Are retailers’ pricing strategies too complicated?
According to a survey by Software Advice, 52 percent of retailers use more than 10 pricing tactics, although most revolve around a strategy of discounting.
The study questioned retailers about their experiences with 13 different pricing approaches and found only two percent used two or fewer pricing tactics.
The top eight were:
1. Discount: Discounts based on either product quantity, customer loyalty or tied to specific promotions.
2. Bundle: Multiples of the same product are sold together for a single price, typically lower than purchased individually.
3. Below competition: Products priced lower than the closest competitor pricing.
4. MSRP (manufacturer’s suggested retail price): Designed to maintain the manufacturer’s margins and brand perception.
5. Odd pricing: Ending prices in odd figures, such as 99 cents, for a psychology play on consumers.
6. Price lining: Prices set to create distinct categories of products, signaling a level of quality to the customer.
7. Dynamic: Prices change based on the willingness of the customer to pay.
8. High-low: Most products are priced above market rate with discounts offered on select items to attract customers.
The most used pricing tactic overall was discounting, used by 97 percent of respondents. That was followed by bundle and below competition approaches, both tied at 90 percent; MSRP (85 percent); and odd pricing (78 percent).
Among grocers, a significant majority (85 percent) rated discount as "very effective" or "extremely effective." In second place was below competition with 54 percent of respondents rating it as "extremely" or "very effective."
Everyday low prices (EDLP), another common grocery price strategy used by Walmart and others, was included in the survey, but was not ranked among the most effective. The authors felt EDLP requires winning concessions on price from suppliers and manufacturers, which is easier for large companies that place big orders. Software Advice’s sample consisted primarily of smaller retailers.
The survey found somewhat similar results when looking at the discount, specialty, department store and e-commerce channels.
Are most retailer pricing strategies too complicated? What is the optimal number of tactical pricing approaches? How are advances in price management software affecting how retailers price products?