In an era of Ecommerce, omnichannel retail, and digital marketing, the meaning of retail price has evolved from what you want your customers to pay for your product to what your customers are willing to pay for it.

What is retail pricing?

A product goes through a few different prices before the final price the customer pays for it is arrived at. This includes the manufacturer price, distributor price, and of course the actual price a customer will pay for the product, the retail price. 

Simply put, the retail price of a product is the sum of all the costs involved in manufacturing, marketing, and selling the product along with the profit margins of the stakeholders involved in the supply chain including the manufacturer’s, distributor’s, and of course the retailer’s.

Factors that influence retail pricing strategy 

Many factors influence the price of a product and these factors can be broadly classified into two: 

• Internal factors: Internal factors are those that are within the control of the various stakeholders involved in the manufacture and sale of a product. This includes the manufacturing cost, cost of raw materials, packing cost, shipping costs, overheads, labour, profit margin, etc.  

• External factors: These are factors that the manufacturer, distributor, or retailer has no or very little control over but has a substantial effect on a customer’s willingness to purchase or pay for the product. This includes competitor prices, market trends, product and price perception, and the economy on the regional, national, and international scale.

When setting the retail price of a product, sellers will include all the internal factors and accommodate the external factors to strike a balance between the actual cost of the product and the price a customer will be willing to pay for the product.   

How does it work

Technically, retail pricing is the sum of all costs and profit margins of the stakeholders involved in the manufacture and supply of the product. But in reality, it’s a little more complicated than that. 

The retail market is one of the most competitive and dynamic with many substitute brands and products. While the products may be homogeneous, they could easily cater to completely different audiences or purposes. This differentiation is created through factors like customer perception or the subconscious value the customer places on a brand or product, the customer’s purchasing power, their willingness to pay, etc. 

Depending on the product, its audience and the market, the seller will work towards a retail price that will cover all internal factors while keeping in mind the external factors with the aim to create and maintain demand and profitability. 

Current and popular retail pricing strategies 

While the basic principle behind retail pricing has remained standard, many retail pricing strategies have evolved over the years that businesses can adopt based on the target audience, current market trends, and competitor behaviour. Some popular pricing strategies for the digital era include:  

• Penetration pricing: This is where you launch the product at a lower or discounted price to create awareness and gain market share and then raise the price to its planned retail price. This strategy is especially useful when you are entering a market with many substitute products or if you are launching an entirely new product to the market. 

With this strategy, you might be trading off initial profits for brand awareness and customer acquisition. To avoid future customer disappointment when you increase the prices, you can keep your customers informed with phrases such as “launch price” or “early bird offers”. 

• Omni-channel pricing: Omnichannel pricing is specifically for businesses that sell through multiple channels including online, offline, and/or through multiple resellers. There are multiple ways to pice for omnichannel retail, 

• Omnichannel price: this is where the price is consistent throughout the different channels.

• Channel-specific price: in this case, every channel has a different price for the same product. 

• Hybrid price: This is a combination of channel-specific and omnichannel prices, where some products are priced the same across all channels and some have different prices. 

• Competitive pricing: This strategy is preferred by sellers who deal with price-sensitive products and have multiple competitors selling the same or similar products. In this case, sellers price their products based on the competitors’ prices to gain a competitive price advantage. 

This strategy helps achieve an increased market share, higher sales, and revenue but when done manually, could be a very time- and resource-consuming process especially if you sell many products.

This challenge can easily be tackled by leveraging the right competitor price monitoring software that will tell you when a competitor is updating product prices so you can act on them quickly and efficiently.

• Dynamic pricing: Also known as real-time pricing,  this strategy involves constantly updating product prices based on customer interests, market trends, past purchase trends, demand, season, etc. This could also mean that you are selling the same product at different prices to different people.

This method of pricing helps convert shoppers into customers, convert abandoned carts into sales, and have customers keep coming back to check if there’s a price drop and you can use these moments to upsell products. 

• Premium pricing: This is another form of competitive pricing where you price your product above that of your competitors to create a sense of exclusivity and favourable product perception among the target audience. This strategy helps businesses tap into customers who perceive high-priced products as higher-quality products. Some examples of brands that use premium pricing include Apple,

While there are enough real-life examples that premium price works, creating price, quality, and value perception for the product and maintaining them is crucial to maintain demand. Additionally, traditional promotion techniques like discount and price promotions are not effective and could even have a negative effect on the customer’s perception.

Typically retail pricing is dependent on 3 factors: demand, competition, and the economy. But due to the dynamic and competitive nature of the retail market, there is no right or wrong when it comes to a pricing strategy. One way to narrow down price strategies that might work for your business is to closely monitor your competitors to understand how businesses similar to yours are doing it.

Pricechecker is a competitor price monitoring tool that will allow you to monitor your competitors’ price, promotion, and stock status and provide you with historical data that will help you optimise your pricing strategy for increased sales and revenue.