Strategies for Product Pricing
Once the costs are worked out and prices determined, the retailer should examine how competitors are pricing similar products. A big advantage will be if the price arrived at is lower than competitor’s prices, offering an edge over the competition. However, if prices are higher that a competitors, the need to reexamine costs and find areas where they can be more controlled will help with determining the right price through reanalyzing the product pricing formula.
Each industry has certain standards to calculate profit margins and the retailer can use these product pricing formulas to work out the final retail price. Once comfortable using such formulas, the same product pricing formula can be applied to all products.
Some manufacturers suggest maximum retail prices and imprint these on their products. This gives lesser leeway to the retailer for marking up the prices, but retailers should attempt to negotiate with the manufacturer for lower wholesale costs in order to increase profit margins. As a selling strategy, a retailer can also offer to customers discounts on the maximum retail price if cost margins are adequately covered.
Pricing below the competition is one way to increase turnover and determining the correct product pricing formula can be arrived at only if the retailer is very sure they can negotiate the best wholesale prices and gain a strong control over operating expenses. Some retailers may even opt for pricing their products over the competitor and this is generally to take advantage of a more attractive location, which often adds value to the product.
There are other product pricing formula strategies such as utilizing odd pricing figures that sound lower than general prices; $9.95 instead of $10 for example. Multiple pricing like offering additional items or offering discounts is also a strategy that works well.