Kyle Dorfling Aug 3, 2017 3:18:53 PM 8 min read

A Small Retailer's Pricing Strategy Isn't Limited To The Monetary Cost of Products

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Small retailers don't have the same buying power as big retailers, and therefore in most circumstances, competing on price is simply not an option. Now what? Funny enough it's not necessarily a dead end - unless you're unprepared of course.

In this blog post, I am going to share some of the ways that you, as a smaller retail chain, can give your larger competitors a run for their money by looking at your pricing strategy differently. And that is without changing any the monetary cost of your goods.

You don't need to compete on the actual monetary value of products to provide more value and win. The concept here is total value versus total cost. Shoppers always compare both before making their final purchase. The good news is that neither the total value or total cost is limited to mere monetary cost or value derived from product attributes. Of course, you have your price sensitive shoppers, but not everyone is 100% price sensitive all of the time.

I recently stumbled across a scenario where the dollar price of a product I was purchasing had very little to do with my decision to buy, and there's a valuable lesson to be learned. Here's the story:

My wife and I recently became fans of trail running, and to enjoy the recreational sport, you need to have the right equipment. That means a decent pair of trail running shoes. We didn't realise this importance when we first started, so without overthinking it, we went down to our typical (large) shoe retailer and bought a pair of trail running shoes for each of us. We received some basic advice, tried a few pairs and bought what seemed right. Later on, my wife began to complain that her shoes were making the running experience uncomfortable. Shin splints followed soon after that.

The next step was to speak to the trail running community and find out what we should do. This time, we ended up visiting a small recreational running focused retailer called Runners Rest. There, we both received a free personalised evaluation, which led to advice about which shoes (types, models and sizes) would fit our exact needs vs. the shoes we were currently using. My wife ended up purchasing a new pair of shoes (turns out mine were fine). The new shoes made the world of difference because they were an exact match for her.

We ended up spending a little more than we could have, but it didn't matter. And to be frank, it is not likely that we will ever purchase running shoes from any other store again. The risk of having the wrong pair of shoes ruin our Saturday morning trail runs just isn't worth it.

At this point, it became apparent to me that this small retailer is onto something, and you could be too. The monetary price isn't everything all the time.

This is not a new phenomenon. It comes down to the basics of price management, which tells us that consumers weigh up the total perceived value against the total perceived cost. Both the perceived value and cost include various factors, and shoppers weigh all of these up when making their purchase decisions.

Here they are:

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Total Perceived Cost

This is to do with the total perceived costs that the shopper would need to "pay" to make the transaction and delivery of value possible. What is most neglected is that it also includes psychic, time and energy costs. Each is explained below.

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          Psychic cost

The psychological cost is all about the stress and worry regarding getting delivery of the value that was promised. In the scenario above, there would be an extremely high psychic cost in buying the same pair of shoes online. That is because it would not come with an in-depth evaluation, shoe fitting or expert advice, which would leave anyone anxious about whether or not the intended or promised value would be received.

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          Time cost

We are all familiar with same day delivery. These days, people don't enjoy waiting for the delivery of goods so the waiting period involved can be considered a time cost. For example, let's say after doing the evaluation described above, we had to order a specific model which would take two months to arrive. It's safe to argue that it would add to the perceived cost.

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          Energy cost

Here's where e-commerce is making ground on your brick and mortar stores. It requires almost zero energy to click your track pad to complete a purchase online. Conversely, a poorly laid out retail store would need much higher levels of energy for a shopper to get each item on their shopping list into their basket.

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          Monetary cost

Finally, we have the actual monetary amount you would need to pay for the product.

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Total Perceived Value

This is the full value that shoppers place on a product and it’s not only to do with the product attributes themselves. It also has to do with the image, people and process value. Each is explained below.

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          Image Value

The image value has to do with the prestige associated with the brand. It could be argued that there is some prestige related to going to a specialist store to buy a product.

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          People Value

In my story described above, it is clear that there was a high-value placed on the expertise, behavioural attitude and approach followed by the people who were selling the shoes. People value also has a significant impact on the psychic cost.

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          Process Value

This is an indication of how well a product is delivered. Have you ever thought about the processes behind how fresh foods end up on shelves in a condition that is irresistible for the shopper? This result (and value) can be partly attributed to the processes behind how the goods were prepared and delivered.

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          Product Value

This is the straight forward value of the attributes of the product. A simple example would be a 500g steak that is worth more than a 250g steak.

After considering each of the elements that make up the total perceived cost and value, you should now be able to formulate strategies (unique to your environment) which will help you compete on price without actually changing the monetary price of your goods.

Conclusion

Hopefully this blog has given you a different perspective on developing a pricing strategy that will work for your business - especially if you don't have the same buying power as your larger competitiors. If you enjoyed the read, then you might enjoy our ebook, which is about understanding and taking proper care of your shoppers. You can get a free copy here. Or you can read up on one of our other pricing strategy blogs below:

Read: Three Pricing Strategies For Small Retailers

 

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Kyle Dorfling

Kyle joined DotActiv in 2009. Since then, he has worked across multiple departments and gained extensive experience across multiple facets of the business before becoming DotActiv’s CMO. He was appointed CEO (Acting Chief Executive Officer) in 2021. Kyle is responsible for leading the board and our management team by setting and overseeing the overall strategy of the business. He is known for his deep passion for servant leadership and lifelong learning. As Acting CEO, Kyle has assumed the full powers and responsibilities which come with the role of CEO and his appointment will become permanent in 2022 when specific criteria have been met. On a personal note, Kyle loves spending quality time with his nearly 3-year-old son, Troy. He also has a passion for health & fitness, life-long studies and spending quality time with family and friends.