Pricing Strategies That Make Sense

Low pricing is not a strategy! May I repeat? It is not strategy to discount price and give up your margins. Value pricing is a strategy and one you can count on to bring you business and continued success in the price war battle.

There are a number of ways to price and in my opinion, bold faced discounting is not one of them! Too many businesses are giving into the pressure of discount pricing and end up losing the battle when, if they applied some solid pricing strategies, they could retain loyal customers and gain new ones who shop for value and not price alone.

I understand we all must at one time or another, face the issue of discounts and competitive pricing but it does not need to be at the sacrifice of the profit margin. Two solid strategies that can aid you if you find yourself in a price wars game are:

1. Package Pricing
2. Value Pricing

This time around we will focus on Package Pricing. Package Pricing involves using a tactic called "lead item pricing". This involves pricing an item comparable with the discounter in your market and then offering your customers "package pricing" when they get in the door. So in other words, if I am pricing an item at $999.00 because ABC Discounts down the street has it priced at $999.00 as well, I want to make absolutely sure that the item I am pricing is something for which they will want to add items immediately. This does not mean selling accessories to add on to the price, or the next time around, but showing them the way to have the other items they will need right away at one price.

How do I accomplish that? I merchandise a like item right next to the "lead price" item but it is "packaged priced" at $1499.00. Yikes! Most customers will choose the "discount" item, right? Not necessarily! If I do my job right, I will show them that for $500.00 more they can get so much more VALUE, the price difference disappears. I have elevated the higher priced item off the floor, put spotlights on it and gave it more attractive signage, placed well dressed mannequins around it and my customer thinks, "Wow, for only $500 more look at all I get!" Customers see value, not price. You don't give them the opportunity to just "think" about the options they would like to have; you package them together so they perceive they "must" have them and can get them all at one easy, value priced package. It's what we call, "price point perception". The $999.00 item gets their attention, but value does it's job, rises to the surface and gets you the sale and the added profit margins.

If you can "package" your products or services together for a great value, the first time purchaser is far more likely to walk out of your business without ever giving the discounted single item a second thought. After all, you've made the price difference pale in comparison to the value. Although I discourage discount pricing, if you find yourself in the market with discounters, "price point perception" can work for you. Customers must not perceive that you are so expensive they won't even check with you to see what you offer. The strategy is this: pick out an item that you can effectively promote that has a price point comparison with the idea in mind that your customers will never buy that one anyway. They will buy the packaged one, but you have won the opportunity to get them in the door. The rest of the job is up to you.

The second level, or Part B of Package Pricing is to do away with the "lead item" and present your customers with the $1499.00 package right up front. The key here is that you have to be very good at this. You must be able to identify for them what they are getting for that price. In this pricing structure you are "selling the difference." The customer must be able to easily identify or answer for himself what he is getting for $500.00. Ideally, he should be able to get 3 times the value compared to the price. So for $500.00 in "price" he should perceive at least $1500.00 in "value". Value cannot equal price. Value perception must exceed price reality. In doing so, you can effectively give your customer true value and still maintain important margins.

For example, a retailer may offer a gas grill at $395.00 that Walmart sells for $295.00. The customer must be able to clearly answer, "What am I getting for $100.00 more?" If the retailer uses package pricing the customer will go home with a full tank of gas, a set of utensils and a cook book, plus a coupon good for 2 steaks at the local butcher. He doesn't even have to show a lower priced item and then try to sell up, the savvy retailer just packages the value and sells it right up front! Despite today's competitive discount price wars, package pricing is a very valid and successful strategy.

ARTICLE TAGLINE FOR THOM WINNINGER

Visit Thom's website at http://www.winninger.com

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