14 Pricing Strategies to Help Grow Your Retail Company

Posted by Moira McCormick on November 24, 2016
Moira McCormick


Even if a lot of our high streets are suffering from the competition offered from ecommerce sites, shoppers are still willing to visit a "real-live" shop and be tempted to purchase if the prices to them seem reasonable and competitive.

It's a misconception that online prices will always be cheaper – and there's nothing tempts shoppers to part with their hard-earned cash more than an attractive shop window display or instore promotions.

It can be both exciting and nerve wracking determining at what price to sell your products. Pricing optimally requires an experimental attitude coupled with an intuitive feel for how you want your shop and by extension your products to be perceived.

You know that if you price your products too low you might get a load of sales and yet find yourself going under when you tally up your expenses at the end of the month. When you price your products too high, you might give off an aura of luxury, prestige and exclusivity, thereby attracting a more well-off clientele which is smaller in number but makes up for volume by purchasing your products at the higher price. However, what if you're trading in an area where the demographic is especially price-sensitive, then what will you do?

Ultimately, you'll have to decide whether you want higher prices for your products and a lower volume sold or lower priced products and higher volumes sold, and which direction will enable you to achieve the biggest profits.

Most retailers benchmark their pricing decisions using keystone pricing (explained below), which is essentially doubling the cost of the product to arrive at a 50% markup. However, in many instances you'll want to mark-up your products lower or higher depending on your specific situation.

Here is an easy formula to help you calculate your retail selling price:


Retail Price = [(cost of item) ÷ (100 - markup percentage)] x 100

So for example, say you wanted to price a product that costs you £15 at a 45% markup

instead of the usual 50%, here's how you would calculate your retail price.

Retail Price = [(15.00) ÷ (100 - 45)] x 100

Retail Price = [(15.00 ÷ 55)] x 100 = £27.00


There’s never a "one size fits all" solution to pricing. Here are just a few options to consider when deciding on what pricing strategies will work best for your retail business.


Keystone Pricing

This involves simply doubling the wholesale cost to determine the price. If however you have products that have a slow turnover, substantial shipping and handling costs or are unique and scarce in some way then you might be selling yourself short with keystone pricing and could possibly get away with an even higher markup. If your products are readily available elsewhere, using keystone pricing can be hard to justify.

This pricing strategy does work as a quick and easy rule of thumb that ensures an ample profitability margin but chances are that depending on the availability and how competitive a product is, it’s usually unreasonable for a retailer to mark up a product that high.


Manufacturer Suggested Retail Price (MSRP)

This is the price the manufacturer recommends that you as a retailer use to sell their products to the public, standardising prices of products across multiple locations and retailers.

However, a lot of factors go into the retailer complying with the MSRP, such as the bargaining power of the manufacturer and exclusivity of the product. For the most part, you’ll find the more mainstream or conventional the product, the more you can expect the prices to be standardised.

This pricing strategy does take you out of the pricing decision-making process – and the stress involved – but it means you cannot compete on price with your competitors.


Multiple Pricing

A tactic where a retailer sells more than one product for a single price, alternatively known as product bundling pricing.

In the early days of Nintendo's Game Boy hand-held console, it sold the most products when the devices were bundled with a game rather than individual products alone.

Traditionally, retailers use this strategy to create a higher perceived value for a lower cost which can ultimately lead to driving larger volume purchases. On the other hand, when you bundle products up for a low-cost, you'll have trouble trying to sell them individually at a higher cost.


Discount Pricing

Your customers love sales, coupons, rebates, seasonal pricing, promotions etc. and that’s exactly what discount pricing is all about. The most obvious reasons for using this strategy will be to increase foot traffic to your shop, offload unsold stock or to attract a more price-sensitive group of customers.

Some good advice is not to use this strategy too often because it could give you the reputation of being a discount retailer and deflect consumers from purchasing your products when prices return to "normal".


Loss-leading Pricing

This is all about enticing customers with a product they want at a lower price than your competitors and benefitting from the additional products they'll purchase whilst in your store.

It results in a boost in overall sales per customer but when you overdo loss-leading prices, people will become trained to always expect bargains from you.


Psychological Pricing

Traditionally, retailers will do this with ending the price with an odd number like 5, 7, or 9. For example, using £8.99 instead of £9.00. It's been proved that the number 9 reigns supreme over the others!

By using this pricing strategy you tap into the irrational part of a consumer’s brain and trigger impulse purchasing through perception of a bargain. However, it might hurt your image if you are selling luxury goods, e.g. £999.999 seems "tacky" to someone who will not bat an eyelid at a £1,000 price tag!


Pricing Below Competition

Use competitor pricing data as a benchmark and consciously price products below them to lure consumers into your store instead of theirs.

This strategy can be extremely successful if you manage to negotiate with your suppliers a lower cost per unit while at the same time focusing on cutting costs and actively promoting your special pricing. This strategy can be difficult to sustain for the smaller retailer given the lower margins they'll be making.


Pricing Above Competition

This is when you consciously choose to price your products above the competition and brand yourself as being more luxurious, prestigious, or exclusive.

