Resist the Lure of Misfit Pricing Tactics

Smaller retailers can learn from pricing tactics used by large retailers. During 2009, Lands’ End offered discounts as small as 5%, indicating your own shoppers might be so sensitive to pricing that you didn’t need to adhere to the usual rule of discounting no less than 15% to 20%. Applebee’s charges an identical price on a set of dessert items, opening your mind to consider parity pricing, in which you increase sales by setting the same cost for similar alternatives a purchaser considers it risky to buy. In the case of desserts, the risks include both extra expense and extra expanse.
     Do always think through your reason for using a pricing tactic inspired by a large retailer. Check that it won’t be a misfit in your business. For instance, most smaller retailers should resist any lure from price wars. Unless you’re a retailer with substantial leverage in the communities in which you do business, price wars are deadly. You lower a price as a promotion. Your competitor lowers it further. You respond by meeting the competitor’s price and then lowering it even more, at which point the competitor meets your additional reduction, and so on. Your customers find themselves expecting prices to continue to slide downwards. When you can’t maintain the drops while maintaining adequate profitability, your customers’ disappointment might cause them to take their footsteps and money somewhere else.
     How about price freeze guarantees? According to the Rochester Democrat and Chronicle, Wegmans Food Market is issuing a list for 2013 of 53 commonly purchased items for which the retailer pledges not to raise prices over the next three months. The program began last year and has been extended in increments repeatedly.
     Wegmans, like Walmart, depends on an “everyday low price” (EDLP) positioning. In fact, Wegmans adapted an EDLP format in response to Walmart starting to sell groceries. As with price wars, EDLP is often a misfit for the smaller retailer. An econometric analysis at Stanford University and University of Rochester found that, on average, running price promotions yielded annual store revenues of $6.2 million more than did an EDLP format. Moreover, changing from a promotional strategy to an EDLP strategy is expensive. When Wegmans did it, they found it necessary to produce countless videos explaining their switch.
     Offer shoppers a sense of sensibility in pricing, but a price freeze guarantee may not be the right way for you.

Click below for more: 
Try Out Dollar Over Percentage Discounts 
Use Parity Pricing to Help Customers Decide 
Avoid Price Wars with Price Guarantees 
Promote Promotional Pricing over EDLP