A Perfect Guide On How To Price Your Retail Product

You need to strategize the pricing for your products in order to generate more sales without losing profit margins. 

It’s not just you can lower the product pricing to increase the sales revenue, it won’t give you profit. And, then there are other drawbacks of a low-ticket product. 

On other hand, you cannot have a pricey product to get more profit from your current sales.Also, you will lose the budget-conscious customers and large share of market as well. 

tips strategies how to price retail product

At the end of the day, pricing your product is a balancing act! 

If you are starting a small business or even running one, you need to strategize or re-strategize your pricing every once a while. 

There is a mathematical aspect of setting up the price for your products considering your product, market and consumers. 

Pricing also comes from how consumers perceive value to your product or the brand. 

There are certain aspects of human behaviour, market research and target customers to direct your decision towards right pricing. 

Here are some best tips, strategies to set the right price for your retail product. 

pricing strategies for retail stores

Manufacturer Suggested Retail Price ( MSRP) 

MSRP or Manufacturer Suggested Retail Price can be quite evident in its name. 

It is the pricing that the manufacturer recommends or suggests retailers to consider while selling the product. 

In this case, the manufacturers of the product you are selling help you come up with a standard unique set of pricing for all of the products. 

The pricing varies depending upon the location and retailers. So your manufacturer with their set of standards develops a different price range for all products, and for all locations and retailers. 

Many retailers, mostly seen with those who are selling consumer electronics and house appliances prefer to go with MSRP as they are highly standardized products in pricing. 

It helps retailers save a lot of time with all complexities creating value pricing for the products striking the perfect balance for profits. 

On other hand, retailers also get disadvantage as they cannot customize the pricing for their customers in order to compete against their competitors. 

Keystone Pricing

Keystone pricing is the right of the bat, easy rule of thumb pricing strategy for a lot of retailers making the process easy for them.  

This usually works the best when retailers simply double their cost of wholesale that they pay for that product. 

That helps figuring out the retail price of that product. However, this strategy doesn’t always work accurately with all kinds of products or industries. 

The downside of this pricing methodology is it might give you too low or too high cost for your product.  

Again, the best about keystone pricing strategy is giving you the best price for your product, ideal for gaining sustainable profit margins and practical for consumers as well. 

All you have to do is be flexible with the idea and compare different sets of outcomes around your actual result. 

For Example :  If your business has a slow turnover along with a significant amount of money going in shipping, then it might not be a straight enough equation to get the best result with this strategy. 

In those cases, you might want to use a high markup formula to compensate for the high cost you are losing in a particular end.  Then, you increase your retail price accordingly. 

Make sure you also check the other factors such as scarcity or in-demand aspects of the product. 

Premium Pricing 

This is another end of pricing strategy where we are not lowering the price to sell more instead increasing the price to create a benchmark product. 

Here you will be consciously increasing the competition and the upper pricing limit of the product. 

Premium pricing strategy is about pricing your product at a higher limit to increase the value of your product. 

Basically, you are claiming your product to be above all and make it a prestigious, exclusive and ideal choice amongst the competition. 

For Example : Starbucks set their pricing at the premium high-end range where customers idealize them to choose rather than their lower price competitors like CCD or Dunkin’ Donuts. 

It is a psychological and social tendency of people where they prefer to opt for a higher-end price product rather than a lower-end even if it takes little effort. 


Premium pricing creates this “hypnotizing” effect on your consumers or prospect customers where due to your high price, they perceive your product to be better quality, exquisite and more premium than your competitors. 


However, the downside is, it can be difficult to create this “effect” on people, especially depending upon the product you are selling, the location, physical stores, target customers and other factors. 

So it is suggested you go for extensive market research on whether premium pricing will be a suitable pricing strategy for your business or not. 

Bundle Pricing 

Bundle pricing strategy is also foundationally called multiple pricing strategy for your different set of products. 

It is as transparent as the name goes “bundle” or “multiple”. You take a single price and put that for more than one product. 

