Pricing Strategies That Retail Companies Use to Attract Customers to Achieve Leadership within the Industry - Essay Example

Pricing Strategies that Retail Companies use to attract/keep s to Achieve Leadership within the Industry Pricing Strategies that Retail Companies use to attract/keep Customers to Achieve Leadership within the Industry. Abstract Retail Strategy plays a fundamental role in assisting business organizations to make economically sound pricing decisions. Off-price retailers and other risk tolerance companies’ employs use of pricing strategies in maximizing market returns and remaining competitive among skimming competitors. The most eminent pricing strategies employed by large retail organizations includes loss leader, lower pricing, psychological pricing, price skimming, and penetration pricing. Large retail stores including Walmart incorporation with higher annual market returns have the financial capability of adopting lower pricing strategies in increasing sales volume. Other retail manufacturers with monopolistic technology such as Apple Incorporation uses strategies including price skimming in realizing significant net profit returns when introducing a new product to the market. Pricing strategies are imperative for retail companies in maximization of market profit. However, pricing strategies have negative financial effects on customers who purchase retail without prior information on economic strategies employed by various organizations. It is indispensable that pricing strategies aim at exploiting customers finances while increasing profit margins of retail companies. Introduction In contemporary business, society besieged by constant rise in competition and improved technological advancements, retail companies needs to initiate pricing strategies aimed at improving sales. Similarly, customers’ need to remain vigilant and understand retail corporations’ strategies that mainly aims at attracting them for economic gain. The pricing strategies adopted by retail stores assists them in increasing sales, attracting more customers and remaining competitive in the market. The paper explores various strategic pricing techniques used by retail corporations and elaborates how they exploit customers. It is indispensable that consumer awareness would be authoritative in mitigating exploitative retail corporations’ strategic pricing methods. Lower pricing Walmart bases its retail marketing strategy and customer retention on provision of low retail prices. The business model developed by Walmart ensures provision of goods at discount stores. The company’s model have the idea that costs of retail goods can remain low by replacing a full-service retail system with self-service. In addition, the self-service provides a wider selection of goods sold within larger footprints stores with minimal fittings and fixtures. It is imperative to understand that the observed savings reach the consumers in the form of lower prices. Consequently, the lower revenues lead to increase in revenues and assist Walmart in achieving cost reductions from economies of scale (Dunne, Lusch, and Carver, 2010). It is imperious to understand that the business model of lowering retail prices to help increase sales and hence realize higher revenues greatly contributes to competitiveness of Walmart. Smaller retail business that cannot offer relatively cheaper prices remains economically obliged to sell at higher prices, a factor that entices customers to remain loyal to Walmart. Low pricing technique entices customers to remain loyal to Walmart with the mind that the company does not exploit them. In actual sense, Walmart does exploit their customers because the latter buys retail products in bulk and regularly. Consequently, voluminous buying by customers leads to increased spending. It is indispensable that increased expenditure by loyal Walmart customers directly relates to increased income for the company. Consequently, Walmart benefits overtime mostly due to customers buying in bulk and ability to attract more buyers to the retail stores. It is indispensable that other large retail stores who have tried to employ the technique of lower pricing have greatly dominated the market. Walmart, for instance, has acted as a classic example of a multi-corporation retail store that has successfully maintained and attracted customers through low prices. The company’s strategy have led to decreasing competition for retailing businesses around United States and other branches across the world. Economists have observed that the Walmart have nearly caused the extinction of smaller retailers including hardware stores, boutiques, and pharmacies. The ability of Walmart to offer lower prices greatly depends on its ability to conduct voluminous purchases across its numerous chain of stores. The large quantities of products purchased by Walmart remains several times larger than smaller retailers’ capacity within the locality. Consequently, Walmart gains bargaining power in the market and attract customers due to their superiority and lower prices. It is imperative to understand that Walmart’s below-cost pricing strategy have led to legal issues around United States especially with other small-scale retail companies. Independent pharmaceutical firms have claimed that Walmart have violated predatory pricing mainly under the State’s SBC laws. However, Walmart has always won the law cases involving its pricing strategy mainly due to lack of evidence. Besides, Walmart’s pricing strategy does not involve a specific product but for a large portion of the entire company’s merchandise. Leader Pricing Leader pricing relates to a company’s strategic pricing technique that involves lowering the price tag of a product in high-demand with the main aim of attracting more customers to the store. Leader pricing also refers to a promotional strategy for an organization that aims at attracting more customers. The company’s inherently conducts advertisement campaigns for the product in high demand alongside the low prices. Walmart comprehends that for it to attract more customers; it has to entice them to buy the goods in their stores (Boone & Kurtz, 2010). The process of attracting customers through lowering prices is imperative in increasing sales for realization of greater revenues. Moreover, using leader-pricing assists in attracting new customers while retaining others. It is imperative to comprehend that Walmart’s focus in using leader-pricing remains attracting store traffic within its premises. Besides, leader pricing normally forms part of promotional programs aimed at increasing sales and attracting potential customers. Walmart prides in using gasoline as the one of the leader pricing products. The company has initiated strategy