Developing and executing your pricing strategy is essential in today’s competitive retail landscape. It allows retailers to compete using a specific methodology to determine price. When a retailer strays off course it will either chase away customers or drive profits into the ground. Heating up ads or boldly claiming, “low prices,” to drive foot traffic without first considering all of the components of price impression can have a dramatic negative impact on profitability. The development of a price strategy requires identifying and following certain pricing rules.  A predetermined price mix should be well defined as not all items are the same and should not be treated similarly. 

There is pricing and then there is the consumers’ perception of pricing. Retailers that learn to shape the perceptions will gain significant advantage

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Here are examples of a few basic pricing rules to get you started. 

1. Ultra competitive are items that are extremely price sensitive and the price impression is easily recognized by the average consumer. 

2. Competitive are items of moderate significance in terms of price but, based on the entire shopping experience, there is some room to be within close range of a target competitor. 

3. Base items are items that take up the bulk of the sku count and can be priced slightly more distant than your target competitor due to format, experience, and services offered. 

4. Margin items are items that have little to no competitive relevance, slower movement, and are not seen as price sensitive. These items are priced to help improve the margin mix.

Retailers are also recognizing that omni-channel is here to stay, especially with younger consumers. These consumers have numerous options online allowing them to look up items quickly, cost compare, and then determine where to spend their dollars. In many instances, online pricing can change multiple times throughout the day. An important part of any pricing strategy is routinely reviewing and refreshing the key value item (KVI) list. Consumer shopping habits can also change. This could be due to a change in finances, growing families, empty nesters, retirees, and other factors. Items that are removed from the KVI list should be priced within a category’s target margin. Items added to the KVI list should be reviewed against competition and priced according to your strategy. 

Here are a few additional considerations when developing your strategy: 

Private Label –  At the heart of most pricing strategies is an aggressive private label strategy. Value brands (Always Save) private label would most likely be used as a, “fighter brand,” and should be priced competitively to help offset impact from big box, dollar, and limited assortment stores.  Pricing of these, “fighter brands,” should match target competitors lowest tier value brand if at all possible. First tier (Best Choice) private label pricing should be designed to maximize penny profit while maintaining a desired spread from national brands. When managed properly, a good  mix of  high private label margin and high private label penetration will allow the store sufficient margin to get more aggressive on national brand pricing when necessary.

Marketing your Pricing Strategy – The relationship between your ads, TPR’s, digital coupons, social media, special events and loyalty programs should all be considered and integrated into your pricing plan.

Merchandising your Pricing Strategy – Develop a weekly merchandising plan that reflects your overall pricing strategy. (See our “8 Ways to Merchandise Your Pricing Strategy” included in this article).

Financing your Strategy –Develop long term and short term budget strategies and objectives.

Keep in mind that demographics and geography will be a factor as you formulate your price strategy. Remember to review and measure the strategy periodically and avoid trying to be all things to all consumers. When you get off course, refer back to your strategy and get back on track again.

8 Ways to Merchandise your Pricing Strategy

  1. Perimeter displays should shout price. Build your price image around the perimeter displays.
  2. In order to promote a low price image, no items, including DSD, should be on display at regular price.
  3. Displays should be big enough to convince the buyer that a special deal was purchased and the savings was passed on to the consumer.
  4. Optimize margin potential and price impression by using private label on end caps.
  5. All displays should have signs that adequately state the savings over regular price.
  6. Use shield strategies when planning end caps. Use private label or complimentary items as profitable tie-in items.
  7. Price impressions should be evident in all departments.
  8. Cross merchandise high margin departments items throughout the store.

SET YOUR RULES: Set up an appointment with your District Sales Manager and review you pricing strategy. Ask to see our Pricing Strategy Guide and get started today