize the pain it’s possible to increase the likelihood of customers making the purchase. Traditional ways of doing this is selling a GHc10 product for GHc9.99. Using odd numbers help.

 

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