Walmart became synonymous with low prices, thanks to clever marketing and rollback offers. This helped shoppers perceive Walmart as a low price leader, whether they always had the lowest prices or not.
However everyday low prices haven’t exactly done wonders for retailers in the 2010s.
In 2011, JC Penney attempted to replace coupons with everyday low prices and by June 2013 its margins had fallen by 14.83%.
As witnessed with JC Penney’s example, a store-wide implementation of everyday low prices can be detrimental to your bottom line. But why? Well, it makes it hard to keep up with competitors because of constantly low, stagnant prices.
Coupons and discounts can help draw attention to your store. Without them, it can be hard to promote your lesser-known products.
To draw attention to your less popular products, promote them with discounts and sales and save everyday low prices for your top selling products.
The standard Pareto Principle applies here: your top 20% of products make up 80% of your sales.
You have to make sure your most popular products can compete with other sellers’ offerings, because that’s what shoppers will be spending most of their time comparing. But getting the right price for these products takes more than speculation.
Figure Out the Right Price
First, test the elasticities of your products. Measure the market’s reaction to a product’s change in price.
Inelastic products aren’t going to fare well with gradual price changes, so make sure you’re able to distinguish between your elastic and inelastic products.
But how should you approach the pricing of your most popular products? Constant price cuts lead to price wars, which are the ultimate margin-crushers. Blindly lowering the prices for all of your top products is not going to yield the positive results you’re looking for.
Once you’re able to figure out your products’ elasticities, test different prices to learn what your customers will be willing to pay.
Weekly changes in your product prices can help you determine the optimal prices, which in return can help you flex your brand value’s muscles.
You might be 50 cents higher than a competitor, but if your brand is stronger, you might be gaining quite a bit of revenue.
It especially helps if consumers are familiar with your brand. About 67% of shoppers are more likely to purchase from brands they follow on Twitter, so make sure you’ve developed a strong brand to validate higher prices.
Your brand equity can certainly help you win sales.
Understanding how you stack up in the eyes of your customers, compared to your competitors, can also help you craft the ideal price.
Constantly lowering your prices isn’t ideal for your bottom line, and it isn’t always necessary to win over customers.
Gain Competitive Pricing Knowledge
Today’s retail landscape calls for price intelligence as an absolute necessity to cater to your customers’ needs.
If you’re advertising a product as the lowest price available, you better be correct, because 65% of shoppers spend 15 minutes or more comparing products on comparison shopping engines.
So what should you do instead of everyday low prices? The answer lies in one word: test.
Test your products’ elasticities, and from there test their prices. When a significant amount of data has been gathered as a result of tests, retailers can find the sweet spot in their pricing without sacrificing margins.
Allocating your time and resources to your most popular products will yield incredible results for your business. It just takes a simple understanding of how you stack up against your competitors.
Blindly changing your prices without mining competitor data is a huge mistake in today’s retail industry. If you want to offer low prices, focus on your most popular products and put in the time to find the right price. You might surprised with what you discover.
What do you think would be a good alternative to everyday low prices?