There are few things as important as your pricing strategy. Get it wrong and your business won’t survive. Get it mostly right and reaching your goals will be more difficult than necessary. Get it right and you’ll pave a smooth path to success.
The internet and smartphones have enabled consumers to easily compare prices across dozens of retailers in mere seconds — even while in-store. But don’t despair! While it’s true the prices you advertise will be compared, you don’t always have to have the lowest price to win. You just have to have the smartest price.
Increasing price volatility in the marketplace and ever-more intricate online pricing policies from product manufacturers have made setting a digital pricing strategy a much more complex task. However, every challenging task your business faces is an opportunity to do it better than your competition. In the spirit of opportunity, here are my top five considerations to keep top-of-mind when devising your pricing strategy:
1. Commit to price as many products as possible.
Our research found 85 percent of online shoppers will leave a durable home goods store’s website and go to another if pricing isn’t displayed. If you’re afraid to show a price on your website because it might be too high, you can put that worry to rest once and for all. Consumers report they automatically assume the price is too high when prices aren’t displayed.
While showing prices online is extremely important, it doesn’t have to be all or nothing. You can begin in increments — e.g., one brand at a time — knowing that showing some prices is better than none. You can earn returns on your efforts as you go.
2. Think about your cost last.
Many retailers begin thinking about their pricing strategy by looking at their cost and marking it up from there. I understand why this exercise is important, but I can assure you, it’s not interesting or important to your customers. They don’t care how much you paid for that washing machine or sofa. They only care how much you’re charging for it, and what value they’ll get in return for spending their hard-earned money.
Start with considering how the market is pricing each product. Track your competitors’ online prices. Know vendors’ online pricing policies to understand what variation in the market is allowed. Consider what unique value you can provide within, or separate from, each product’s price — e.g., delivery services, exclusive rebates, satisfaction guarantees, warranties, installation, etc. After all of that’s done, then you can consider your cost. If you can’t confidently ask for a price that provides you with an acceptable margin, don’t sell it. Or go ahead and mark it up blindly above your cost — you won’t sell it anyway.
3. Price by brand, not by category.
Think about your online pricing strategy brand by brand. I can assure you there’s no one formula that will work equally well for every brand you carry. Each brand has its own online pricing policies that can differ significantly. Sometimes you can discount 10 percent from MAP (minimum advertised price). Sometimes you can’t deviate from MAP by even one cent. Some brands will be unique to you in your marketplace; others will be found at every single competitor. These variations should be reflected in the strategy you choose for each.
If this sounds overwhelming, start by making a list of your top five brands ordered by importance to your business. Think about only one at a time and move down the list as you complete each. You’ll likely be able to reuse your work and set the same formula for more than one brand, enabling significantly faster progress than trying to devise one formula that will work for everything at once.