If you start out by pricing your goods at a high price, and then offer discounts to your customers, you will have a better chance of avoiding price increases in the future, says pricing expert Mark Stiving.
In ‘Impact Pricing – Your Blueprint for Driving Prices’, author Mark Stiving sets out a number of key pricing strategies that are bound to help retailers and brands avoid raising prices this holiday season.
Expert pricing strategist Mark Stiving sets out the following price suggestions in his new book:
Skimming
This is the act of starting out with a high price, selling your product or service to all those customers with a high willingness to pay, and then lowering the price to sell to customers with a lower willingness to pay. Take care when reducing your pricing i.e. don’t lower pricing too quickly. Entering the market in this way means “you have a nice high price so can offer discounts or special deals to attract customers,” says Stiving.
Price as a signal of quality
A company often uses high prices into tricking consumers into thinking they are offering a high-quality product. However, if you really do have a product of high quality, consumers won’t believe it is a quality item if your pricing is too low. “Start with a high price,” advises Stiving.
Reference prices
By starting out with a higher price and then offering discounts, you are more likely to move your customer’s reference point upwards, according to Impact Pricing. The higher your customer’s reference price, the more likely you make him feel like “he’s getting a good deal” – you stand a much better chance of closing the sale.
Customer segmentation
This relates to having the opportunity to capture your customers with a higher willingness to pay at a higher price. You then have room to discount to “capture those who are more price sensitive” e.g. running a flash sale will entice such shoppers to spend at the discounted price.
Escalations
Starting with a higher price will allow you to meet your largest customers’ expectations, writes Stiving. “It’s common to have a price range that your sales force can offer, but your best customers seem to need prices below what floor you set.”
Quarter – or year-end – discounts
Companies need a big sale surge at the end of a quarter, so they offer a quarter-end discount to make their expected targets for the period.
Automatic markdowns
US off-price retailer Filene’s Basement puts clothes on its shelves at the starting price. After 12 days, the items are reduced by 25 per cent; six days later, the discount is increased to 50 per cent. If the items don’t sell within six days of the 75 per cent discount, they are given to charity.
By pricing high and then offering discounts, you have the opportunity to avoid price rises, but still win customers.
© Profitero 2012
Pricing Expert, Speaker, Author
The Pricing Perspective newsletter: www.markstiving.com/newsletter Web: www.markstiving.com / Blog: www.pragmaticpricing.com / Twitter: @MarkStiving
About Profitero
Pricing intelligence company Profitero provides retailers with actionable price intelligence data, monitoring over 50 million products across 4,000 eCommerce retailers every day, observing pricing, promotions and stock availability. We work with the world’s leading retailers, enabling them to acquire new customers and grow profit margins by monitoring and responding to changes in competitor pricing and promotional activity as they happen. For more information on Profitero price intelligence and competitor monitoring, visit www.profitero.com or email sales@profitero.com
