The Art of Retail Pricing

I found this article, 7 Retail Pricing Secrets Revealed, on CNNMoney.com. While not all the secrets are new, the article is interesting to read. For example, it’s the first time I know that a product’s list price, which is displayed side-by-side with the sale price at some stores, is actually the highest price suggested by the manufacturer instead of the lowest price as I always thought. We probably won’t be able to change the way how retailers price merchandises and can’t stop them from playing little tricks to lure shoppers to their stores and open their wallets. But at least knowing the secrets behind retail pricing can help us become smart shoppers.

The following is a summary from the article. For details, use the above link to read the full story.

Secret 1: List price is just the opening offer

Don’t let the “listed price” fool you. That’s not a fair price or the lowest price. In fact, the manufacturer’s suggested retail price is the maximum makers expect a retailer to charge. The fair price is called the minimum advertised price (MAP), which is also the lowest ticket the manufacturers’d like to see to sell the items. But retailers will never tell you the MAP. To find a product’s MAP, price the same item at three large, reputable retailers. If they all hover around the same price, you’re probably looking at the MAP.

Secret 2: As things age, they get cheaper …

Nearly every product has a life cycle. As products move through this cycle, manufacturers reduce MAPs. However, knowing exactly when a product is close to the cycle isn’t easy and patience is usually required. What you can do is getting the price when the product is first launched and checking back periodically to figure out how the prices change.

Secret 3: … and then they get really cheap

Exploit end-of-life-cycle pricing by shopping for a product when its new version has launched. Also shopping at discount retailers such as dollar stores and outlets can help you capitalize on life-cycle price decline.

Secret 4: Sometimes a ‘sale’ isn’t a sale

Everybody has seen an ad like “Was $175, is $100!” It sure sound like you are getting a deal. But do you actually save money? Maybe you do, maybe you don’t. However, this advertising tactic, called reference-price advertising, at least succeeds in giving people the impression that they are getting a deal, according to a study published in the Journal of Marketing last year.

Secret 5: Price-matching ‘guarantees’ may cost you money

A 2005 study in the Journal of Consumer Psychology shows that people generally perceive stores with price guarantees as being less expensive. Before you buy, always log on to one or multiple price comparison sites, such as Shopzilla, BizRate or Froogle, to get a comprehensive view on the how the item is priced as different places.

Secret 6: High prices can hide in bundles

Retailers often group items together to sell as a package. But there are times these bundles, packed with extra goodies that you don’t really need, hide prices of the main item above MAP or even MSRP. What’s your strategy? Always identify the components of the package and see what others charge for them, then subtract that from the total to reveal the price of the main item, the one you want to buy.

Secret 7: That 99 cent trick really is tricky

What’s the big secret about ending prices in 99 cents? It’s simple because we always pay more attention to the number on the left than on the right and the “1″ in $19.99 is more appealing than the “2″ in $20. You may not be able to stop that “1″ from attracting your eye. But you can avoid pulling out your wallet until you’ve reminded yourself that you’ll be parting with a Jackson.

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4 Responses to “The Art of Retail Pricing”

  1. Tess |  Jun 15, 2007 at 3:58 pm

    As a fashion design student, here is a little pricing tidbid for clothing, etc:

    My cost to make it $5
    I sell it whole sale for $10
    They sell it retail for $20

    This can also be done by multiplying by 2.2 instead of just 2, making an actual price of $5 equal to a retail of $24.20

    On another note, if you are buying from a big bog retailer, the markup is probably SIGNIFICANTLY higher…. they are still making a profit when they sell that crap to you for 60% off.

    Hope this makes you think twice about paying full retail for things you dont need :)

  2. Online shopping junkie |  Oct 04, 2007 at 3:50 pm

    Thanks for posting this. I’m definitely going to keep these in mind for my next shopping trip!