Price-based selling

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Price-based selling is a specific selling technique in which a business exclusively reduces their price in attempt to close the sales cycle. Price-based selling clearly exists in businesses such as: commodity sales, auto sales, hospitality, and even some retail stores. However, it is only recommended that commodity items like petroleum be sold exclusively by price. Selling on price is even more apparent now in the current US economy as most businesses make the switch to the lowest price approach in attempt to attract more consumers. Car insurance companies like Progressive Auto Insurance advertise specifically with their price, as they promote the amount of money that can be saved by making the switch.

Contents

Price-based selling may result in a good or service becoming a commodity and a commodity by definition is a product or service that has no differentiating qualities or characteristics from competing products or services in its class. [1] A survey of Canadian consumers by Wishabi in 2009 finds that only 10% of shoppers see price as the only factor, [2] but a 2007 Shopzilla survey of 2000 shoppers showed that 49% of consumers feel that price was the most important factor in their buying decision. [3] Thus it can be seen that while pricing is not the only factor that matters, it is probably the most important.

Relationship to sales

Most businesses sell their items, whether they are expensive automobiles, or inexpensive services based upon price. They do this not because it is the most profitable, but because they believe it is the easiest way to attract customers. [4] Consumers and Business-to-Business buyers alike may be easily enticed to buy based upon price. Consumers are always hunting for the best bargain and price has a direct impact on whether or not they will buy a product or service. Businesses know that offering the lowest price gives them a competitive advantage against other similar products the customer may be looking at. Big chains like Wal-Mart and Target have the most control over the pricing in their industry. However, to be able to sell at the lowest price, these chains are continually pushing, if not demanding, that their suppliers give them the lower prices as well. [5]

Sales goal

The goal of price based selling is to capture the business of price sensitive sellers. [6] Customers who shop purely based on product cost will have the most interest in bargain buys. Pricing is directly related to the revenue management department of a business, and any good revenue manager will make sure they are doing everything possible to maximize profits.

Various Methods

Price-matching guarantees

Price-matching guarantees are commonly used in consumer and industrial markets. [7] Lowe's Home Improvement Warehouse is a great example, as they frequently state that they are the 'lowest' price store, and they will match the competitors. Best Buy has always been known for their price-matching guarantee as well. While a store with price matching guarantees has no fear of losing customers to rivals' price cuts, it has every incentive to raise its own price to charge a higher price to its loyal customers. It is an anti-competitive tactic that warns competitors not to attempt to steal market share by undercutting prices.

Price-match guarantees are also criticized as being misleading to consumers. [8] The guarantees typically require shoppers to provide proof of a lower advertised price on an identical item in stock at a nearby competitor's store before a price match will be approved. However, many big-box retailers work directly with manufacturers and sell products with unique model numbers. As a result, the retailer can deny a price-match request, as no other store carries an "identical" item. Other common reasons for denial: the competitor is not "local," the ad lists a percent discount rather than a specific price, or the customer doesn't offer acceptable proof of the competitor's price. [9] Even if all criteria are met, retailers grant price-matching requests on a case-by-case basis at the discretion of store employees.

Price slashing

Price cutting, or undercutting, is a sales technique that reduces the retail prices to a level low enough to eliminate competition. [10] Businesses will implement this as a way to under-cut the competition and offer the best price to the consumer.

Discounting

Discounting is something seen in almost every retail store, and grocery store. Discounting is present in just about every business in some way, whether it be coupons, advanced purchases, or bulk buying, businesses are quick to offer a pricing discount. Coupons and promotions give an economic incentive for the customer to use when purchasing a brand. [11] The effect on consumer redemption of coupons has mostly been positive as it attracts customers, and gives them interest in a particular brand. [12] On the other hand, discounting can really hurt a business as seen with Nordstrom this past holiday season.[ when? ] The clothing retailer reported that their fourth quarter earnings fell 68%, in large part due to the heavy discounting. [13] According to a Cornell University study, in the hotel business, discounting in attempt to gain more occupancy does more harm than good, lowering the RevPAR and creating less profit. [14]

Haggling

Haggling, otherwise known as bargaining, is most present in businesses where items have no fixed price. Sellers will often price the item higher than they want to sell it, knowing that buyers are going to want to negotiate the price. The act of haggling has been around since ancient times and continues to this day. It is a common practice in real estate negotiations, car purchases, and at informal flea markets—while it is rarely used in retail settings such as at supermarkets, pharmacies, or brand-name clothing stores.

Maintaining product integrity

If the customers do not find value and integrity in the products they are buying they will be quick to leave for the next lowest price. Selling on pure price turns the product into a commodity. Commoditization does more harm than good for the brand or company selling. A commodity is something for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk. In other words, copper is copper. Rice is rice. These kinds of items have a set price no matter where you buy. Commodities are and should be sold predominantly upon their price.

