How retailers enforce their prices

The Internet has ensured broad pricing transparency, or at least wherever products and services are sold to private customers. This is why many retail companies have trouble enforcing higher prices. But this article reveals how to do it anyway.

Retail companies who aim their products and services at private consumers will no doubt look enviously at the B2B sector. In this sector, there is often far less competition, and business companies are used to enquiring about prices on a daily basis, which, however, are hardly visible to the public beforehand.

Price search engines, Google Shopping, marketplaces like Amazon – there are countless ways for private consumers to compare prices. But does it even make sense to contemplate higher prices given the deteriorating state of the global economy? Aren’t prices dictated by competition?

Prices have a lot to do with emotions

The price that customers will accept for an item has a lot to do with what they think something is “worth”. The same customers who complain about the price of a tub of butter or a litre of milk are only too happy just a few moments later to fork out several hundred francs on a fashionable branded watch. And, if money was everything, the majority of people would no doubt have their morning coffee either at home or the local bakery, not at Starbucks.

In other words, psychology is key, and it offers creative freedom. This is also a topic that the science of business psychology has dedicated a lot of time to. If you google “behavioural pricing”, you’ll come across numerous studies on the topic. Though not all findings from these studies can be applied to every segment and every shop. If you only sell day-to-day essentials that don’t have much of a margin as it is, you will struggle to charge higher prices than the competition. In all other sectors, one trick or another can lead to the goal.

6 tips to raise prices

Generally speaking, retailers must know what their prices are, i.e. they must have carried out the necessary business calculations properly. If you rely on systems for automated price adjustments on marketplaces, for instance, you can expect to get some nasty surprises. Based on the minimum price calculated, there are a few ways you can go about getting an edge over your customers.

1. Break down prices

A thousand francs for pleated blinds in the living room? That’s very off-putting. Customers will have an easier time spending this money if the retailer successfully argues that privacy and protection from the sun are both important, and affordable for just X francs per day. The price is still exactly the same, but is made to look less over the expected period of use.

2. No more freebies!

Many retailers use product bundles to make it hard to compare prices directly. This is a good strategy, but it is often poorly implemented. If you advertise the fact you’ll throw in a few things for ”free”, this essentially devalues the products and diminishes the benefit of the bundle. You are therefore better off pricing free products and services as well. This way, the message becomes: “You still get X francs worth in addition”. The bigger the difference is between the calculated price and the price charged, the better.

3. The Rule of 100 – an underrated technique

On the topic of discounts: at the end of the day, everyone wants to save money. But what is the smartest way of communicating a discount? This is where the psychology behind the Rule of 100 comes in. For amounts lower than 100 francs, giving the discount as a percentage will do the trick. If you have higher amounts, then give whole numbers. If a product costs 300 francs, a discount of 60 francs sounds much better than 20 percent. If a product costs 9.90 francs, on the other hand, 20 percent sounds a lot more than just about 2 francs.

4. Offer ways to compare prices

Let’s imagine a customer is interested in a notebook made by a certain manufacturer: how does the retailer go about selling a different model at what they consider to be a much more profitable price? By getting customers to compare prices on their website.

Let’s say the common market price, which the retail company also offers online, is 995 francs. After clicking on it, the customer then ends up on a page with other devices made by the same manufacturer. The model the customer is after isn’t what really matters here, but rather the fact that alternatives are displayed from the outset and become the focus. “For just 200 francs, you will also get...” or “For power users, we recommend...” This means customers no longer compare prices between two competitors. The customer has essentially already accepted the 995 franc price. All they have to decide on now is the 200 francs, even though this price difference would only have been 100 francs if they had carried out a direct search using a search engine.

5. Charge less, not more

What has actually contributed to Ikea’s worldwide success? First of all, you of course have the design factor, which was new and different compared to what you found in traditional furniture stores. Another key part of their success lies in the promise that their furniture would have to be a lot pricier if customers didn’t assemble it themselves. But this is almost certainly not true given that even mail-order furniture these days is usually delivered in flat packs requiring assembly. In other words, IKEA is conveying an imaginary reduction in price. And any retail company can do the same.

Based on the higher price you want to enforce, you would guarantee additional services and discounts. Example: A dishwasher costs 1,000 CHF when shipped. A competitor charges 950 CHF for a similar appliance. The product is then priced at 900 CHF in-store with self-collection. But be careful: the price must be maintained and indeed pay off if the customers do actually want to collect the product themselves. On a psychological level, enough customers will accept the higher price because they feel they have been treated fairly given that the retailer is not charging anything extra.

6. Non-rounded numbers – the oldest trick in the book

Using “non-rounded” numbers sounds like an overused concept seeing as every customer knows the trick. But, the trick does still work because it’s all about what we associate with numbers in our head. If a price has not been rounded up or down, this suggests the company has worked out the exact price of something. Prices that end with figures that don’t crop up often, for instance a 5, 6, 7 or 8, give customers the impression the price of the item has been reduced. A product will also be much more appealing if it costs 0.49 francs rather than 0.51 francs. Seeing as we read from left to right, the first numbers we see tend to stick more strongly in our memories.