The bundling of products, you have seen a lot with grocery stores or clothing stores as well. Interestingly, it is not just a pricing strategy but also acts as a marketing strategy for increasing sales. 

For Example : One of the most popular and successful bundle pricing seen with Nintendo’s Gameboy. The product was sold more when it was bundled with some additional games. 


The advantage with bundle pricing is very effective, especially seen quite profitable in certain sets of sectors.

You create this higher perceived value for products at the lower cost believing customers give out the best value along with achieving high volume purchases.


The downside with bundle pricing or multiple pricing is making things a bit difficult when you try to sell the same product individually later on. 

Psychological Pricing 

According to studies, merchants experience pain or loss whenever they spend money. So better a retailer can minimize that, it will be easier for them to spend or make a purchase. 

Well, that really is not possible without cutting off your profit, which is again not practical or sensible for that matter. 

So, what would you do?

The best thing is to do is make them feel comfortable making the purchase and create this psychological effect that they aren’t spending a lot.

This again makes more sense when they compare your prices consciously or subconsciously with your competitors or the market. 

The psychological pricing effect can be achieved by pricing your product ending with the odd numbers such as 5, 9, 25, and so on. 

You take it further by pricing your product at $7.99 instead of $8. This is called charm pricing of the products. 

According to the book ‘Priceless’ penned by William Poundstone, these charm prices found to be increasing the sales by 24% on average. 


Best part about charm pricing is it encourages impulse purchasing amongst consumers, especially amongst the passion buyers. 


The downside with psychological pricing happens with luxury items where charm pricing can harm your brand’s perception. 

It gives away the idea that your products aren’t really effective and making great sales,and so for that you have to use such strategies in your favor. 

Anchor Pricing 

Since, you get the idea of psychological pricing strategy, this is another in the similar zone where you pricing your product on some similar grounds. 

In anchor pricing strategy, retailers put both the actual price as well as the discounted price to the consumers to use a favourable comparison. 

Retailers anchor the current price to its higher end price supposed to be “original” for customers. 

This gives the consumers the sense of a profit they are making while choosing that product supposing they are saving on this product by buying it at less pricing. 

Anchor pricing strategy is also called reference pricing where customers have a better price in comparison making them deal desirable. 

The method roots from the psychological trigger called anchoring cognitive bias that people have. The concept goes even further down the lane further utilized by brands and marketers to make more sales. 


The best and simple thing to understand here about the advantage of anchor pricing is this – people get influenced when they see the original price of the product higher than the offered discounted price. 


In case, if your mentioned original price is unrealistic, it can go against you. People lose trust in your brand or it simply affects your brand’s perception. 

It shouldn’t be something unreasonable as people can always check the competitors higher end price lists. 

Retail Pricing 

Retail Pricing is the simple pricing strategy which is profoundly decided by the retailers themselves utilizing the strategy they fit the best. 

Usually, they go with keystone pricing which was discussed earlier as to be a straight and simple retail pricing strategy to choose. 

It is evident why it is preferred or so popular amongst the retailers making their pricing strategy for the products they sell. 

Following is the easy to use formula for this in-house retail pricing : 

Retail Price : [(Cost of product)  ÷ ( 100- markup percentage)] x 100

For Example :  

If you are small business selling your product which cost you $20 to get it ready at a 45% markup, here’s how you will price the product 

Retail Price = [ (20) ÷ ( 100 – 45) ] x 100 ]

        = [ 20 ÷ 55 ] x 100

        =  $36 

Competitive Pricing 

As you can guess, competitive pricing strategy is about pricing your product on the basis of competition in the market. 

Here you will be pricing your product on the basis of all the data you get from your competitors on their pricing. 

This conscious method of pricing against your competitors considering their price as a benchmark where you will pricing yours below than that. 

The strategy simply here is in the focus of competing against your successful competitor. Your game here is to outprice their product. 

