Customers don’t care about cost so much, they care about value. Its whether they believe the product is worth the money and the benefits they get from using or enjoying a product that really matters to them.
That is why value-based pricing is one of the best pricing methods because essentially we are meeting customer needs as well as the objective of maximising profit. We all know that it is important to make a profit but strangely, putting the highest possible price on a product is not necessarily the most profitable approach!
Products and services should always be priced at a level which the customer perceives as value for money. Surprisingly more garden centres price below perceived value than above, which over time can lower the perceived value of the particular product or service.
What should you consider and what are some of the strategies you can use?
Set your price at a level you can get after considering:
- The product.
- The customer type who buys it.
- Whether it is a known value product and who else stocks it.
Pricing strategies that achieve desired profit levels, while maintaining customer satisfaction include:
- Variable Pricing
- Price Pointing
- Multi-buy Pricing
Variable pricing means varying margins and price points across your total product mix to create an acceptable price variable among customers. It takes into account:
- Psychology - how the customer thinks (perceived value)
- Demographics - requirements of different age groups / living styles
- Marketing - customers pay more for brand leaders and added value products
- Competition - Price within 5% of your main competitor on price sensitive lines
In practical terms this might mean adopting some or all of the following strategies:
- Maintain normal / high margins on the majority of lines – especially non ‘known value’ lines and perceived high value lines
- Be competitive on key price sensitive lines.
- When buying volume lines to promote at a lower margin seek a good buy price to help offset the lower sell price. Good numbers should attract a 10-20% better buy price
- Use reduced margins on volume lines where it will lead to increased volume sales – but they will need to be aggressive and coupled to multi-buys
- Use a few loss leaders to build foot traffic.
- Hold 3-4 Sales each year to drive volume.
- Clear ageing seasonal stock to minimise loss and maximise stock turn. This frees up cash and space for new seasons stock
- Create a perception of value through aggressive bold red price signage.
- Look for every opportunity to add value to a sale.
- Rationalise the supply chain
- Monitor sales and profits (KPI’s) regularly
- sell volume,
- bring foot traffic to your store,
- create a perception of value for your store
Often it is better to match a competitors price and sell some product at a low margin, than to sell none and have customers go to the competitor.