Products sold primarily based on price

There are a select group of products that should be sold based primarily upon their price and this includes all: consumables that have very little direct impact upon the consumer. [15] Examples include items like: sand, gravel, and aggregate used in construction. [16]

With the advent of the Internet, price, service and support are often the only contact points with the customer. Identical products shipped across state lines with no tax have no other differentiators. Refusal to provide an upfront price is very hostile to Internet customers who will purchase a good or service elsewhere.

Drawback to price based selling

When a business specifically cuts prices in order to make a sale, the customer can sense that the original price must be inflated if the business is so quick to slash the price. As a result, the customer may lose respect for the business and realize the prices are too high to begin with. Good customer service must show value to the customers. By cutting the price on one service, the client will most likely think you are willing to cut the price on other products and services. In some cases they may even demand that you do in order to keep their business. [17]

Most marketing gurus will lean towards the "sell value, not price" approach when it comes to marketing. This is called value based selling; the business is helping the customer understand what they are purchasing with their dollar, instead of just the obvious product, the sales associate is selling everything the product can do for the customer. [18] Price based selling is arguably a very common approach for businesses, however it should be combined with other approaches, like value selling in order to close the sales cycle.

See also

Related Research Articles

<span class="mw-page-title-main">Supermarket</span> Large format of grocery store

A supermarket is a self-service shop offering a wide variety of food, beverages and household products, organized into sections. This kind of store is larger and has a wider selection than earlier grocery stores, but is smaller and more limited in the range of merchandise than a hypermarket or big-box market. In everyday U.S. usage, however, "grocery store" is often used to mean "supermarket".

<span class="mw-page-title-main">Retail</span> Sale of goods and services from individuals or businesses to the end-user

Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and then sells in smaller quantities to consumers for a profit. Retailers are the final link in the supply chain from producers to consumers.

In marketing, product bundling is offering several products or services for sale as one combined product or service package. It is a common feature in many imperfectly competitive product and service markets. Industries engaged in the practice include telecommunications services, financial services, health care, information, and consumer electronics. A software bundle might include a word processor, spreadsheet, and presentation program into a single office suite. The cable television industry often bundles many TV and movie channels into a single tier or package. The fast food industry combines separate food items into a "meal deal" or "value meal".

Sales promotion is one of the elements of the promotional mix. The primary elements in the promotional mix are advertising, personal selling, direct marketing and publicity/public relations. Sales promotion uses both media and non-media marketing communications for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability. Examples include contests, coupons, freebies, loss leaders, point of purchase displays, premiums, prizes, product samples, and rebates.

<span class="mw-page-title-main">Pricing</span> Process of determining what a company will receive in exchange for its products

Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the marketplace, competition, market condition, brand, and quality of product.

<span class="mw-page-title-main">Best Buy</span> Consumer electronics retailer

Best Buy Co. Inc. is an American multinational consumer electronics retailer headquartered in Richfield, Minnesota. Originally founded by Richard M. Schulze and James Wheeler in 1966 as an audio specialty store called Sound of Music, it was rebranded under its current name with an emphasis on consumer electronics in 1983.

<span class="mw-page-title-main">Coupon</span> Document, paper or electronic, to provide a discount on goods or services

In marketing, a coupon is a ticket or document that can be redeemed for a financial discount or rebate when purchasing a product.

<span class="mw-page-title-main">Online shopping</span> Form of electronic commerce

Online shopping is a form of electronic commerce which allows consumers to directly buy goods or services from a seller over the Internet using a web browser or a mobile app. Consumers find a product of interest by visiting the website of the retailer directly or by searching among alternative vendors using a shopping search engine, which displays the same product's availability and pricing at different e-retailers. As of 2020, customers can shop online using a range of different computers and devices, including desktop computers, laptops, tablet computers and smartphones.

A rebate is a form of buying discount and is an amount paid by way of reduction, return, or refund that is paid retrospectively. It is a type of sales promotion that marketers use primarily as incentives or supplements to product sales. Rebates are also used as a means of enticing price-sensitive consumers into purchasing a product. The mail-in rebate (MIR) is the most common. A MIR entitles the buyer to mail in a coupon, receipt, and barcode in order to receive a check for a particular amount, depending on the particular product, time, and often place of purchase. Rebates are offered by either the retailer or the product manufacturer. Large stores often work in conjunction with manufacturers, usually requiring two or sometimes three separate rebates for each item, and sometimes are valid only at a single store. Rebate forms and special receipts are sometimes printed by the cash register at time of purchase on a separate receipt or available online for download. In some cases, the rebate may be available immediately, in which case it is referred to as an instant rebate. Some rebate programs offer several payout options to consumers, including a paper check, a prepaid card that can be spent immediately without a trip to the bank, or even as a PayPal payout.

