Squeezed between rampant discounts and the increasing pressure brought to bear from rising costs and price sensitive buyers, CEOs around the world are focused on pricing strategy more than ever before.
With the exception of mandatory items such as utilities and food, prices have largely stayed stagnant because consumers demand it and competition forces it.
Australia has fared better than many markets, but ask most retailers and they’ll tell you that retail, even in the lucky country, is hard.
This isn’t to say, of course, that executives are oblivious to the problem.
Universally, they stand united, scratching their heads, trying to figure out how prices can be increased without damaging there market share or driving away too many customers.
Some companies are getting creative, loss leading on some products to pick up a stronger margin from another. There are others running around-the-clock promotions and discounts, so much so that recent research shows that the average Aussie shopper is sick to death of relentless sales.
Then there are the cheats; those that con the consumer into thinking there is a discount where none applies. The Good Guys got caught out by Channel 7, labeling goods on sale where those goods were in fact not being discounted at all and then there was the uproar about the supermarkets giving the impression of discounts where none applied.
Before you tamper with pricing, you need to understand the effect that pricing has on your gross profit margin. You can calculate your gross profit margin using this simple tool.
Sometimes you can make greater profit by selling goods at a higher price, albeit in less volume, than you would make if you discounted your goods.
One of the most important decisions you’ll make regarding pricing strategy is whether you sell to many people for lower profit or fewer people for higher profit.
Then it’s a matter of choosing the best strategy you can adopt to execute your goals.
In this economic climate, that’s about:
- Focusing pricing strategy around repeat business (offering a discount off a retail price hurts more than offering a discount when a customer buys a second time) and
- Making the decision whether you want your prices to be easy or hard to compare with your competitors (and promote or disguise them accordingly).