Pricing Strategy

In general, the pricing strategy is very important for retail companies in order to achieve the sales-through (percentage of sales to beginning inventory in a period of time) target. Customers may have acceptable price-points in mind for different brands. Thus companies should set up the right retail price by taking into account the required margin, the competitor’s price and the perception of the product. Some companies need to adjust the retail price once they find out that the selling price is too high in customers’ view. The wrong price setting can lead to low sell-through percentage, which will eventually end up with high stock carried forward. These stock will become aging stock that need higher discount in order to clear it out subsequently.

For fashion brand importer, the success of the sales will 
start from the purchasing to selling process. The following are key considerations before the retail price is determined.

The historical sales analysis – it is necessary for the sales team to understand the sales performance at different price levels. Different product type will usually have different prices. For example, the price of normal product is likely to be lower than premium product. The different price points can contribute differently to the company performance in terms of sales proportion and profit margin. This information is important for the management to make necessary decisions to the sales and pricing strategies.

The mark-up method – many companies choose the mark-up methodology for price set-up. This price setting method uses certain mark-up rate over the product cost in order to determine the selling price. However, the responsible person needs to review and ensure that the price tag will be attractive to customers. Setting the wrong selling price either too high or too low will not lead to the success of the operating performance.

Price competitiveness – despite the company’s pricing policy, it is important for the management to take into account competitors’ prices for the same or similar product category. Customers can check and compare the prices of similar products before making decision to buy from any brands. The comparison of competitors’ prices can help ensure that the company’s product price will be acceptable to the clientele.

Net price calculation – in order to understand the profitability of a product, the company needs to take into account the components affecting the net selling price such as the value added tax (VAT), the promotion discount, the retailer’s trade discount and so on. After deducting the related expenses from the total retail price, the net sales price will be the real received amount from that product item. Misunderstanding of the price component and structure can cause the wrong pricing and result in lower gross profit than expected.

Pricing can play an important part in the total sales performance of the company. It is important for responsible persons to understand the whole market and the impact of the brand perception and decision making of the customer before setting the right retail price for a particular product. The careful analysis and effective pricing strategy can determine the success of the company.

  • Dr. Yanyong Thammatucharee
    Dr. Yanyong Thammatucharee
    CFO

    Dr. Yanyong Thammatucharee, CFO, Leadway heavy machinery. He has Over 30 years of experiences with education background in accounting and organization development, covering various industries and roles. He worked for Panasonic, Emerson holding regional roles. He is a columnist.

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