Pricing Strategy in Retail

Pricing of a product is vital for a retailer. It determines the profit and is one of the major marketing mix tools. Therefore retailers have to be very careful while choosing the pricing strategy to achieve profit goal. They need to design good pricing strategy for particular brands, categories, stores and markets. Before we determine which retail pricing strategy to use in setting the right price, we must know the costs associated with the products.

Two key elements in factoring product cost are the cost of goods and operating expenses. The costs of goods include the price paid for the product, plus any shipping and handling expenses. The cost of operating expenses includes overhead, payroll, marketing and office supplies. To succeed in business, retailers need to assess their distribution channel and research on market potential to pay.

Pricing Strategy

Pricing of products depends on the strategies of the retailers. To introduce a new product, the retailer can opt between running promotions and low pricing in the initial stage until the demand rises for the product in the market. To maintain a decent profit, the retailers can use ‘Manufacturer Suggested Retail Price' (MSRP) and they can avoid price wars. Retailers considering a "competitive pricing strategy" need to price competitively and provide outstanding customer service to stand above the competition.


Before pricing product, the retailers have to consider the location, exclusivity and/or unique customer service which would help to justify the higher prices. Some of the supermarkets are usually located in places where the upper class families reside. Retailers would give a discount offers to the customers depending on type of customer targeted and type of item offered. Example: Retailer can offer a cash discount as reward to the customers who pay cash promptly or on time, quantity discount to large volumes buyer, seasonal discount to the customers who purchase as per season and charge less when the customer purchases a bundle or several related items together.

Some of the retailers have assumption that they can win their competitors in the market by fixing a low price. However lowest pricing strategy does not allow retailers to attain profit in the long run. It is better for retailers to avoid the low pricing strategy and start with looking at the demand in the market by examining three factors:

Competitor's Price:

Retailers need to look at the competitor's pricing, cost, market price, discount offers and promotions to compete with their competitors.

Ceiling Price:

The retailer should not fix the price above ceiling price as the ceiling price is the highest price the market will bear. If the product price is above the ceiling price then customers will not be able to purchase such products.

Price Elasticity of Demand:

To make effective decisions, retailers have to accurately predict market demand. As demand is intrinsically connected to price, price elasticity is an essential computation for today's successful retail marketers.

Retailers need to consider few factors before fixing price to their products as per locality, customer   preference, and standard of living of customer and brand preferences. Smart use of Pricing Strategy can attain optimized profit and revenue.

Business Without Pricing Strategy Is A Way To Failure

Every business must be related to price. Without price, there is no business. The ultimate goal of starting a business is to have profits. Profits consist of three main elements which are price, number of sales and cost. If there is no price, or if there is no sales then there is no profit. Your business is going bust.

Before you start a business, you should already have decided what product to develop or sell, and at what price. The pricing comes on the last part of the product offering, thus the price is normally being quickly decided without enough consideration.

For new product in a new market, the cost mark-up is the most popular method. There is no need to think about pricing at all, just simply add an amount of profit on top of the cost and that is the final price. At first, the method may seem attractive but eventually the sellers will find out that their profit is not up to their expectation, and the customers are suspicious of the attractive price.


In the case where the product is already being sold successfully by the competitors, the popular way to set price is to follow the competitors' price. To make it more attractive, the price is set a bit lower from the competitors. Once the price is set, it will be difficult to change the price without the ability to predict the customer behaviour. As the market situation is constantly changing, the right pricing strategy should be applied at the right moment of time.

Pricing strategy is started from the business objective, or the reason the product is developed. Many organizations thought that to achieve the maximum profit is already an objective.