<span class="mw-page-title-main">Pricing strategies</span> Approach to selling a product or service

A business can use a variety of pricing strategies when selling a product or service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's pricing position, pricing segment, pricing capability and their competitive pricing reaction strategy. Pricing strategies and tactics vary from company to company, and also differ across countries, cultures, industries and over time, with the maturing of industries and markets and changes in wider economic conditions.

<span class="mw-page-title-main">Closeout (sale)</span>

A closeout or clearance sale is a discount sale of inventory either by retail or wholesale. It may be that a product is not selling well, or that the retailer is closing because of relocation, a fire, over-ordering, or especially because of bankruptcy. In the latter case, it is usually known as a going-out-of-business sale or liquidation sale, and is part of the process of liquidation. A hail sale is a closeout at a car dealership after hail damage.

<span class="mw-page-title-main">Retail marketing</span>

Once the strategic plan is in place, retail managers turn to the more managerial aspects of planning. A retail mix is devised for the purpose of coordinating day-to-day tactical decisions. The retail marketing mix typically consists of six broad decision layers including product decisions, place decisions, promotion, price, personnel and presentation. The retail mix is loosely based on the marketing mix, but has been expanded and modified in line with the unique needs of the retail context. A number of scholars have argued for an expanded marketing, mix with the inclusion of two new Ps, namely, Personnel and Presentation since these contribute to the customer's unique retail experience and are the principal basis for retail differentiation. Yet other scholars argue that the Retail Format should be included. The modified retail marketing mix that is most commonly cited in textbooks is often called the 6 Ps of retailing.

Value-based price is a pricing strategy which sets prices primarily, but not exclusively, according to the perceived or estimated value of a product or service to the customer rather than according to the cost of the product or historical prices. Where it is successfully used, it will improve profitability through generating higher prices without impacting greatly on sales volumes.

A marketing channel consists of the people, organizations, and activities necessary to transfer the ownership of goods from the point of production to the point of consumption. It is the way products get to the end-user, the consumer; and is also known as a distribution channel. A marketing channel is a useful tool for management, and is crucial to creating an effective and well-planned marketing strategy.

Trade marketing is a discipline of marketing that relates to increasing the demand at wholesaler, retailer, or distributor level rather than at the consumer level. However, there is a need to continue with Brand Management strategies to sustain the need at the consumer end. A shopper, who may or may not be the consumer themself, is the one who identifies and purchases a product from a retailer even though they might not purchase the goods at the end of the day. To ensure that a retailer promotes a company's product against competitors', that company must market its product to the retailers as well by offering steep discounts versus competitors. Trade marketing might also include offering various tangible/intangible benefits to retailers such as commissions made for sales.

'Shopper marketing' is "a discipline that focuses on the customer experience and the customer journey."It focuses on the consumer's path to purchasing a product, from first being aware of the product, to consideration and through to the purchase of it. It separates itself from retail marketing which focuses on engaging the customer in-store only.

<span class="mw-page-title-main">Everyday low price</span> Pricing strategy

Everyday low price is a pricing strategy promising consumers a low price without the need to wait for sale price events or comparison shopping. EDLP saves retail stores the effort and expense needed to mark down prices in the store during sale events, and is also believed to generate shopper loyalty. It was noted in 1994 that the Walmart retail chain in the United States, which follows an EDLP strategy, would buy "feature advertisements" in newspapers on a monthly basis, while its competitors would advertise weekly. Other firms that have implemented or promoted EDLP are Procter & Gamble, Food Lion, Gordmans and Winn-Dixie.

In business and marketing, “trade” refers to the relationship between manufacturers and retailers. Trade Promotion refers to marketing activities that are executed in retail between these two partners. Trade Promotion is a marketing technique aimed at increasing demand for products in retail stores based on special pricing, display fixtures, demonstrations, value-added bonuses, no-obligation gifts, and more.

In marketing, premiums are promotional items — toys, collectables, souvenirs and household products — that are linked to a product, and often require proofs of purchase such as box tops or tokens to acquire. The consumer generally has to pay at least the shipping and handling costs to receive the premium. Premiums are sometimes referred to as prizes, although historically the word "prize" has been used to denote an item that is packaged with the product and requires no additional payment over the cost of the product.

The retail format influences the consumer's store choice and addresses the consumer's expectations. At its most basic level, a retail format is a simple marketplace, that is; a location where goods and services are exchanged. In some parts of the world, the retail sector is still dominated by small family-run stores, but large retail chains are increasingly dominating the sector, because they can exert considerable buying power and pass on the savings in the form of lower prices. Many of these large retail chains also produce their own private labels which compete alongside manufacturer brands. Considerable consolidation of retail stores has changed the retail landscape, transferring power away from wholesalers and into the hands of the large retail chains.