that ensures prices of gas goes below those in the market mainly to entice customers into the store. Once customers get attracted to Walmart’s store, they experience a variety of products including groceries, fast-food sandwiches, fresh flowers, beverages among many others. It is imperious to note that enticing customers with leader pricing products including gasoline directly results into increased sales and loyalty of the former. Price Skimming strategy Price skimming strategy involves a technique through which an organization establishes relatively high prices for a specific product and then subsequently lower its price over time. The strategy relates to a market-skimming pricing that aims at setting a new service or product’s price at higher levels to skim maximum profits layer by layer. It is imperative that such company’s realizes fewer but more profitable sales (Meehan, Simonetto, Montan, and Goodin, 2011). Price skimming strategy enables the company to regain its lost costs within the shortest time before overall market competition arises to lower market prices. The technique normally relates to ‘riding down the demand curve’ and entails increasing quantity of sales and realization of higher profit returns before with a new product into the market. Over time, the company reduces prices of the give products with the main aim of attracting more customers. The pricing strategy is a skimming process that occurs gradually as a given product gains popularity among consumers and other organizations. The strategy provokes customers to purchase the products at higher prices mainly as a way of pride. Therefore, customers normally associates the products with higher social class especially due to extremely higher initial prices. Consequently, the company benefits from consumers social class relation to the products mainly due to increased sales and realization of abnormally higher prices. Price skimming dominates within electronics companies’ especially mobile dealers. For instance, Apple Company constantly practices the strategy in influencing sales whenever they introduce new products to the market. Recently, apple introduced the latest generation of iPhone into the market and offered it for approximately 599 dollars. However, after the iPhones dominated into the market, prices reduce hugely to about 199 dollars between 2008 and 2009. Psychological Pricing Psychological pricing relates to a marketing strategy that uses certain retails prices in a confusing manner through psychological numbers. The retail prices may include $19.99 or £2.98. Retail Company’s use the strategy in manipulating customers’ psychology and influencing them to buy certain products. For instance, if the actual price of a fluorescent bulb goes for 1000 dollars, retail stores would place a price tag of 999 dollars mainly to entice customers to buy the product (Hatten, 2010). It is imperious to understand that the strategy instills positive psychological impact on consumers and attracts them to purchase a specific product. Based on psychology of the buyer, paying the aforementioned 999 dollars remains economically cheaper compared to 1000 dollars. However, in real sense, the company have retained the old price of the product and have incurred insignificant loss. It is indispensable to understand that the strategy attracts more customers who feel that a specific organization provides goods and services at extremely cheaper prices. Walmart incorporation stores understand the inherent effectiveness of psychological pricing in promoting sales and attracting more customers. The company ensures use of psychological pricing strategy as a technique of implementing its main objective of selling goods at lower prices. It is imperious that the strategy directly contributes to Walmart’s success in influencing its customers’ psychology. It is essential for customers to understand that psychological pricing greatly exploits them. Customers do not need to attach emotions and feeling to prices of products to help them avoid the baits retailers have adopted in influencing their financial psychology. Most importantly, customers should not involve economic scales in determining the prices of retail products to avoid vulnerability to company’s exploitation strategies. Penetration pricing Retail companies use penetration pricing in attracting customers and gaining market share by establishing lower prices. Increasing market share would consequently result into improvement in revenues. It is imperative that penetration-pricing strategy normally involves encouragement by word of mouth in recommending products with the basis of attractive pricing rather than inferring promotion (Ferrell and Hartline, 2012). Walmart has greatly invested in penetration pricing strategy that assists it in making lasting impressions on the minds of its customers. The company purposely established five main ideas that ensure its ability to meet customers’ needs including board selection, good customer convenience and service, high-quality goods, and low prices. It is imperative that the provision of quality goods, lower prices, and efficient customer service strategies have enabled Walmart to gain vantage in the market, increase sales and consequently realize higher profit margins. Conclusion In conclusion, Retail Companies including Walmart or Apple applies the principles of strategic pricing in attracting customers and increasing sales. Strategic pricing techniques are indispensable in promoting a retail organization’s dominance in the market especially if planned appropriately. Large retail companies including Walmart adopts strategic planning techniques including lower pricing for vast reasons that goes beyond attracting customers and increasing profit margins. Such large stores use lower pricing techniques in sustaining their financial competitive advantage in the market and consequently suppressing potential influence from smaller retailers. Strategic pricing adopted by most retail companies’ results into exploitation of customers, as they tend to incur more expenditures over time. Therefore, it is imperative for customers to comprehend the aforementioned pricing techniques to avoid vulnerability to retailers’ economic exploitation. References Boone, L., & Kurtz, D. (2010). Contemporary Marketing 2011. London: Cengage Learning. Dunne, P., Lusch, R., & Carver, J. (2010). Retailing. London: Cengage Learning. Ferrell, O. C., & Hartline, M. (2012). Marketing Strategy. London: Cengage Learning. Hatten, T. S. (2010). Small Business Management, Reprint. London: Cengage Learning. Meehan, J., Simonetto, M., Montan, L., & Goodin, C. (2011). Pricing and Profitability Management: A Practical Guide for Business Leaders. New York: John Wiley & Sons.  Read More