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A little strategy can help retailers sell products and make more money

Applying this psychology

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Based on customer purchasing habits, 80 per cent will select either the $9.99 or $14.99 skimmer net regardless of quality or product positioning. If the consumer is given only two options, e.g. $5.99 and $9.99, they will always default to the lowest price.

Once it is understood how to use these pricing strategies on single items, it gets even more interesting when they are applied to similar products in a category.

For instance, going back to the grocery store example, when looking in the canned goods aisle, these retailers do a few unique things to get consumers to buy the more expensive can of corn. Most stores will usually have a promotional can priced at 89 cents, along with premium brands at 99 cents and $1.09, and an ultra-premium brand at $1.29.

According to studies, when consumers make purchases based on a selection of pricing, 10 per cent are more likely to be price conscious and always buy the least expensive item (e.g. the 89 cent can). Another 10 per cent buy the ultra-premium brand at $1.29 per can, leaving the remaining 80 per cent to buy somewhere in the middle. This is why they have multiple choices in the middle that are typically priced 10 per cent or more in between cans.

Applying this to pool products

When a consumer visits a swimming pool retail store looking for a skimmer net but only has one or two models, the retailer is not giving them much of an option. Retailers should offer at least three choices for this strategy to work, and four to make an enormous impact. For this example, the pricing should work as follows:

  1. The least expensive option should be comparable to price and quality found at a mass merchant or online store. For example, $5.99.
  2. The ultra-premium option should be high-quality, have better features, and not sold at the masses. This price point should be $19.99.
  3. Intermediate offerings should fall somewhere in the middle with each looking a little bit different. Price one at $9.99 and the other at $14.99.
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By pricing products correctly, retailers can influence customers to buy more expensive and more profitable items.

By doing this, retailers essentially create an artificial economy in their store. In not so many words, the retailer has told the consumer the price range for skimmer nets is between $5.99 and $19.99. Based on customer purchasing habits and using the strategy above, 80 per cent will select either the $9.99 or $14.99 skimmer net regardless of quality or product positioning.

If the consumer is given only two options, e.g. $5.99 and $9.99, they will always default to the lowest price. By not offering more options, the retailer is essentially forcing the customer to be price conscious, thus purchasing the least expensive product and leaving money on the table. By having different price points, a retailer can increase its average sales and overall profitability.

Another variation on the psychology of pricing involves product quantity for a price. This strategy forces the consumer to buy a certain quantity—more than they need in some cases—to get the deal. Swimming pool retailers can use this strategy when selling toys, games, and certain chemicals the consumer needs or uses often.

 

Lawrence_HeadshotTed Lawrence is a global retail specialist with Pool Corp., a wholesale distributor of swimming pool supplies, equipment, and related leisure products in Cleveland, Ohio. He has served the swimming pool industry for more than 20 years and is an authority on retail, sales, and management. Lawrence is also a regular seminar presenter at various national and international industry events, and participates on several professional retail boards and councils. He can be reached via e-mail at ted.lawrence@poolcorp.com.

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