How Do Large Retailers Use Pricing to Sell More?

How Do Large Retailers Use Pricing to Sell More?

It is pretty obvious how large retailers use price to drive sales volume.  They claim to have the lowest prices for everything.  Companies like Walmart do have low prices.  They are huge, they buy in massive volume and they pay the lowest prices for everything they buy.  In turn, they keep prices low to the customer.  Their tag line for 19 years was “Always Low Prices” which fit them well.  Now the slogan is “Save Money. Live Better”.  Also good.  They are focused on price.  Because they have the lowest cost of product acquisition, and sell huge volumes of everything, they can sell nearly everything at a low mark up over cost and still make enough money to cover the store cost and all the overhead of operating the company.  However, only one company can have the lowest cost or the way I phrase it, be the low cost producer.

So what does everyone else do?  They claim to have low prices on everything but they don’t.  To be credible, they have near the lowest prices on many items, including the most competitive items.  But many items have higher markups but not so high that the customer catches on and starts to seriously shop around for most items they sell.  They sell lots of stuff this way and make a good profit.  This only works if they are efficient and operate at a large scale and have lots of stores.

So how can the small companies I work with make use of this strategy?  They can’t.  They will never be the lowest cost producer, so that can’t sell at the lowest prices.  Any small company that thinks they can sell at the lowest price is bound to fail.  Small companies need to offer a differentiated product or service and get enough of a premium to be able to make a profit.  They can still use pricing to drive customer behavior into profitable patterns, just not with this strategy.

For more information on using pricing to drive customer behavior, click on this link.

Bryan B Mason

Apollo Consulting Group, Providence, RI

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