You Could Win a Price War With Amazon, Pricefixer, Netflix, Walmart or Costco. Here's How.

Start with choice, charm and price matching.
Guest Writer

One of the biggest problems retailers and other general businesses constantly face involves price. What should I charge? How much is too much? Which price is right? With different factors affecting price -- and competitors with different prices -- it can literally become a war.

Needless to say, there is nothing like the perfect price. But considering the nature of your commodity, the value that your general business strategy and approach adds to your commodity and the strength of your loyal customer base, you can come as close as getting the right price.

By studying the pricing strategies used by some successful brands, you can get an idea of what works for them and why. Everything won’t work for you, but something will.

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1. Give your customers a choice in what they are willing to pay.

A lot of businesses have been losing the price war because they have made an expensive assumption; that tier pricing can only work for businesses that offer online services, like Amazon and Netflix. This is false because the tier pricing principle aligns rather easily with common sense and the basic human liberty of choice.

Rather than struggle continually over the best price to slap on your products, divide your products into categories or tiers and price them differently, based on the quantity, quality and the value they offer the customer. This can work for any business, even if you sell food.

Amazon has a three-tier pricing system -- the $8.99 monthly subscription, the $10.99 monthly subscription and the $99 yearly subscription. Netflix has a similar pricing strategy. This works because the customer can always find the best fit for their budget. All you need to do is make the categories distinct. Don’t muddle it up, make the prices stringent, and ensure that for each higher tier, the added value is worth the increased investment.

2. Add a little charm to your price.

Charm pricing is the strategy sellers use when they woo the customers with the delusion of a discounted or cheaper price, but in reality, there is only an insignificant 1 to 5 cent reduction. For instance, selling a product for $7.99 rather than $8.00 is charm pricing. The 99s and 95s work well because consumers assume that the prices are discounted and tend to look more at the whole number in a decimal.

Granted, this has become a very popular strategy world over in shopping malls and online service companies, but it doesn’t work as well today as it did many years ago. In the age of debit cards, online commerce and pay-what-you-want (PWYW) pricing models, consumers have more control than ever before over what they’re willing to spend.

Studies show that when a purchase is rational, unrounded numbers convert higher. That’s why home buyers pay more money when prices are specific, but when a purchase is emotional, like say a TV subscription, round numbers convert higher because they’re processed by the brain more fluently. For all these reasons, you have to consider carefully if charm pricing is what will solve your pricing dilemma.

Generally, research shows people assume rounded prices to be inflated. This is why companies like Netflix and Amazon meet customers somewhere in the middle by removing the cents.

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3. Try matching lower prices.

The fact is, this will work for some commoditized products, but not for every product. And using the price matching strategy may leave you with a disadvantage in some margins -- which you will have to close by driving sales of other products.

A price matching strategy is effective if used wisely. Companies like Wal-Mart and Pricefixer get it. Both companies create the impression that they are concerned about customers and want them to have the very best deals. If your business is a one commodity business, then price matching just may be for you as long as the price offering of your competitors is reasonable enough to afford you a profit. If you sell variety of products, consider offering price-matching for certain goods, not all, so you can make up for losses in profit margins from other commodities.

Price matching is not for everyone but can work for you. If you can add value to your commodity, your service delivery and customer service, then this edge over competitors will drive more customers to you over time if the prices are all the same.

4. Use low price as a perk for membership and loyalty.

Companies like Costco offer lowest prices for customers who become members. Costco has been outperforming Target and Wal-mart for a few years with their no-advertising, big-on-membership strategy. Costco offers three types of memberships -- ExecutiveBusiness and Gold Star. Executive members enjoy an annual 2 percent reward (up to $750) on qualified Costco purchases. They also receive additional benefits and greater discounts on many Costco services, including Costco Travel.

The advantage of this strategy is that members individually feel valued. The guarantee of lowest prices also means the members would not buy elsewhere what they can get at your store. Such members also have the tendency of publicizing your brand to their loved ones.

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Businesses that operate this model of pricing often see a steady climb in purchases because non-members will buy from them using member’s portfolios. If loyalty earns lower prices, then you will soon have more customers than you know what to do with.  

This strategy works mostly for businesses with a variety of commodities, warehousing businesses and retail chains that deal with a variety of products that consumers need frequently. The war is real but surely you can find some ammunition from all those who have won the battles before you.

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