Retail Pricing Strategies

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Retail Pricing Strategies
There are many outside influences that affect profitability and a retailer's bottom line. Setting the right price is a crucial step toward achieving that profit. Retailers are in business to make a profit, but figuring out what and how to price products may not come easily. Before we can determine which retail pricing strategy to use in setting the right price, we must know the costs associated with the products. Two key elements in factoring product cost is the cost of goods and the amount of operating expense. The cost of goods includes the amount paid for the product, plus any shipping or handling expenses. The cost of operating the business, or operating expense, includes overhead, payroll, marketing and office supplies. Regardless of the pricing strategy used, the retail price of the products should more than cover the cost of obtaining the goods plus the expenses related to operating the business. A retailer simply cannot succeed in business if they continue to sell their products below cost. Retail Pricing Strategies

Now that we understand what our products actually cost, we should look at how our competition is pricing their products. Retailers will also need to examine their channels of distribution and research what the market is willing to pay. Many pricing strategies exist and each is used based on particular a set of circumstances. Here are a few of the more popular pricing strategies to consider: Mark-up Pricing

Markup on cost can be calculated by adding a pre-set (often industry standard) profit margin, or percentage, to the cost of the merchandise. Markup on retail is determined by dividing the dollar markup by retail. Be sure to keep the initial mark-up high enough to cover price reductions, discounts, shrinkage and other anticipated expenses, and still achieve a satisfactory profit. Retailers with a varied product selection can use different mark-ups on each product line. Vendor Pricing

Manufacturer suggested...
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