03.05.2022

Pricing & Ranging

The challenges of pricing structures and the range of products offered.

A major task for every retailer is to find out what products or services to offer to the customer at the right prices that align with the strategy. There are different approaches to follow when it comes down to pricing. From a customer perspective, the pricing of products and services needs to make sense. The customer needs to see value in the products that justifies the price and potential price increases based on additional value. For the product range, a variety of options should be offered to the customer, but retailers do not want to overwhelm and confuse them by offering too many.

What is the right price?

All businesses need to make a profit to survive and that means being able to sell products and/or services at the highest possible price in order to have the best possible profit margin. The classic way to set a selling price is to start with how much it costs to produce and deliver whatever is being offered, add a margin on top, and then check that the price is comparable to competing products/services.

The problem with this is that it doesn’t always reflect the true value of the product or service from the customer perspective. A simple example: it costs more to produce a t-shirt with a printed design than one with a single dyed colour but from a customer perspective the printed version is basically just another colour choice (particularly if the printed design is the company logo!). If you start from the cost base, then the printed t-shirt will be priced higher than the non-printed version, but the value of each is the same for the customer.

Pricing an entire range in this way can lead to an inconsistent price architecture, which may confuse customers and put them off the purchase. You can solve this by identifying product/service features that customers perceive as value-adds and then build a value-based pricing mechanism that enables you to increase the price logically, according to which features are included. Can you remember not buying something because you didn’t see enough value in its price?

How much choice is enough?

How many pages of a website do you look through on a product search before you get overwhelmed or impatient? How many shelves/racks of products will you go through in a store before you give up? There are people who enjoy these activities but many of us (we are all customers) don’t have the desire or the time to thoroughly research every possible option. We like to have a choice but it needs to be digestible.

All good retailers know this but the advent of online shopping has made it very easy to offer more and more products and many physical stores also tend to overdo their product assortments. So how can you get the right amount of choice? Understand what your customers are buying and why. Be braver about range decisions: LESS is MORE. Make sure the differences between products are clear to customers. Categorise products to ensure you have a balanced offer. Easy to write, harder to do, but it can be done and the results are literally rewarding. And next time you go shopping (physically or online), you can reflect on how easy it was to choose what you wanted.

Get in contact with our expert!

Mark Rouse

Principal Consultant