Winning the retail price war

By Julian Harlow

The most basic requirement of a pricing strategy is that it covers your costs, but it can also help you avoid a price war.

Retailers have always faced competitors who undercut them on price, but as technology has made it increasingly easy for consumers to compare prices, the need for smart pricing strategies has become ever more urgent.

The most basic requirement of a pricing strategy is that it covers your costs, but it can also be used as a tool to maximise margins and avoid a price war. Pricing, however, is never a stand-alone issue and needs to be seen as just one aspect of your wider business strategy.


The first task when considering your pricing strategy is to do your homework. Your customers are comparing your business offering to others, and so should you. What other prices are available, and how do your competitors' overall offerings compare to yours?

How important is price to your customers compared to other aspects of their retail experience? Whether it's through market research or simply through interaction with your consumers, understanding the price expectations of your customers should form the basis of your strategy.

Your research should also give you a thorough understanding of your own costs. Until you know what your margins are across your product range you cannot judge the extent to which price cuts or discounts will reduce that margin. A solid grounding in the cost base of your business can also help you identify areas where savings can be made to help you provide lower prices or boost margins.


If your business is facing strong competition from a rival, look first at ways to boost sales that do not involve cutting prices. Marketing your business, for instance, can be done in a vast number of ways, many of them more cost effective than reducing prices.

Ignore underhand pricing tricks, such as hiking the original rate to make a discounted price seem more impressive. Your customers have become wiser over recent years and the distrust created by this kind of tactic will likely outweigh any benefit you may generate in the short term.

Differentiate your business from your competitors, providing consumers with reasons to come to you that aren’t based simply on price. Competing solely on price requires slim margins and high turnover, areas where larger businesses usually have the advantage.


Avoid mindless discounting. Sales and discounts can be an important tool for a retailer, but there are also downsides to their use. Simple discounts can require a large lift in sales to make up your lost margin, and can alter price expectations among customers if they become a routine feature of your business.

Instead, find ways to offer discounts that also benefit your business, such as rewarding customers who place large orders or make repeat purchases.

While there is no single solution to creating a winning pricing strategy, trying a variety of tactics to find which work best for your enterprise plays to the strengths of small business. Implementing price changes can be performed more quickly by smaller retailers, and owners can just as quickly reverse or alter changes if required. So, if you have put some thought into a new strategy, don’t hold back - the constant search for innovative solutions is where small business thrives.


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