References

  1. ↑ Di Frances, John. "Relationship Selling Sales Speaker." Motivational Speaker – Professional Keynote Speaker – Motivational Public Business Speakers Bureaus. 14 Mar.
  2. ↑ Wishabi. "Canadian Consumers Flocking to U.S. Online Retailers" 21 Oct. 2009 <http://www.wishabi.ca/media_kit/news_releases>.
  3. ↑ Howlett, Greg. "Price Still Most Important Factor for Retail Success, But Losing Ground." Internet Marketing News. 28 Apr. 2009 <http://www.marketingpilgrim.com/2007/05/price-still-most-important-factor-for-retail-success-but-losing-ground.html>.
  4. ↑ Di Frances, John. "Relationship Selling Sales Speaker." Motivational Speaker – Professional Keynote Speaker – Motivational Public Business Speakers Bureaus. 14 Mar.
  5. ↑ Weybright, Bob. "Sell Value- Not Price." Smart Marketing. Aug. 2004.
  6. ↑ "The Future of Pricing as Bill Gates Sees It." Pricing Advisory Newsletter. June 1999. 1 May 2009 < "Archived copy" (PDF). Archived from the original (PDF) on 15 July 2011. Retrieved 5 May 2009.{{cite web}}: CS1 maint: archived copy as title (link)>.
  7. ↑ Chen, Yuxin, Chakravarthi Narasimhan, and John Zhang. "Consumer Heterogeneity and Competitive Price-Matching Guarantees." Marketing Science 20 (2001): 300-14. Academic Search Complete. University of Arizona, Tucson. 15 Apr. 2009 <https://www.jstor.org/stable/3181614>.
  8. ↑ Tuttle, Brad. "Bait and Switch: Beware Low-Price Guarantee." Time. 4 May 2013 <http://business.time.com/2013/05/04/the-bait-and-switch-behind-low-price-guarantees/>.
  9. ↑ DeNicola, Louis. "Price-Match Guarantees. The Fine Print." Cheapism. 27 October 2013 < "How Terms and Conditions Limit Price-Match Guarantees | Cheapism.com". Archived from the original on 27 May 2014. Retrieved 27 May 2014.>.
  10. ↑ "Price-cutting." Dictionary, Encyclopedia and Thesaurus – The Free Dictionary. 3 Apr. 2009 <http://www.thefreedictionary.com/price-cutting>.
  11. ↑ Raghubir, Priya. "Coupons in context: discounting prices or decreasing profits?" Journal of Retailing (2004): 1-12. 2004. 3 May 2009 < "Archived copy" (PDF). Archived from the original (PDF) on 9 May 2010. Retrieved 5 May 2009.{{cite web}}: CS1 maint: archived copy as title (link)>.
  12. ↑ Raghubir, Priya. "Coupons in context: discounting prices or decreasing profits?" Journal of Retailing (2004): 1-12. 2004. 3 May 2009 < "Archived copy" (PDF). Archived from the original (PDF) on 9 May 2010. Retrieved 5 May 2009.{{cite web}}: CS1 maint: archived copy as title (link)>.
  13. ↑ "Discounting helps drive Nordstrom earnings down 68 percent." OregonLive. 23 Feb. 2009. 4 May 2009 <http://www.oregonlive.com/news/index.ssf/2009/02/discounting_helps_drive_nordst.html>.
  14. ↑ Salerno, Neil. "Are You Still Discounting? You Might Gain Some Occupancy, But Lose RevPar to Your Competition." Hotel Online Where the Hospitality Industry Meets. Dec. 2004. 2 Feb. 2009 <http://www.hotel-online.com/News/PR2004_4th/Dec04_StillDiscounting.html>.
  15. ↑ Di Frances, John. "Relationship Selling Sales Speaker." Motivational Speaker – Professional Keynote Speaker – Motivational Public Business Speakers Bureaus. 14 Mar.
  16. ↑ Di Frances, John. "Relationship Selling Sales Speaker." Motivational Speaker – Professional Keynote Speaker – Motivational Public Business Speakers Bureaus. 14 Mar.
  17. ↑ Henderson, Brock. "Selling in Tough Times." ISP-Planet. 6 Nov. 2008. 4 May 2009 <http://www.isp-planet.com/marketing/2008/tough+times.html>.
  18. ↑ IHenderson, Brock. "Selling in Tough Times." ISP-Planet. 6 Nov. 2008. 4 May 2009 <http://www.isp-planet.com/marketing/2008/tough+times.html>.
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