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Effective pricing strategies that improve customer loyalty

Effective pricing strategies that improve customer loyalty

An effective pricing strategy can be the difference between being perceived as a market leader or follower. The wrong strategy can strip margin and make it difficult to survive or push consumers away encouraging them to shop your competition. Similar to the story “The Three Bears,” consumers will shop around to find the price that’s “just right.

The goal in retail is to keep existing customers coming in while inviting new customers to shop your store. Your pricing strategy has the power to convert new customers into loyal committed shoppers and should be collaboration with manufacturers.     

To achieve this goal, your pricing strategy must have elements that clearly communicate your commitment to being a leader in the community and the market. Top selling items in each category should be priced equal to or very close to your competitors. This allows consumers to compare your prices against another store, giving them the perception that your prices are fair. When combined with a strong brand strategy, this allows you to compete more effectively with other retailers in your market. For example, the top-selling diaper brand “Widgets” is priced similar at all the stores in the market—including your store.     

Other items within the category, or an adjacent category, can then be priced differently based upon specific retailer tactics and strategies. This is where a retailer can make up for margin lost on items that are more aggressively priced, or “loss leaders.”

A good illustration of this would be a pricing strategy that focuses on diapers priced equal to the competition and then promoted aggressively to increase foot traffic. Adjacent/complementary categories such as baby wipes and diaper rash creams could then be priced slightly higher to make up for the extra margin.   

This strategy is very effective because it encourages new mothers to shop your store to fill all their child care needs. Busy mothers don't have time to shop multiple stores to pick up all of the items on their list. As a result, they will typically try to purchase all of the items on their shopping list at a single stop, preferably your store. Follow a similar strategy across other categories within your store to gain the greatest benefit.  In this strategy, giving up margin on a couple items will give you a larger market basket with a higher overall register ring, while gaining a satisfied customer. 

There are a lot of pricing strategies that retailers follow: hi-low, every-day-low-price (EDLP), etc.  The best strategy is a reasonable everyday price combined with aggressive promotions on key items that support retailer tactics/strategies. Complementary items should then be merchandised and promoted together at the same time. It's critical to get the right mix to effectively communicate your store’s strategy to your customers.

What pricing strategies work for you? Share in the comments.

Daniel Lohman logois the owner of Category Management Solutions (CMS) which provides innovative strategic solutions for natural and organic CPG companies interested in gaining a significant competitive advantage.
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