Pricing strategy can spell the difference between success and failure

Economy February 02, 2017 01:00

By SPECIAL TO THE NATION

IN general, pricing strategy is very important for retail companies in order to achieve their sell-through (the ratio of sales to beginning inventory over a period of time) target.



Customers may have acceptable price-points in mind for different brands. Thus companies should set the right retail price by taking into account the required margin, competitors’ prices and potential customers’ perception of the product. 

Some companies need to adjust the retail prices once they find that they are too high in their customers’ view. Setting the wrong prices can lead to low sell-through ratios, which can end up with high stock carried forward. This stock will eventually become ageing inventory that needs higher discounts in order to clear it out.

For importers of fashion brands, the path to sales success continues from the purchasing process to the selling process. The following are key considerations for determining retail prices.

Historical sales analysis. It is necessary for the sales team to understand the sales performance at different price levels. Different product types will usually have different prices. For example, the price of a normal product is likely to be lower than for a premium product. The different price points can contribute differently to the company’s performance in terms of sales proportion and profit margin. This information is important for the management to make necessary decisions on sales and pricing strategies.

Mark-up method. Many companies choose mark-up methodology for establishing prices. This uses a certain mark-up rate over the wholesale cost in order to determine the retail price. However, those responsible for setting the retail price need to ensure that the price tag will be attractive to customers. Setting the price either too high or too low will hinder the success of the company’s operating performance.

Price competitiveness. Despite the company’s pricing policy, it is important for the management to take into account competitors’ prices for the same or similar product category. Customers can check and compare the prices of similar products before deciding which brand to buy. Comparing competitors’ prices can help ensure that the company’s product prices will be acceptable to its clientele. 

Net price calculation. In order to understand the profitability of a product, the company needs to take into account the components affecting the net selling price such as value-added tax, promotional discounts, the retailer’s trade discounts and so on. After deducting the related expenses from the total retail price, the net sales price will be the real received amount from that product item. Misunderstanding the price components and structure can cause the wrong pricing and result in lower gross profit than expected.

Pricing can play an important part in the total sales performance of a company. It is important for those responsible to understand the whole market and the impacts of brand perception on customers’ purchase decisions before setting the retail price for a particular product. 

Careful analysis and effective pricing strategy can determine the success of the company. 

Yanyong Thammatucharee is senior vice president for finance and accounting at Central Marketing Group. He can be reached at yanyong@cmg.co.th.