Understanding where your retail business is positioned in the marketplace and what prices you should charge can be quite a daunting task. Clare Rayner, The Retail Champion, has written 3 really great articles that form an ultimate guide to positioning your business and how to set your prices.
Positioning
image by Brian Talbot
In her article “Price, Promotions and Positioning…” Clare talks about 4 key areas that determine your business’ position. The core principal is that each area can be either an “up arrow” or a “down arrow”. The 4 areas are:
- Market
- Product
- Service
- Price
“…if you present an upmarket, glossy (read expensive) brand and offer a fantastic product and service you MUST have a higher price point in order to cover the costs of the other 3 areas!” – Clare Rayner
This concept has made business positioning such a simple thing to understand. If all of your arrows are up then you’re working in an upmarket, expensive brand with high service. But, if they’re all down then you work for EasyJet.
“Positioning, in a nutshell, is about aligning all your arrows relative to the whole of the market and making sure that your market is given a product, price and service to match.” – Clare Rayner
As this is the ultimate guide on positioning you really need to go and read Clare’s article for yourself. Read it here.
Introducing the Price Ladder
image by Maurizio Sorvillo
The position of your business determines the type of customers who will be attending your shop but also the level of budget they will dedicate to you. However, within that budget the price ladder offers customers product choice (e.g. good, better and best). The smart thing is that the ladder will also encourage a customer to actually spend more with you.
“The customer probably thought that the entry price point item, the “good” item was OK – they’d have been happy with that. But then they see the “better” item and think “ooh – that’s worth an extra £x”! They are now climbing the ladder.” – Clare Rayner
That’s essentially what the price ladder does for your business. With some trial and error you’ll be able to find the perfect pricing point to increase your average transaction value and cash profit while also delivering the best value to your customers. Read the full article from Clare here.
The benefit of understanding price elasticity
spandex fibers at 55:1 magnification – image by BASF
Price Elasticity is an economic practice that determines how a product’s price will or won’t change. You’ll be used to demand driven price elasticity. So a product with high elasticity becomes more expensive as it’s demand increases; the opposite happens when it falls out of demand. However, in the final part of her 3 part guide Clare is talking about price elasticity across a product assortment. When used with a price ladder this technique will ensure you get the most profit out of any product assortment you sell in your store.
“There are 2 ways to increase cash margin return on the range – price elasticity of an item – reduce price, increase volume so much as to cover the cost of the reduction to deliver a net increase in cash margin OR influence customers up the price ladder…” – Clare Rayner
The full article provides an excellent example with a product assortment of cheese graters. Read it here.
Related links:
If you’d like to read more on product pricing and positioning then we’ve also collected the following articles:
Retail Pricing Strategies: their impact on customer loyalty
Peter Clark, from The Wise Marketer, presents 4 key strategies that retailers can use to position their brand and engage customer loyalty.
Top three retail pricing strategies to beat your competitors
Similar to Peter’s article Econsultancy have published their own article on pricing strategies.
How to price your products
inc.com have produced a pricing guide focused on business goals and objectives. It also includes a section on when to raise prices and how to do it.
Case Study: Finding the Right Price for a Hot Product
Luke Skurman’s quirky college guides were a big hit. The problem was getting readers to pay. What if he gave the content away? This is an interesting case study on how one company struggled to make a significant profit and so shifted their business model to find a price (and product) that people would pay for. It’s also an easy read.
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