Pricing of a product is vital for a retailer. It determines the profit and is one of the major marketing mix tools. Therefore retailers have to be very careful while choosing the pricing strategy to achieve profit goal. They need to design good pricing strategy for particular brands, categories, stores and markets. Before we determine which retail pricing strategy to use in setting the right price, we must know the costs associated with the products. Two key elements in factoring product cost are the cost of goods and operating expenses. The costs of goods include the price paid for the product, plus any shipping and handling expenses. The cost of operating expenses includes overhead, payroll, marketing and office supplies. To succeed in business, retailers need to assess their distribution channel and research on market potential to pay.
Pricing of products depends on the strategies of the retailers. To introduce a new product, the retailer can opt between running promotions and low pricing in the initial stage until the demand rises for the product in the market. To maintain a decent profit, the retailers can use 'Manufacturer Suggested Retail Price' (MSRP) and they can avoid price wars. Retailers considering a "competitive pricing strategy" need to price competitively and provide outstanding customer service to stand above the competition.
Before pricing product, the retailers have to consider the location, exclusivity and/or unique customer service which would help to justify the higher prices. Some of the supermarkets are usually located in places where the upper class families reside. In such localities the retailer can charge higher prices to the products as the upper class families would buy products by brands even when the price is a little high. Therefore retailer has to know the consumer behaviour.
Retailers would give a discount offers to the customers depending on type of customer targeted and type of item offered. Example: Retailer can offer a cash discount as reward to the customers who pay cash promptly or on time, quantity discount to large volumes buyer, seasonal discount to the customers who purchase as per season and charge less when the customer purchases a bundle or several related items together.
Some of the retailers have assumption that they can win their competitors in the market by fixing a low price. However lowest pricing strategy does not allow retailers to attain profit in the long run. It is better for retailers to avoid the low pricing strategy and start with looking at the demand in the market by examining three factors:
Competitor's Price: Retailers need to look at the competitor's pricing, cost, market price, discount offers and promotions to compete with their competitors.
Ceiling Price: The retailer should not fix the price above ceiling price as the ceiling price is the highest price the market will bear. If the product price is above the ceiling price then customers will not be able to purchase such products.