It will influence your price-conscious consumer market to choose your product over them. 

Competitive pricing strategy is quite opposite of the premium pricing strategy in many ways. 


This is really an effective pricing strategy where your suppliers, distributors, franchise or retailers can actively promote your product due to the high margin they receive on it. 

On top of that, it helps you do better negotiation over cost per item. 


Not very unlikely to understand why this pricing strategy could go wrong. It becomes difficult to sustain amongst your competitors as you have to survive with low profit margin here. 

Not to forget, the strategy can be used against you in this from your competitors as well. 

Also, customers might not really prefer the lower-end cost in a product you sell or even won’t go beyond a point. 

Loss-Leading Pricing 

You’ve already been to the other side of this spectrum.

 As a consumer, everyone has that experience where you visit a store with a promised heavy discounted primary product and come out buying others with it. 

Now, even with the discount on your primary product you went to buy in the first place, you bought more than you have saved by buying another two-three products along with it. 

Well, right there, that’s loss-leading pricing. 

Keep aside your feelings, this isn’t just a really powerful pricing strategy but also an effective marketing strategy

Here you will attract your customers by providing heavy discounts on a popular or high-selling product and then encourage customers to buy along with it. 

This often relates to the bundle pricing you get to introduce earlier where customers are encouraged to buy more products under a single price. 


This is certainly amongst the most effective pricing and marketing strategies for retailers, especially in grocery and other such markets. 

When you encourage your customers to buy multiple products in a single transaction, it increases your overall  sales per customer. 

Also, it will cover up with any loss you will be bearing from the price cutting on the original product as well. 


In the case of over-using the loss-leading prices, customers expect higher bargaining and they become reluctant to pay the total retail price. 

Penetration Pricing 

Discounts and offers are amongst the best pricing strategies for all the retailers across different markets. 

Shoppers are heavily attracted by coupons, sales, and seasonal pricing and such offers. 

Discount pricing strategy is when you price your products with various discounts and offers to attract more customers. 

Such pricing strategy is also called penetration strategy which helps stores to offload their unsold inventory.  

It primarily targets more price-conscious customers and increases foot traffic to your retail store as well. 


The discount pricing or penetration pricing strategy is highly effective to drive massive foot traffic to the retail store, especially getting rid of all the old inventory. 


Too much utilization of this penetration pricing will make it look like a bargain retailer. It also makes customers reluctant to purchase the product on their original costs. 

How To Price Your Products For Your Retail Small Business? 

Indeed, you have seen various retail pricing strategies to price your products in the best way possible. 

These different pricing methodology or strategies are unique and hence, their application works differently depending upon your product, market or the brand as well. 

But you also need to understand that no single pricing strategy can work for all kinds of products. 

There are various permutations and combinations you have to use in order to find out what works best for your product. 

Intelligent Pricing Strategy

To take your pricing strategy to an advanced level, you need to adapt an intelligent pricing strategy for your business. 

Intelligent pricing strategies studies about the market, leverage the market research, market data and analysis to optimize the prices to remain the leading brand amongst competitors. 

It focuses on the market price of all the products that are competing against you. It primarily makes sure you don’t lose your potential profit in order to stand in competition.

There is a balance required in pricing strategy in the market against your competitors.  You cannot lose your profit for the quest of higher number of sales. 

POS System

The Point-of-sale system you choose is highly significant in the pricing strategy of your product.  

You get all the data from the POS system to track and analyse the best-selling products, number of sales, returns and other essential data. 

All these reports help you effectively develop strategy to price your product in the best way possible.  

Factors Affecting Markup 

In the traditional sense, retail products even have been marked up with 100%, you have seen this with keystone pricing strategy in-default used by retailers. 

But you need to figure out whether keystone pricing really fits for your product or market. You must check that before you are locking the markup.  

You must be able to adjust your markup to achieve better profit margins. The demand of the product also affects the markup you will set. 