This pricing strategy gives consumers the perception that your products are of better quality and more premium due to the amount they’ll be paying for them but it may be difficult to pull off if the location and surrounding demographic are too price-sensitive and have several other options to purchase similar products.


Anchor Pricing

Take advantage of the cognitive bias called "anchoring". This is a psychological pricing tactic where you list both a sale price and the original price to establish the amount of saving a consumer perceives to make from their purchase.

The original price establishes itself as a reference point in the minds of your customers which they then "anchor" onto and form their opinion of the listed marked down price. The other way you can take advantage of this principle is to intentionally place a higher priced item next to a cheaper one to draw a customer's attention to the latter.

If you happen to list your original price as being much higher than the sale price, it’ll automatically trigger a response in the consumer of having found a good deal, pushing them to act on their impulsive buying habits. You will need accurate pricing data for the market to allow you to establish an anchor price that keeps customers happy.

Sometimes if your anchor price is perceived to be unrealistic it can lead to distrust given that customers can readily research pricing anywhere they happen to be thanks to their mobile devices.

By the time a customer gets to your store, they already have a good idea of what the "real" anchor price is for the product they are looking to buy. If your anchor price does not match their expectation they may well leave without making a purchase.


Always be the Cheapest

Having the lowest price may bring you some additional business, but it also drags you into a downward price spiral and puts your business in a position you may not want to be. Having said that, being the cheapest can be a useful strategy to help meet some short-term business needs such as boosting a slow sales cycle, or getting rid of stock.

Lower prices definitely lure more shoppers to your shop and that makes up for decreased profit margins but you need to ensure that you can afford to sell at the cheapest price without taking a loss. More importantly, you need to be aware of what that cheapest point is in the market at any given moment and this is where accurate market data is essential.


See Red

Stores that have tried this pricing strategy have seen a distinct difference in how men and women respond to colour.

Men responded positively to prices that were advertised in red, perceiving them to be 'on sale', according to a study conducted by Dr. Rajneesh Suri and his team from Drexel University's LeBow College of Business in 2013. The use of red made men feel positive and made them believe that they were being offered a bargain.

On the other hand, female shoppers seemed not be affected by a change in the colour of price tags. Women tended to process price data more deeply, recollect old prices, and compare them minutely, irrespective of the colour they were printed in.

An independent study published in the Journal of Retailing consisted of three experiments in which respondents looked at price tags and ads in different colours and scored them with respect to how much they would save on each item.

In all three experiments, male respondents thought they would save as much as 85% more with items that carried red price tags than those which had black tags.

The moral here is that if you're selling products aimed at a male target audience, use red for your pricing data!


Size Matters

Consumers are sensitive to the text size of discounted prices on price tags and product advertisements. Research has proved that they perceive price to be significantly lower when the reduced price is printed in a smaller font than that of the original price.

The logic is that the size of the text acts as a guideline to the reader's brain. The smaller font for the discounted price tells them that the new price is reduced and much lower than the original price.

The next time you have a sale, keep the discounted price text size smaller than the text size of the original price of the item.


Drop Those "£" Signs

Have you been in a restaurant recently and noticed the absence of a pound sign before the prices on the menu? This is because researchers at Cornell University found that the absence of a monetary symbol takes the pressure of spending off the patrons' minds, leading them to spend higher amounts.

The very mention of pounds, whether expressed in symbols or in words, reminds users of the expense they stand to incur and makes them hold back their spending. So, avoid using the "£" sign if you can.


Lock Into Your Customers' Fear of Missing Out (FOMO)

FOMO is one of the latest buzzwords and it refers to impulsive decisions made out of a fear of not being part of something fun, interesting, or valuable.

Apple builds up mass curiosity nearing hysteria around each new product launch and plays on users' fear of missing out to build up unbelievable sales figures. When Apple releases its latest i-phone, long queues of people camp outside their stores to avoid the disappointment of not getting their hands on the latest must-have.

On Black Friday, sales can go through the roof because of FOMO.

Use FOMO to your advantage by creating pricing signs that give a sense of urgency such as "Last 10 items," "24 hours to go," and "Only for the first 50 customers". These bring customers' fear psychology into play, resulting in highly profitable impulse purchases.



As a retailer you can use a variety of pricing strategies or stick to one tried and tested strategy. However, in today's competitive markets it is very necessary to keep abreast of any changes, however slight, in the marketplace – and to price accordingly.

You have to be constantly attentive to what the competition is up to in order to have the comparative advantage – and this is where pricing tool analytics will deliver a high ROI.

Your decision on the price of a product and the pricing strategies to be implemented impacts on the consumer’s decision on whether or not to purchase the product. The technology of internet usage has increased and developed dramatically therefore price comparisons can be done any time by potential customers.

Consumers are very selective regarding the purchases they make and retailers must be mindful of these factors and price their products accordingly using the most effective pricing strategy at their fingertips – and according to what is most effective in their particular market.


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You may also want to read








The Strategy and Tactics of Pricing, Tom Nagle and John Hogan, 2016

Pricing With Confidence:10 ways to stop leaving money on the table, Reed K. Holden and Mark Burton, 2014

Pricing Strategy:tactics and strategies for pricing with confidence, Warren D. Hamilton, 2014

Topics: Retail, Pricing Strategies

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