While selling products, you should focus on setting retail prices. You can use cost based pricing, competition based pricing or customer based pricing for your products. With cost based pricing, you only consider operating costs for manufacturing a product.
Local competitor prices play a major role in competition based pricing. Prices of your products can be set according to customer demands with customer based pricing.
• Use the manufacturer pricing as a general starting point. This way, you can know how much your product is valued by manufacturers.
• Make use of product cost to select markup percentage. With 20% market, you have to price your product at $1.80 if the purchase cost is $1.50. The markup percentage should be set such that you are able to generate profit after deducting operation cost.
• Listen to your competitors while setting your prices. Your business will be affected if your product is priced too low or too high. Customers will suspect quality if price is too low and they won’t be able to afford if the price is too high.
• You should also consider quality of your competitor products. There is nothing wrong with a higher price as long as you sell additional services or improve product’s qualily. For example, when you provide free measurements service, then you can increase price of your windows.
• Use prices to indicate your company’s image. Budget retails offer deals with prices to ensure that customers get best possible deals. Products with expensive price tags are considered to be prestigious merchandise.
• For slow moving inventory, consider lowering the prices. Analyze your worst selling products and reduce their prices to increase customers and sell the stock.
Point of Purchase. Retail Pricing Strageties
Multiple factors must be considered before setting prices on your retail products. You should cover goods cost, federal regulations cost compliance and then attach a profit to your product.
Common strategies that are used to determine retail pricing are demand oriented, cost oriented and competition oriented. Before choosing a strategy, determine what suits your business best.
Cost – Simple and straight forward pricing method is to determine retail pricing based on operational cost and expected profit.
To determine overall costs, include wholesale purchase price, manufacturing price, operational cost and employee expenses. Then, profit margin must be determined to price the products.
Demand – You can also price your products based on demands using demand oriented strategy.
Expensive products are considered to be luxury goods and high end buyers will be willing to pay the price for assured quality.
If your target audience is price conscious, then lower your pricing. You can set retail prices differently for the same products in multiple stores if the stores are located in different neighborhoods.
Competition – If you are running your business like a race, then competitive pricing strategy is the best choice. With this strategy, you have to know what your competitors are charging for similar products. You won’t be able to win a greater piece of market, but your won’t lose your profits just because your pricing is very different.
This strategy is best suited if there is not much of a difference between your pricing and competitors’ pricing.
Considerations – To determine the right pricing plan for your business, you should know your business goals. If your focus is solely on increasing profits, then cost oriented strategy is the best choice.
If gaining your market share is important, choose demand oriented strategy. If you are just starting out and want to keep an open business, then a competitive strategy is the best choice or you can always go with a competitive pricing tools to help you create a strategy.