Pricing

5 pricing scenarios to help you not lose profit again

October 12, 2019

In the first blog of this series, we want to show how companies can never lose profit again with old pricing approaches. We will show you how profit margin can be increased with specific pricing rules. Pricing rules are business rules, intended to assert business structure or to control or influence the behaviour of the business.

Below you can read a list of gross margin scenarios and more in-depth materials to learn more about pricing strategies and algorithms. 

A: Leading Products Scenario

Description: the company needs to clearly understand how the different customer groups perceive the price by knowing which products are leading in the purchase behaviour (leading products) and which are not (led products). 

if

it’s a leading product

then

set the an attractive price (and compare it with competition if possible)

while

using psychologically reasonable price increase for other item’s prices (led products)

Benefits: The minimum prices for the leading products will form the buyer’s trust. Other prices will be accepted as valuable even if their prices are slightly higher than the market.

Learn more about the principle “leading” and “led” products in our whitepaper.

B. The Minimum Leading products Scenario 

Description: use the same pricing rule as the previous scenario, but now with a minimum markup.  

if

the product is in the list of leading products, then reprice it to 5% below the competitor’s minimum price.

and

it needs to withstand the minimum markup of 10% of the cost price.

Benefits: this scenario helps companies achieve two goals simultaneously: increasing turnover and taking some of your competitor’s customers due to the minimum cost of leading products. 

C. Minimum Margin Scenario 

Description: the scenario goal is to follow the lowest possible market price (follow the key competitor with the lowest price, if that data is available), yet keep the minimum allowable margin.

products price is equal to competitor’s minimum price

if

final item’s price is equal or higher than minimum allowable margin

else

set final item’s price equal to minimum allowable margin

Benefits: in a vacuum market, the company will always make a profit.

D. Turnover Goal Scenario 

Description: this scenario needs to be applied only when turnover goals are achieved, as this helps the store to earn more. 

if

turnover goals are achieved

then

raise the prices by x% while sales quantity is growing or remaining at the same level.

Benefits: allows you to consistently achieve several business goals: turnover, and therefore, gross margin.

E. Sales and Stock Optimal Scenario 

Description: this scenario helps you carry out the plan for turnover without selling the entire stock.

use the “Minimum Margin” scenario while the number of sales is less than the number of products in the warehouse

else

use the “Turnover goal” scenario

Benefits: this scenario helps synchronise the dynamics of sales with the rest of the warehouse, and prepare storage space for the newly purchased batch of goods. A category manager can purchase products several months in advance.

Useful resources: 

Whitepaper Algorithmic Pricing 

If you want to know which of the above pricing rules will be effective for your company, schedule a call with us and we will answer all your questions.