Pricing Strategies That Boost Customer Loyalty

An effective pricing strategy can be the difference between being perceived as a market leader or follower. The wrong strategy can strip margin and make it difficult for retailers to survive and it can even push consumers away encouraging them to shop the competition. Like the story “The Three Bears,” consumers will shop a variety of stores to find the price that’s “just right”. Pricing strategies should always put the customer first.

Retailers work hard to keep existing customers coming in while inviting new customers to shop their store. An effective pricing strategy has the power to convert new customers into loyal committed shoppers. Retailers should partner with leading brands to maximize shopper engagement.

To achieve this goal, your pricing strategy must have all the elements that clearly communicate your commitment to being a leader in the community. The top selling items in each category should be priced equal to or close to the competition. This allows consumers to compare your prices against other stores, giving them the perception that your prices are good. This combined with a strong brand strategy, this allows you to compete more effectively against other retailers.

An effective pricing strategy can be the difference between being perceived as a market leader or follower. Which of these strategies do you use?

Other items in the category, and in adjacent categories, can then be priced differently based on complementary tactics and strategies. Retailers can use this strategy to make up for margin lost on items that are more aggressively priced including “loss leaders.”

For example, an effective pricing strategy in the diaper category is one that drives shopper foot traffic to the diaper category.  Economy diapers should be aggressively priced equal to other retailers in the market – by brand. Economy diapers should be promoted more aggressively. Premium and super premium diapers should be priced higher based on the additional benefits they provide.  Adjacent/complementary categories such as baby wipes and diaper rash creams could then be priced slightly higher to make up for the extra margin.

This strategy is very effective because it encourages new parents to shop the entire baby care department to fill their child care needs. Busy parents don’t have time to shop multiple stores to pick up all of the items on their shopping list. As a result, they will typically try to make all their purchases in a single trip, preferably at your store.

You can use a similar strategy across other categories within your store to gain the greatest benefit.  Giving up the margin on a couple items will give you a larger market basket with a higher overall register ring, more loyal shoppers, and happy satisfied customers.

The best strategy is a reasonable everyday price combined with aggressive promotions on key items that support retailer tactics/strategies. Complementary items should then be merchandised and promoted together at the same time. It’s critical to get the right mix to effectively communicate your store’s strategy to your customers.

What pricing strategies work for you? 

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By |2017-09-23T19:49:46+00:00December 19th, 2016|Price/Promotion Optimization|

About the Author:

Daniel Lohman, CPSA is Strategic Advisor in the CPG and Organic Industry. His company, Category Management Solutions (CMS4CPG LLC), provides innovative ideas, actionable insights and strategic solutions for companies interested in gaining a significant competitive advantage. He assists companies in expanding their retail distribution and improving their merchandising. His extensive knowledge and expertise reaches far beyond traditional category management and has earned him recognition throughout the industry as an expert, speaker, trainer and thought leader. Daniel can be reached at Connect with me on LinkedIn.

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