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Originally Posted On: Price list management: Best practices for retail pricing strategies
In recent years, analytics, business support tools, and pricing methodologies have grown by leaps and bounds. As such, traditional retailers are struggling to compete with the digital-first businesses of the future. There’s no denying that advances in big data, mobile, and omnichannel commerce are shaping the face of the e-commerce industry—but do you have what it takes to keep up and craft the best pricing strategy for your business?
Price list management is more complex than simply pricing your products to make a profit. For a pricing strategy to be effective, you need to take into account custom pricing for different channels and customers. This step is essential to maximize value perception and performance, such as site traffic, order values, sales, and margin, and to increase customer engagement and loyalty. As you grow your e-commerce business, it’s important that you take the time to refine your approach to price list management to remain competitive and optimize growth.
In this article, we’ll look at some of the different pricing strategies you can use to make sure that prices for your products are set properly the first time around. Use the links below to learn more about a specific pricing strategy.
- Why price list management matters
- Potential pricing strategies for your business
Why price list management matters
Setting your prices for your business might not seem like that big a deal. However, a key part of product management is pricing. Pricing can have a major impact on both sales and your financial performance. For example, if you set your prices too high, it may deter customers from buying from you. However, if your prices are too low, it might mean you’re losing money and cutting into profits. Setting the right price takes a bit of consideration.
That’s why it’s essential for you to stay on top of price list management for your products and implement an effective strategy. With the right strategy in place, your business will be in the best position to move as much inventory as possible and bring in a fair profit while doing so.
Potential pricing strategies for your business
Pricing strategies are just that—strategic. Which approach is best for your business will depend on a variety of factors such as:
- Your goals—are you looking to gain a larger market share, improve cash flow, or increase revenue per customer?
- Level of competition in your vertical
- Your business model
- The sales channels you’re listing on
- Customer expectations
Here are some of the most commonly used pricing strategies:
Strategy 1: Manufacturer suggested retail price (MSRP)
As you can probably guess, the MSRP is the price the manufacturer recommends you use to sell their products to consumers. It is also sometimes referred to as the “list price.” Typically, the more conventional a product is—such as paperback books or vehicles—the more you can expect prices to be standardized for individual products—i.e., there’s less room for variability.
The benefit of this approach is that it’s easy to implement because you don’t need to make any changes to the price, which means less work for you. However, it also means you likely won’t have a pricing advantage over any of your competitors. The only way to gain leverage with this approach is to use the MSRP to set the price, then lower the price during a sale to move inventory more quickly.
Strategy 2: Multiple pricing
With a multiple pricing strategy—also known as bundle pricing—products are bundled to create a higher perceived value at a lower cost, which ideally leads to larger-volume purchases. Generally, the multiple pricing strategy is implemented when a business wants to:
- Boost sales of a specific product—usually a new product they want to saturate the market for
- Get rid of a product by quickly selling out of remaining stock
- Increase sales value per transaction
- Reducing the cost per item to encourage large-quantity purchases
Keep in mind, bundling products at a lower cost can lead to customers being unwilling to buy individual products at a higher price in the future.
Strategy 3: Keystone pricing
Many retailers stick to the tried-and-true methodology of keystone pricing: doubling the wholesale cost to determine the retail cost. While this is an easy strategy, it doesn’t take into account important factors like scarcity of the products you sell or the competitive environment.
There are plenty of instances in which using the keystone method would mean pricing your products too high or too low. For example, if your product is highly commoditized and available online from numerous sellers, using the keystone method could price you out of the market. On the other hand, keystone pricing might be too low to account for how much it costs you to sell that item. For example, if the product is especially large or heavy, it may put the burden on you to cover additional packaging and shipping costs.
Strategy 4: Above/below the competition
Some businesses choose to develop a pricing strategy dependent entirely on competitors’ prices. Pricing above the competition sometimes works for businesses that position themselves as a luxury or exclusive brand.
Pricing below the competition is a good strategy if you can secure a good deal with suppliers that allow you to still make a healthy profit margin. Direct-to-consumer e-commerce businesses like Everlane, Casper, and Dollar Shave Club are good examples of competitive pricing. Their lack of a middleman and efficient supply chain management practices allow them to undercut more traditional competitors when pricing their products.
If you’re considering using this pricing method, it’s important to make sure you understand the big picture. If you’re selling a premium product at a higher price than your competitor with a similar product, you will likely see fewer individual sales. However, those sales will be of higher value and result in higher customer retention. On the other hand, if you’re selling lower than your competitor, it may only be a short-term strategy, as they may adjust accordingly, cutting into your market share.
Strategy 5: Loss-leading pricing
Have you shopped online or walked into a store to buy a product on sale only to end up buying other full-priced products as well? Let’s say a shirt you’ve been eyeing is on sale online for $59, but you have to spend $80 to get free shipping—so you end up buying a hat and a pair of socks as well, bringing your total to $91. This is loss-leading pricing in action, and it’s essentially a way of enticing customers to make a purchase by pricing a product at a loss while encouraging them to buy additional full-priced products.
Loss-leading pricing can be an effective upselling strategy, but using this approach too often can result in customers coming to expect low prices from you as standard. You may want to reserve the loss-leading strategy for when you have dead stock you need to move to make room for new products. That way, you’re not completely losing out on inventory that isn’t moving, and you can increase the value of each transaction to bring in more revenue.
The above strategies are by no means an exhaustive list; they’re just a sample of some of the pricing techniques you might find useful for your business.
Implementing your pricing strategy
The first thing you’ll want to do when making plans to change your pricing strategy is to look at the market. For example, based on the current market activity, you’ll be able to determine whether competing with a low price is the key to selling. This will also help you determine if you should price high because it’s a premium offering. In addition to looking at how other competitors are pricing their goods, consider the target audience for your product. Are they more likely to be bargain hunting or are they looking to splurge?
Now that you have an idea of which pricing strategy might be the best fit for your products, it’s time to implement these changes. QuickBooks Commerce makes it easy to manage price changes by allowing you to update your product listings with new price lists thanks to automation. When you update product information in the dashboard, the changes can be applied across all of your sales channels, eliminating the need to go in and manually update each one. You can also create custom price lists for specific customers as needed.
QuickBooks Commerce also tracks sales data across your platforms that you can refer to when considering pricing changes. This will give you a better indication of how your current strategy is performing and where changes might need to be made. Note that you may need to adjust pricing throughout the year based on seasonality, competitor pricing strategies, and other factors.
Manage your pricing strategy in QuickBooks Commerce
With QuickBooks Commerce, you can add and update prices and product listings with the built-in template. After importing your data, you can manage all aspects of different price lists from an easily accessible dashboard—which hopefully means no more pricing spreadsheets. Additionally, you can update and track your pricing strategies in the same place you manage all your orders and inventory. You’ll be able to see how much you bought the merchandise for, what the wholesale value is, and what you’re listing it for.
With advanced functionality, QuickBooks Commerce can help you with more than just pricing. It’s an invaluable inventory management solution that streamlines workflows for product pricing, inventory control, and order fulfillment. It also provides you with real-time reporting and insights to help you maximize profitability and plan for growth. Get started today with QuickBooks Commerce by adding it to your QuickBooks Online subscription and see what a difference it can make for your business.
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