What is the best price a retailer can charge for their product?

One of the most difficult, but important, aspects that a retailer must decide as an entrepreneur is how much to charge for a product. While there is no single correct way to determine your pricing strategy, fortunately there are some guidelines that will help you make this crucial decision.

There are certain pricing guidelines, such as competition-based pricing, cost-plus pricing, marginal cost pricing, demand-based pricing, demand-based pricing, the offer, etc., which establish the general rule to decide the price. These principles are specific to product characteristics and prevailing market conditions.

Retailers are faced with the difficult task of setting and changing the prices of many of the items they sell. A typical grocery store in the United States now sells about 31,000 items in hundreds of product categories (Kahn and McAlister 1997). Each week, a retailer changes the prices of more than 4,500 items (Levy et al. 1998). In addition to the myriad of pricing possibilities, the considerations that go into retailer pricing decisions have become very complex.

Sophisticated demand forecasts based on scanner data, a wide variety of manufacturer discounts, the drive toward category management, and marketing intelligence on competitor retailer pricing can all matter and have been incorporated into analytical research. recent (eg, Basuroy et al. 2001, Kim and Staelin 1999, Wedel et al. 2004). More recently, Nijs, Srinivasan, and Pauwels (2006) found that when retailers rely on past prices to set future prices (i.e., past price dependency, price stickiness, or price inertia), higher category margins are observed. low, while demand-based pricing is associated with higher category margins.

We often see many articles talking about different pricing strategies related to advantages, the reasons behind using specific strategies, etc. Of all these, the debatable price based on demand, suits retailers with the aim of increasing their profits.

Let’s look at some of the advantages of demand-based pricing for a retailer:

1. In the setting of retail prices for the brands in the categories with the highest purchase frequency.
2. In setting retail prices for brands in categories with a greater number of SKUs.
3. In retail pricing of brands in high-growth categories.
4. In setting retail prices for brands in storable categories.
5. In the setting of retail prices of the brands with the greatest participation of the retail distributor brand.
6. In setting retail prices for brands with a broader range of products.
7. In setting retail prices for high participation brands.
8. In setting retail prices for brands that are more sensitive to demand.
9. In setting retail prices for brands in expensive categories.
10. In the fixing of prices for sale to the public of products with great discounts from the manufacturer.

Companies that are well-versed and have a solid understanding of these principles rank the conditions where retailers rely most on demand-based pricing. Our insights offer a great opportunity for retailers to evaluate their pricing structure and help them make quick, logical decisions.

References:
1. Basuroy S, Murali K Mantrala, and Rockney G Walters. 2001. The impact of the category
Retail Price Management and Performance: Theory and Evidence. J.Marketing 65
(October), 16-32. Benkwitz, Alexander,
2. Helmut Kahn, Barbara E., Leigh McAlister. 1997. Grocery Revolution: The New Focus on the Consumer, Addison-Wesley Pub. Co, Reading, MA.
3. Levy, Daniel, Mark Bergen, Shantanu Dutta, Robert Venable. 1998. Price adjustment in
Multi-product retailers. Managerial and Decision Economics. 19 81-120.
4. Nijs, Vincent, Shuba Srinivasan, Koen Pauwels 2006. Drivers of Retail Prices and Retail Profits. Marketing Sci, coming soon.