For a business, pricing – the process of setting the price at which to sell products or services – is a necessity to be competitive in the market. After all, Price is one of the four P's of the marketing mix, and of these four, it is the only revenue generating element. That means setting the perfect price point can make or break your business.
What exactly is a price point?
Before finding the perfect price point, it's necessary to understand what a price point is.
As a term, a price point is defined as the suggested retail price of a product, which is determined in such a way that it remains competitive against similar products.
In layman's terms, it's a price at which a product can be sold without negatively affecting customer demand while simultaneously covering the costs of the business.
This is not to mean the price you initially set needs to be static. Prices aren't set in stone. While a product is introduced at an opening price point, it can be changed depending on customer demand and the competition around it.
However, it should be noted that it is easier to drop a price than it is to increase it without attracting too much attention. For example, after introducing Product A at R149.99 and finding it has become popular, increasing the price can lead to unhappiness on the part of your customer.
It is rather about establishing a good price point from the beginning.
What does the perfect price point look like?
Establishing the perfect price point for your products involves finding the balance between looking after your business' bottom line while also considering your customers' needs.
On the one hand, there is the capitalist consideration: your business needs to make a profit. Conversely, you need to look after your customer. The latter aspect means not pricing your products too high as that will lead to a decrease in demand. You also don't want to price your product too low as this can affect credibility, unintentionally indicating to your customers that while the product might be affordable, there is the possibility that it's not of great value.
In looking at this from a Pharmacy Retailer perspective, there are two questions to ask: Do you want to show that your product is of value? Or, do you want to show your product is of high quality?
At a macro level, the perfect price point is one that ensures you remain competitive in the market against your fellow corporate stores.
On a micro level, it means remaining competitive within a category level. For example, in pitting two products against each other within the same category, you don't want to price one product too high as this could price it out of the market.
For South Africa, there is the Medicines Control Council, which "applies standards laid down by the Medicines and Related Substances Act, which governs the manufacture, distribution, sale and marketing of medicines". That is in stark contrast to a country like Turkey where it is illegal to have a monopoly on the pharmacy industry. That means that each pharmacy is independently owned and therefore sets their own prices.
Financial Benefits of achieving the perfect price point
If you look at the financial benefits with an eye on pharmacy retailers, the obvious one is that it will increase your sales and profit.
Since pharmacies are viewed as destination stores for the majority of its shoppers, this makes it even more important to find the perfect price as it equates to more loyal customers, who will, in turn, attract new shoppers.
As for independent pharmacies, who are under constant threat from corporate retailers, achieving the perfect price point equates not only to a steady financial turn for the business but also a potential increase.
Besides the financial benefits, there are a few fundamentals to consider as well.
Fundamentals to consider for formulating a price point?
Market research is a key fundamental when considering the perfect price point, and especially so when it comes to the categories you choose for your stores.
There is also the need for a proper system, which will make managing your pricing easier. Here, category management software is a must as it allows you the opportunity to provide your customers with what they want, where they want it and when they want it. An added plus is that this software provides you with a purpose-built data platform.
On the other hand, retailers need to consider their relationships with their supplier. The last thing you'd want to do is to destroy that relationship in a quest for formulating the perfect price point by being overtly tough in your negotiations. Considering that most retailer-supplier relationships are long-term, rather look at negotiating a fair price that will benefit both parties.
Finally, your seasonal knowledge should always be up for consideration. During winter, products that help fight colds and flu will sell more, which allows you to up the price. During summer, the same can be said for products that help your customers fight their allergies.
Understanding how to find the perfect price point is critical for any Pharmacy Retailer. Get it right, and your business can expect more sales and an increased profit. Get it wrong, however, and you can lose business to your competitor.