Given this changing perception, competing on price is even less attractive. So how can you avoid it? Here are seven tips from the Small Business Administration, as well as a few of my own:. Find new markets.
If competition is stiff, consider whether a neighboring city -- or country -- might offer a better opportunity to sell at a higher price. Find out where you stand on pricing compared to other companies in your industry. It's possible competitors have raised prices while you've stuck to the bottom rung.
Develop unique products. It's best to offer products and services that are unique to your company. The reason is, when competitors hold sales, you won't be similarly forced to cut prices becuase your offerings can't be price-compared. Bundle your product with services. Take a look at how Jonathan Fields has bundled his new book, Uncertainty , with his consulting. No discounts here. Bet they're selling like hotcakes. Conduct a pilot in a handful of categories and, if a success, roll out dynamic pricing across all product categories.
This should yield meaningful improvements in revenue, profit, and customer price perception. Implemented to attract customers who feel they are getting a good deal with a discount and who may be tempted to stay loyal if there is a good chance of further discounts in the future, both on the goods that they usually purchase and new ones they may be persuaded to try.
I stress the word "temporary" unless you want to be forever known as a discount retailer, which could possibly become unsustainable. Involves distinct lines of products, each in a different price range, such as budget, standard and high-end. The additional features on the high-end lines don't typically cost much but can allow you to increase prices significantly.
The increase in profitability offered by price lining is one reason marketing departments introduce multiple ranges, since it allows you to not only satisfy the needs of different customer segments but also presents an option for customers to "buy up" to a higher priced and more profitable model. Product bundling allows you to charge a unique, competitive price that cannot be copied by others.
Multiple products or components are packaged together for a single price and offer benefits to both you and your customers. Electronics retailers often bundle hardware, software and accessories, e. Some companies use bundling as a way to package less popular products with items more in demand.
You can also create longer-term opportunities for add-on sales when you sell multiple products to your customers. Additionally, customers often experience economies of scale when buying a bundle of products because if they have a need for all the components in the bundle, they typically appreciate that the price of the bundle is lower than if the components were bought separately.
Typically, long-term benefits and better customer relationships develop if customer convenience and value is your motivation; tracking bundling performance and customer satisfaction helps ensure long-term benefits.
A convincing competitive pricing strategy for retailers that, for instance, allows a certain number of pieces per bag that is different to the number of pieces per bag offered by the competition. You have to do it with merchandise and with merchandise presentation. Convenience is another differentiator.
That's why the most conveniently located gas station has the highest fuel price, why dollar stores in high-traffic areas are beating far-flung Wal-Marts, why Amazon is pushing same-day delivery and why brick and mortar is experimenting with buy-online-pickup-in-store services. Brick-and-mortar retailers also need to take the utmost advantage of their stores, transforming and elevating the traditional shopping trip.
Some experts argue this so-called "experience economy" represents the future of physical retail, arguing that success or failure will depend on merchants' ability to engage customers on a more profound, emotional level. It must be more qualitative," Lee Peterson, executive vice president of brand, strategy and design at customer experience consultancy WD Partners, recently told Retail Dive.
Did they engage with the brand? Did they receive great customer service? People are buying goods in stores less and less often Stores have to become something. Even online retail, a segment synonymous with low prices, must also deliver differentiated experiences, says web psychologist Liraz Margalit of digital customer experience solutions startup Clicktale.
While sellers of commodities have little control over prices, the laws of supply and demand do, so making moves to limit supply and drive up demand can change the equation.
But that approach can be tricky, too. And unless people absolutely have to have Gap khakis, it does no good for Gap to be careful about inventory if people are more than happy to get Dockers instead.
So scarcity does help—if you have something everyone wants that no one else has. Differentiation and scarcity are what brand equity brings to retailers. Penney, and Kohl's, a lot of those sell commodity product. Those are all things that can be sold on Amazon—those are all things that can be sold really by anybody online.
This practice actually stems from the MSRP, which, as we mentioned, is generally double the wholesale price. For other items, keystone pricing may be too high, which will end up hurting your sales—especially if there is a nearby competitor selling the item for cheaper.
Also known as multiple pricing, bundle pricing is when you sell a group of products for a single price—think three-pack socks or five-pack underwear. Retailers often prefer bundle pricing because it streamlines their marketing campaigns, as they have to promote a single price instead of several price points.
Cons: Once you offer items in a bundle package at a low cost, it can be harder to sell them separately at their original price. Pros: Discount pricing can be a great way for retailers to get rid of slow-moving or out-of-season items. Often preferred by newer brands who are set to enter the market, penetration pricing is the practice of initially keeping product prices low so as to introduce the brand and its products to as many people as possible.
The idea is that by generating word of mouth among consumers, retailers can save on advertising and customer acquisition costs down the road. Pros: Offering lower prices than the established competition can help retailers strike the right chord with shoppers, helping them to build a loyal customer base from day one. Cons: If you make the switch from your initial low prices to regular pricing too abruptly, it has the potential to backfire and alienate the customers you had acquired by that point.
Pros: This approach often increases the average transaction value ATV , or the amount a shopper spends in a single shopping trip. Although the concept may sound like something out of a research paper, we all encounter psychological pricing on a daily basis. Pros: Psychological pricing is especially useful for brands that want to increase their overall sales volume by driving customers to make impulse purchases of cheap to mid-range items.
Cons: Not all brands should implement psychological pricing. Again, retailers who take this approach hope to offset their reduced profit margins by increasing the total volume of sales. Pros: For large retailers who are able to negotiate deals to lower their unit costs, the competitive pricing approach can really make a difference in getting ahead of the competition.
Cons: For smaller retailers, the only way this practice can be sustainable is to ensure that you sell high volumes of the product. Also, depending on the product, it can make customers think of your brand as the discount alternative to other brands.
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