What tools do you use to establish prices for your products? It’s a question everyone has, but that most people go about answering it (and acting accordingly) in various ways. Some ways are more productive and create more revenue than others. There are many influences that affect profitability and the bottom line for you.
Pricing is a critical source of influence over shopper purchase behavior. The pricing decisions you make directly affect category sales, inventory positions, and category profitability.
Even a change of a few cents can profoundly impact both sales and profit for your categories and your stores. There are opportunities to become more strategic in your pricing, ultimately driving sales and profit.
There are three important areas you need to consider in order to move to more strategic pricing:
1. Develop your pricing strategies and guidelines;
2. Set regular and new item pricing; and
3. Set promotional pricing.
Each of these three components is important to understand. Each will give you the foundations to make the right decisions for pricing in your convenience store.
In this article, we will discuss the first area. To learn about the other two areas, please read Part Two of this article.
Develop Pricing Strategies
Retail pricing strategies strongly influence who shops with you. Some of the most common pricing strategies are:
High/low pricing: This common strategy focuses on temporary price reductions as a means to advertise products and draw traffic to the store.
Competition-oriented pricing: The retailer reviews competitive pricing in their market and sets their prices accordingly. Under this strategy, you may make competitive pricing decisions through price matching on known value items. This allows you to price competitively within your market on the most important items for your shoppers.
You can set pricing rules relative to your competition. This strategy allows you to price specific items within a certain percentage or dollars and cents vs. competitors. Products like 4x Buyer Protection can give your visitors the peace of mind they need to make the buying decision. Their Price Match Guarantee gives the customer up to $500 if he or she paid too much.
Manufacturer or supplier suggested retail price: The amount of money for which the supplier of a product recommends that it be sold in stores. This includes items that are pre-priced by the supplier. This price strategy takes away decision-making from the retailer and also promotes “sameness” in the market.
Develop Pricing Guidelines
Consider Your Target Shopper — You need to determine the most important items for your shoppers and establish what they are willing to pay for each item.
Flexible Margin Strategies — If you have margin strategies, they shouldn’t be the same across categories, nor should they be the same for the brands and items within a category. You need to be more strategic than that.
Profit Objectives by Category — You will need to establish profit objectives for each category (and then develop a plan of how to attain the gross margin dollars).
Develop Pricing Strategies by Category — This will help you achieve your category sales growth and profit goals.
Understand Price Elasticity for Your Categories and Key Items — This will help you respond most effectively when you need to respond to pricing changes. Because changes in price up or down can significantly increase the quantity sold, have no effect on demand or significantly decrease the quantity sold, price elasticity is a very important analytic when making price decisions.