Reassess Your Pricing Assumptions

Here are some updates to the research-based tactics in Retailer’s Edge about pricing. (I described most of the tactics in chapter four, “The Price is Right.”)

• Reassess the sensitivity of your target audiences to price discounts now. Consumers in countries such as Japan that in the past generally considered discounting to indicate inferior merchandise have become much more likely to use coupons and be attracted by promotional pricing. You might do a formal study of the pricing assumptions for your major product categories by employing tools like the Van Westendorp questions. A less formal look would come from tallying and analyzing the results of different price discount systems you’ve tried out.
• Analyze the reasons for changes in reactions to markdowns and then use this information to adjust your pricing strategies. For example, with consumers in Japan, the changes in attitudes seem to be due to the prolonged economic downturn and the burgeoning availability of price comparison technologies.
• In Retailer’s Edge, I described the research that said consumers pay more attention to percentage discounts than to the dollar-or-cents (or other currency) amount of the discount. There’s evidence this is changing so that dollar-or-cents-off is increasingly attractive.
• In Retailer’s Edge, I presented the compelling evidence for using just-below pricing, such as prices that end in $.99 rather than $.95. A chief exception to the rule, I said, was when your major selling point is low prices. In this case, the odd endings, such as $.43 and $.87 project the message, “We’ve trimmed every last penny off the price.” Now because consumers have become much more price sensitive, consider modifying the just-below rule. Those who are discount shoppers are reacting to $.99 prices by saying, “Are you trying to fool me into thinking I’m spending a dollar less?,” and status-seeking shoppers might consider a price ending in $.99 cents to be low-class. And most consumer mindsets are vacillating between discount and status, with the middle continuing to shrink.

     The consumer behavior findings which lead to what I'm recommending here are not as time-tested as those backing up what’s in Retailer’s Edge. I present the updates to you as cautions. That’s why I say in the title of this post you should reassess, rather than say you should necessarily revise, your pricing assumptions.

Click below for more:
Answer Van Westendorp Pricing Questions
Analyze the Details About Your Markdowns
Round Prices to Whole Dollars for Better-Best