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The fundamentals of price for retailers

Janet Cummings

By Janet Cummings



If a product is not priced correctly, nobody buys it. You can place the right orders, merchandise perfectly, and price yourself right out of business.

Price seems simple enough. It’s the amount of money that a customer pays for a product. A product’s price is the most fundamental aspect of the retail business, because if a product is not priced correctly, nobody buys it. You can order the right inventory from a wholesaler, merchandise your products perfectly, and then price yourself right out of business. You can price a product too high and discourage sales. Or, worse, you can price a product too low and squander the possibility of profits. But, when done correctly, price can help you get new customers, keep customers, turn inventory into cash, and make a profit. 

During my thirty-year career in retail, I have learned that merchandising, price, and ordering work together to drive sales, reduce costs, and help your retail business, whether you are in a brick-and-mortar, online, or both. While a lot has changed in the retail industry, there are some fundamentals that have stayed the same since humans first started selling. 

What is the right price? 

A change in price can cause sales to cease or flourish. The perfect price is the one that meets your goals—whether that is to drive sales to a higher volume level to increase your customer base or sell less but at a higher profit margin.

How are prices set? 

Prices are set based on competition. What prices are your competitors selling products at? After you answer this, you can decide to match your competitors or price your products a little lower. When you lower some prices, you may have to adjust prices on other products so that you do not lose money. A lower price on certain products can help you acquire new customers and keep existing ones. If they know that your pricing is reasonable, customers will come to you. 

How do you price a new product?

Enticing customers to try a new product that you are selling is important. Unless you know that the demand is high, always consider a lower price on a new product. An introductory price says, “Hey, I’m willing to give you a deal if you’re willing to give this new product a chance.” Then the customer knows that you are selling products at good prices and will return in the future.

How do you sell something when the price is too high? 

Sometimes, the price of a product is too high, but, due to either the product’s cost or manufacturer restrictions, changing the price is not possible. One way to help you move that product is to create a bundle deal. For instance, the price of a new video game console is usually set by the manufacturer, but you can bundle cables, controllers, and other add-ons to increase your chance of a higher profit. Figuring out what products the customer needs to pair with the product that they already want is the perfect way to combat high-ticket products. 

You can also run a promotion that focuses on the value rather than the price. Make it known if a product is exclusive or in limited supply. This can create an urgency within the customer if they know that they must get this product ASAP! 

Lastly, consider offering mail-in rebates or gift cards. Research has shown that customers spend three times the amount of a gift they receive. 

Pricing that is just right

To determine the perfect price point, you need to understand the consequences of certain price points. Pay attention to what happens if the price is too high or too low. It’s OK to take some time to go through trial and error to find the right price; just make sure that you are documenting the data so that you can get a clear idea of how a customer behaves at each price. It’s not necessarily bad if the price is too high or too low, but it’s crucial to know what customers do in those situations. Price is what customers pay, value is what they get. This is why it’s important to merchandise correctly.