So there are many moving parts you need to work with,so be careful not ending up locking anything under a specific pricing strategy, especially with traditional keystone pricing. 

Setting Up The Right Price 

Setting up the right price for many small businesses becomes significant to survive in the market. It can actually determine your growth as a business. 

So you can start with studying and analyzing all the pricing strategies and how you can benefit from it. 

Make sure you adapt state-of-the-art POS systems for your business to make the right choice when it comes to pricing.

Experimenting With Your Pricing To Capture More Market Share 

The most common misconception about pricing your product amongst most small business owners is – lower pricing products lead people to buy it more, increasing the sales. 

Well, that’s the trap to start with! 

According to Seth Godin, you can certainly race to the bottom in order to win, and you might as well and that will be the worst part of it. 

Lowering the price of your product strategically has a fair share of advantages and surely increases your sales. 

Pricing Product & Consumer Surplus 

It helps in reducing the consumer surplus, ie. money left on the table for those consumers who are willing to buy products at different price points. 

The difference between what consumers pay and those willing to pay is called Consumer surplus. So reducing cost means reducing consumer surplus. 

Maximizing Profits Even With Capturing More Market Share

To capture more market share for your product and maximizing the profits at the same time brings you to price elasticity. 

Price elasticity is measuring the correlation between a difference in the quantity of items in demand and the difference in its price. 

The Problem Comes  With Price Elasticity 

The “elasticity” of the price refers to significant change requirements in response to the demanded quantity of the product. 

For Example 

Suppose you have 1000 customers purchasing your product. Now, when you test different prices for the product, you see different conversion results. 

Interestingly, the sale volume for all price points also fluctuates. 

So, with this particular number of consumers, you can calculate how much sales revenue your business generates at different price points. 

At a significant level, this is a really great way to decide the “base” price of your product. 

Now, the only problem with this price elasticity is the large number of consumers who bought the product at a certain price point. 

You cannot ignore that significant amount of total revenue. 

That’s why you need to figure out on the basis of how much you can gain or lose, and stick to the price point accordingly. 

Long-Term Product Pricing Strategies For Sustainable Profit 

You have now a different set of pricing strategies to price your retail products to achieve larger profit margins and higher sales revenue. 

It cannot be certainly considered a long-term solution for sustainable profit from your business. 

The pricing strategies or anything working for you right now, can be challenged or deplete over time. 

So to ensure long-term sustainable profit for your business, you need to pursue product pricing accordingly. 

The best way to do that is start experimenting with your pricing, and see what dynamic strategies can work for long-term. 

Leveraging Seasonal Promotions & Discounts 

The three primary advantages of seasonal promotions & discounts are : 

  1. Large influx of sales revenue in short time 
  2. Giving you brand awareness and attracting new potential customers for future
  3. Compensating for any shortcoming in your total yearly sales revenue 

Nothing better attracts customers than seasonal discounts and promotions. You can even attract customers by offering free shipping for your products. 

Analyzing Your Current Pricing 

The worst possible thing can go with the pricing strategy you are currently following is not able to cover your overhead expenses, far from getting any profit. 

Well, for that, you need to look hard at your current overhead expenses, enlist it and calculate how much you are giving in on a monthly basis. 

Overhead expenses can include rent, packaging cost, marketing cost, manufacturing cost, shipping cost, staff salary, utilities, website maintenance cost, etc. 

You have to actively make decisions with your pricing strategy to cover all these to make it to the level of profitability. 

Adapt From Your Competitors

The first rule of adapting from your competitors is to model it, adapt it, not copy it. Many small business owners make that mistake with their pricing strategy. 

It is essential to look back to the market and pick up the pricing trends but you need to see how it serves your product or business. 

You need to be aware of employment rates, stock market changes and other such factors that affect the market. 

It also affects how much your customers are willing to pay for your product, it becomes necessary to have a competitive advantage in the marketplace.  

You need to adapt as per the market and customer demands otherwise people will choose others over you. 

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