Ditch Deep Discounts via Adaptive Pricing

Ditch deep discounts on deep dish pizza. See if you can say that sentence real fast five times in a row! Not so much as a tongue twister as a reminder of the main message in a recent Harvard Business Review Idea Watch article titled “Ditch the Discounts.” It’s a message that can help you improve your sales revenues.
     The HBR article describes the Great Pizza War. In year 2009, Domino’s Pizza, which had been charging about $9.00 for a medium two-topping pizza, offered a pair of the same for less than $12.00. Within weeks, both Papa John’s and Pizza Hut were also offering dishes at about a 35% discount. Then the discounts got even deeper.
     If you followed the path of deep discounting, your objectives of maintaining market share and helping out regular customers during the recession may have been met. But as the economy recovers, what are the best ways to guide consumers toward again paying more normal prices?
     One tactic to consider is adaptive pricing. Basically, adaptive pricing means adjusting prices to fit anticipated demand. The most sophisticated adaptive pricing systems use computer algorithms to crunch data at the level of the SKU on turnover, responses to promotions, anticipated stock levels, and product revenues in order to see where prices can be tweaked upwards without losing too many sales.
     Whether or not you have this computing power, another leg of adaptive pricing can help. It’s the recognition that different shoppers have different needs. Meeting those differing needs allows you to charge different prices for the same product or service. You guide each shopper toward accepting higher prices by starting with items for which that shopper is willing to pay a somewhat higher price. Then you extend the price increases to other items.
     Yes, that might sound like a recipe for trouble. The keys to doing it well are:

• Begin with seasonal merchandise, since the demand generally increases for a large group of shoppers.
• Present the premium price for an individual consumer in terms of a benefit. It might be a broader selection of options, expedited delivery, installation, or initial training, for instance.
• If the shopper asks for a lower-priced item, be ready to accommodate them. Consider this as your having misunderstood their needs.
• Be consistent. Otherwise, the customer might get angry, thinking that your store pricing is highly arbitrary or even discriminatory.

Click below for more:
Offer Exclusive Price Discounts Cautiously
Be Ready to Explain Price Increases
Allow Modest Expectations of Discounted Products