One of the most important, and also most difficult, aspects of running any business is figuring out the right way to price your products.
Should you sacrifice margins and try to compete aggressively on price to sell more units? Or is it better to charge a higher price and try to earn that margin with a superior shopping experience and customer service? What about a mixed strategy depending on the product and the time of year?
No matter which strategy you use, your ultimate goal should be to optimize item prices to ensure maximum profitability. Intelligent pricing is one of the best ways to do that. This article defines intelligent retail pricing and shows you how to use it effectively to get the profit boost you need for your business.
What is Intelligent Pricing?
The simplest definition of intelligent pricing is that it’s a pricing strategy that uses information about the competitive landscape to optimize the way that products are priced. Intelligent retail pricing is used to set the price of products based on market data and focuses on optimizing pricing for improving sales. Due to its market-based nature, it also leads to regular updates to make sure that pricing remains competitive.
Let’s dig a little deeper. One key reason to rely on the market price of an item is that it takes into account both supply and demand. For example, let’s say the market price for an item is $100 and you’re able to purchase this exact item for $50. Even though you were able to purchase far below the market price, selling this item for $60 at your store might not be a good idea. While you would still make a $10 profit on each sale, you could be making a $50 profit on each sale if you simply sold the item at its market price. This is one reason why intelligent retail pricing is such a useful tool. You can use it to ensure that you’re making the most out of each sale.
How to Use Intelligent Pricing
There are several approaches that can be taken when using intelligent retail pricing. The one we will focus on here is price optimization. To optimize the price of a product, you should begin by compiling information about how other products are priced in your market and decide whether or not the products or services that you offer are comparable to the prices you’ve set. After you’ve completed this step, you’ll be aware of the market costs and can prepare to adjust your prices accordingly.
Setting your own price is a balancing act and there are both benefits and drawbacks of setting a price too high or too low. Making the price of an item too expensive can lead to bigger margins and more profitability on each product being sold. But, the downside is that you may not sell as many, so in the long run you might be less profitable. On the flip side, selling at prices that are too low can impact sales positively, but your business would be making less of a margin on each item being sold, ultimately making you less money over the course of your business. Taking advantage of knowing how your margins are affected can help you make better decisions about what moves will be best for the business.
With data gathered based on market pricing, let’s dive a little deeper and take a look at repricing as another strategy of intelligent pricing. From the above information you’ve collected, market trends can be followed and prices adjusted to reflect these changes. Large companies often verify prices multiple times a day. Though it may not be possible for small businesses to adjust prices this often, because markets are constantly changing, taking a look at this information periodically and adjusting prices accordingly is an essential way to stay on top.
Leveraging ShopKeep for Price Optimization
Now that you’ve learned how intelligent pricing is essential to the success of your business, let’s take a look at how ShopKeep is a powerful tool in your fight to win the pricing war. Did you know that ShopKeep’s BackOffice contains robust statistical data about your business to help guide your pricing decisions?
The Sales by Item report in the Analytics section has the most detailed information about each individual product you sell — information that can be filtered, sorted, and compared so that you can find just what you’re looking for. You can view your top selling items as well as item and inventory values. In addition, you can export this data to any spreadsheet software and use the margins column when calculating your pricing formula. Use this data to regularly assess that the actions you take are positively impacting your business.
Using intelligent retail pricing will help you set a fair and accurate price — one that benefits both you and your customers. Practicing the few key points we’ve mentioned above and leveraging insights from the Sales by Item report can send you in the right direction.