Small business retailers often miss the opportunity to maximise pricing of items over which they have in–store control of pricing. There is good work that is easily accessible to help retailers better understand the opportunities.
In this posts we share information aimed at helping small business retailers make pricing decisions:
The power of the number 9.
In his book Priceless, William Poundstone analyses 8 different studies on the use of charm prices (pricing that ends in a 9 or a 5 but usually a 9), and found that, on average, they increased sales by 24% versus their nearby, ’rounded’ price points.
Poundstone has a video which explains this. It’s worth watching and can be found via this link: http://youtu.be/nZqOGhWw3Q8.
For a more complete study on pricing, read The Widespread Use of Odd Pricing in the Retail Sector by Judith Holdershaw, Philip Gendall and Ron Garland. Published in 1997 in Marketing Bulletin. http://marketing-bulletin.massey.ac.nz/V8/MB_V8_N1_Holdershaw.pdf
What to include in your calculation.
Start with the real cost price. This should be regular wholesale plus freight. Keep any supplier or other discount as a bonus for yourself. Add freight as it is a cost associated with your location. This is not yours to soak up.
Setting your price.
In considering what to sell something for, ask your colleagues in-store how much would you pay for this? Do your research, too and see what others nearby sell the item for. Finally, consider carefully your objectives for the product – is this a volume play or a margin play?
Your pricing choice may not be as clear-cut as it would seem. For example, you could set a high price knowing that with a discount voucher on purchase the item appears to cost less. You might have volume pricing: $xx.xx for one, $yy.yy for two. You could have the item bundled with another to differentiate your offer to that of a nearby competitor and thereby offering you the opportunity to break free on pricing.
Think carefully about where in a band you price an item.For example, Items priced above $7.99 could probably sell at $9.99. Items above $19.99 should either be $24.99 or $29.99 and no other number in between. Above $29.99 more often you should target $39.99.
Avoid nothing prices that can cost GP. For example: $21.95 should be $24.99; $112.50 should be $119.99; $6.50 should be $7.99; $8.75 should be $9.99; $132.50 should be $139.99; $36.50 should be $39.99..
Choose to go to a higher price point rather than lower. Independent retail businesses are expected to be more expensive. If you counter this with a consistently offered and generous discount voucher program then erring on the higher side of pricing works for you as your voucher sets value perception for your shoppers.
Our recommendation is that you always end your prices with a .99 and price at above RRP.
Be bold on price, make more money and make your business more valuable.
