Take Charge of Your Pricing

At the recent National Retail Federation BIG Show conference, there was a sense that retailers are depending too much on others to set their prices, with keystone pricing as a result. Keystone pricing is the practice of charging a multiple of the supplier’s price as the base retail price and then doing markdowns when sales are slow or competitors undercut. Historically, a common formula was for the retailer to start by doubling the supplier’s price.
     When I hear the term “keystone pricing,” it reminds me of The Keystone Kops, those stock players in silent movie comedies from Mack Sennett’s Keystone Film Company. The Keystone Kops went in all directions at once, jumped up and down, and drove their vehicles recklessly, all while failing to apprehend the perpetrator of the crime.
     Like the Keystone Kops, keystone pricing should be considered as history. This method of setting margins violates the teachings of behavioral pricing research—teachings which allow you to maximize your profitability. Shoppers pay you for the value they place on the item, not for some multiple of what you paid for it.
     Unlike the Keystone Kops, keystone pricing is an example of too little activity, not too much. Take charge of your pricing. Devote time to setting proper margins. They are your lifeblood.
     The price you charge the customer for an item certainly bears a relationship to what you paid the supplier. And shoppers are particularly likely to accept a price increase when you explain the increase is due to your costs from the supplier going up.
     The problem with keystone pricing is the automatic formula applied across the board, across the shelves and racks. Set your margins as close as possible to the level of the individual Stock Keeping Unit (SKU).
     Consider having one person be your retail pricing specialist. Maybe one of your staff. Maybe you. When being a retail pricing specialist:

• Assess the demand for each SKU or group of SKUs by watching and listening to shoppers in your store and in other stores selling similar merchandise, and then by analyzing sales figures and trends. 
• Identify where profit margins can be increased to compensate for where profit margins must be dropped to attract shoppers. 
• Set up the price tags, step back to confirm that pricing of adjacent or related items makes sense, and continue to revise the pricing using the right blend of consistency and responsiveness. 

Click below for more: 
Cop Keystones as Historical Mementos 
Explain Price Ups & Downs to Customers 
Analyze What Your Shoppers Say and Do