4 Pricing Tactics Modern Retailers Use to Entice and Convert Shoppers

Retailers today can personalize just about every aspect of the shopping journey. It’s not uncommon for online merchants to customize product recommendations depending on what people put in their shopping carts, or to tailor ads based on items they looked at.

But ads and recommendations aren’t the only things you can tailor these days. The abundance of consumer data now lets you customize another critical part of the shopping process: pricing.

Below are four common pricing methods modern retailers implement to entice and convert shoppers. Go through them and see if you can apply them in your own store:

Pricing based on location

Consider looking at the location of your customers, and customize your prices depending on other stores in their vicinity. If you have competitors in the area, you may want to incentivize customers further by giving them a discount so they’ll purchase from you instead.

One retailer putting this into action is Staples, which lowers its prices if it detects that the user is close to other office supplies stores.

As the Wall Street Journal reported, “Staples appeared to consider the person's distance from a rival brick-and-mortar store, either OfficeMax Inc. or Office Depot Inc. If rival stores were within 20 miles or so, Staples.com usually showed a discounted price.”

Psychological pricing

Make use of whole numbers when selling high-end or quality-driven products and implement charm prices (i.e. prices ending in 9, 99, or 97) when targeting bargain-hunters. Researchers have found “there is a perceived relationship between prices ending in 0 and overall quality, and prices ending in 9 and overall value.” Simply put, when it comes to pricing, it seems that consumers usually associate whole numbers with quality and charm prices with deals.

A good example of this in action can be seen in Nordstrom and its bargain-oriented counterpart, Nordstrom Rack.

Notice how most of the merchandise on Nordstrom.com have whole number formats. One factor behind this could be that Nordstrom caters to high-end shoppers, who are willing to pay premium prices for merchandise.

Nordstrom Rack on the other hand, the company’s outlet store, ends many of its prices—particularly the ones on sale—in .97. The same strategy can be seen in other bargain-centric stores such as T.J. Maxx or Target, both of which end most of their prices in .99.

Keep this tactic in mind the next time you’re pricing your products. If you’re targeting high-end consumers, you may want to consider sticking to whole numbers. But if you’re selling to bargain shoppers, consider making use of charm prices instead.

Pricing based on shopping behavior

In the same way that merchants can customize product recommendations based on previous purchases and the behavior of their customers, retailers can also use that data to tailor offers and price cuts.

One merchant that successfully put this into practice is BikeBerry.com, which ran an email campaign that tailored messages and offers based on the data it gathered on its shoppers.

BikeBerry analyzed various data points, including shopper behavior and purchase history, then sent out one of five different offers: 5% off, 10% off, 15% off, $30 off new products, or free shipping.

The store ran the campaign for two months and within that period, it not only increased sales, but it was also able to increase profit margins by not giving away discounts that were too big to shoppers who would convert with a lower incentive.

See if you can apply the same practice to your store. On top of using purchase history and behavioral data to recommend products, use these data points to tailor your prices and offers.

Pricing based on competitors

Competitor-based pricing isn’t new, but thanks to innovations in dynamic pricing, retailers can now automate the process and update prices in real time whenever rival stores change their prices.

Consider for example, the pricing battle between Amazon and Best Buy, which were both selling a GE microwave oven. According to the WSJ:

Sellers on Amazon.com Inc. changed its price nine times in one day, with the price fluctuating between $744.46 and $871.49, according to data compiled by consumer-price research firm Decide Inc. for The Wall Street Journal. Best Buy Inc. responded by lifting its online price on the oven to $899.99 from $809.99 after the Amazon prices rose, then lowering it again after Amazon prices for the oven dropped.

You don’t have to develop your own sophisticated algorithms to take advantage of dynamic pricing. There are several solutions that can help you track how much competitors are selling their products for, so you can modify your own prices accordingly. Do your research and get in touch with dynamic pricing vendors that are right for your business.

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