Are you considering using high/low pricing for your retail store? If YES, here is how high / low pricing strategy can help you sell slow moving merchandise. High low pricing is a pricing strategy where a company leverages sales promotions to encourage consumer purchase.

For slow selling products, it is a strategy where the prices of these products are decreased through promotions, markdowns, or clearance sales. In the strategy, a product’s price can alternate between “high” and “low” over a time period.

This Pricing Strategy is known to bring together aspects of price skimming and loss leader pricing. It involves reducing prices of these slow selling products through sales promotion and re – increasing the price after the promotion. It is a unique way to sell off those slow moving products as it creates a sense of urgency – “get it while it lasts!”

Why Use a High / Low Pricing Strategy?

Also, just like the loss leader pricing strategy, the reason why this strategy is used to sell slow moving products is to drive store traffic and hopefully encourage consumers to purchase these items once they are at the store.

Another reason this pricing strategy is used to sell slow moving products is because it gives consumers the perception of a bargain and helps to generate high sales in the form of a promotion. By applying a discount on slow moving products, consumers will more likely purchase the product on the presumption that it is a bargain. Howbeit, the initial high price establishes the value of the product to consumers. When the price is reduced through a sale, the low price is established as a bargain to consumers.

It is no secret that today’s consumers are in total control. The first step toward a successful high – low pricing strategy is to understand your shopper and their views around pricing and promotions. According to reliable data, only 9 percent of today’s consumers buy at full price, 5 percent buy at the first price they see, only 17 percent said they would buy at the lowest price and another 17 percent demand price matching.

As a retailer looking to adopt this pricing strategy to sell your slow moving products, you have to also understand that the retail industry today has an overabundance of product selection. Today shoppers won’t tolerate prices they view as unfair. They are also very patient.

In fact, a reliable report highlighted that 56 percent of shoppers prefer to wait up to 6 months and 31 percent shoppers are willing to wait as long as it takes to receive a fair price. It is no wonder promotions continue to fall short and retailers struggle to maintain their market share, let alone increase it.

Price remains king in the eyes of today’s shoppers and without doubt the primary driver when determining where to shop. This fact is no great surprise for the off – price discounters. However, it was eye-opening to learn that shoppers rated price as the single most important factor when shoppers are deciding where to shop across off-price discounters, grocery, apparel and DIY.

Advantages of Using the High/Low Pricing Strategy to Sell Slow Moving Products

Today, many businesses, companies, and organizations use this pricing strategy to entice customers to buy slow selling products. Avenues and concepts like trade discounts or coupons will attract more customers to your business and hence increased sales. Nonetheless, below are few benefits of leveraging this pricing strategy for your store:

1. Increased Sales

A high/low pricing strategy is a sure way to attract a customer’s attention, by offering more for less. Promotional sales, coupons, volume purchases and other strategies can attract new customers and motivate them to buy these slow selling products, creating the impression that they are getting the most out of their money.

Offering a lower price or a reduced price for these slow selling products will increase the likelihood that customers will want to purchase more to take advantage of the deal from the company.

2. Attract New Customers and Increase Traffic

Note that when you sell products on discount, you are likely to attract and retain more customers. As a business owner, it is important you stay current and know the lifetime of the products you have in your store. Some products will remain profitable even when they stay on the market for many years while some will lose their profitability for a short period of time.

You should also know the products that generate more profit to your store and those that don’t. Discounts and coupons will help to attract new and existing customers to your store and increase sales of more than just the slow selling products.

3. Lower Business Costs

This pricing strategy, especially for smaller businesses, can help lower operational business costs. Smaller companies will spend the majority of their capital on things like economic resources, production equipment, inventories and ordering costs.

By using this strategy and getting rid of slow selling products, you can convince suppliers and vendors to also offer you trade discounts. In addition, this strategy will also serve as a marketing tool for your business. For instance, you can include things like your business name, address, and other important information about your business on things like coupons or discount fliers.

This way, you will not need to spend a lot of money on adverts and will also make customers perceive your business as the one that offers great deals which will encourage them to visit your site to get any other discounts.

4. Improve Your Reputation

Using this pricing strategy is a wonderful way to improve the customers’ perception of your company. Once customers believe that you are offering good value for money, they are more likely to put their trust in the goods and services you provide. Aside from selling the slow moving products in your store, you can leverage that opportunity to nurture a relationship with the customer and grow customer satisfaction and retention.

Disadvantages of the High/Low Pricing Strategy to Sell Slow Moving Products

It often seems like the high/low pricing strategy is an ideal way to bring in more sales or to keep customers coming back. But all that glitters aren’t gold has never been truer in the retail industry.

a. Customers perception of your business’s quality reduces

Without doubt, humans and shoppers always expect higher quality products and services to cost more. Just like those big name brands, your pricing is expected to speak the quality and value of the product. One of the disadvantages of this pricing strategy is that price reductions actually devalue your brand image. Instead of bolstering confidence in your business, you’re inviting customers to have a lack of confidence in your offerings. This sets a dangerous precedent.

b. Possible price war

One of the perceived disadvantages of the high/low pricing strategy is that it prompts customers to compare prices. As a small business owner, when you discount your products or services, maybe to sell slow moving products as the case here might be, you are forced into competing with bigger companies that have a lower cost structure.

Whichever price you set, someone can always do it cheaper. Have it in mind that you can’t win this game against a bigger competitor for long and you will probably be undercut at some point again. It is a malicious cycle that you should avoid. This kind of price war makes it very difficult to stay the leader.

c. Unsustainable Strategy

For instance, offering coupons or discounts to your customers is a way of promoting your products. But there are people who will buy from you because of the discount offered, and then go away not to come back again once the coupon time has elapsed. Moreover, while this strategy can attract customers to your business and increase sales, you need to think about how to use the strategy effectively to improve your bottom line.

d. Reduces your profit margins

If, for instance, you have a 50 percent gross margin and you cut your price by 20 percent, you have to increase sales by 67 percent just to keep your starting profit margin. It is pretty rare to see a sales spike that will offset a margin hit like that. However, the only way to hold your profit margin is to reduce your cost of goods. How do you achieve that? You can somehow reduce expenses or arm – twisting your suppliers to give you some kind of cost reduction.

Conclusion

Retail today is hyper – competitive, there is an overabundance of options, and shoppers are very price sensitive and well – informed. Note that to shoppers today, a low price doesn’t mean it has to be the lowest anymore. It means that it needs to be a price and offer that shoppers view as fair and non – arbitrary.

Price and Promotion optimization embodies a unique concept and can help retailers execute it flawlessly, creating a win/win situation for them and their shoppers. Your shoppers can receive fair price and promotional offers and you can sell off those slow moving products.

Solomon. O'Chucks
Latest posts by Solomon. O'Chucks (see all)