Wednesday
Mar172010
Three retail strategies to increase profit
Wednesday, March 17, 2010 at 7:52PM
Three of the most common strategies to boost profits are:
Price Lining = A limited number of predetermined price points.
E.g: $9.99 (good), $19.99 (better), and $29.99 (best).
(Loss) Leader Pricing = Certain items are priced lower than normal to increase customers traffic flow and/or boost sales of complementary products
Odd Pricing = A price that ends in an odd number (.9)
E.g.: $2.99
Assumptions are that consumers perceive as $2 without noticing the digits and 9 endings signal low prices. Retailers believe the practice increases sales, but probably doesn’t. (The origins of this approach are retailers who wanted to ensure that cashiers were forced to offer customer’s change when offered large notes, rather than some psychological trick.)
It does have implications for your brand (downscale and/or ‘Sale’.)
I can't lay my hands on it for the moment, but research has indicated that 'odd prices' - ending in 43c or 47c for example (Big W is fond of the .88c) are the most effective from a psychological point of view since consumers ostensibly perceive it as the most 'accurate'.
Retail pricing is one of those areas that seem to demand left-brain thinking. But, surprisingly, very often a counter-intuitive strategy (much lower or higher) can inexplicably work - and us consultants often find the 'reason' in hindsight.
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- Price Lining
- Leader Pricing
- Odd Pricing
Price Lining = A limited number of predetermined price points.
E.g: $9.99 (good), $19.99 (better), and $29.99 (best).
- Eliminates confusion of many prices
- Merchandising task is simplified
- Gives buyers flexibility
- Can get customers to “trade up”
- Simple for customers to understand
- The psychology of consumer decision making supports this approach (more about that elsewhere/later).
(Loss) Leader Pricing = Certain items are priced lower than normal to increase customers traffic flow and/or boost sales of complementary products
- Best items: purchased frequently, primarily by price-sensitive shoppers (KVIs = Kown Value Items)
- Examples: bread, eggs, milk, disposable diapers
- Might attract cherry pickers
Odd Pricing = A price that ends in an odd number (.9)
E.g.: $2.99
Assumptions are that consumers perceive as $2 without noticing the digits and 9 endings signal low prices. Retailers believe the practice increases sales, but probably doesn’t. (The origins of this approach are retailers who wanted to ensure that cashiers were forced to offer customer’s change when offered large notes, rather than some psychological trick.)
It does have implications for your brand (downscale and/or ‘Sale’.)
I can't lay my hands on it for the moment, but research has indicated that 'odd prices' - ending in 43c or 47c for example (Big W is fond of the .88c) are the most effective from a psychological point of view since consumers ostensibly perceive it as the most 'accurate'.
Retail pricing is one of those areas that seem to demand left-brain thinking. But, surprisingly, very often a counter-intuitive strategy (much lower or higher) can inexplicably work - and us consultants often find the 'reason' in hindsight.
Want to learn more about pricing?
There is a free E-Book in the 'File Manager' over at retailsmartresults.com - and much more besides. Registration is required, but it is worth it.
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tagged Add new tag, Decision making, Diaper, Price, Price point, Psychological pricing, Psychology, Shopping, retail in Finance, Productivity
Add new tag, Decision making, Diaper, Price, Price point, Psychological pricing, Psychology, Shopping, retail in Finance, Productivity
Reader Comments (1)
Any research you can point me to on the effectiveness or ineffectiveness of odd pricing?