There are two basic retailer pricing strategies:
· Everyday Low Prices. Think Walmart with relatively constant prices and few sales
· High-Low Prices. Think Kohl’s with very high “regular” prices and frequent deep discounts.
Which strategy works better?
According to an MIT-UT study channeled by CNBC , it’s the High-Low scheme because it plays off of two consumer “regret factors” …
“While reliably cheap prices might sound better on paper, businesses harnessing the high-low pricing strategy — rather than the EDLP strategy— can be more profitable and successful with shoppers”.
It’s all about “regret factors”..
The researchers posit that there are two types of “shopping” regret.
Price regret — when you buy an item, and then later see it on sale for a lower price.
Availability regret – when you pass on a regular-priced item and it’s not in stock when you come back during a sale.
Most often, consumers don’t look back to see if the price they paid was eventually discounted. So, price regret is relatively rare … especially if retailers promote “price protect” policies.
But, the study found that the fear that items will go out of stock can be powerful enough to make shoppers pay full price when they first see an item — and increase stores’ profits by as much as 10 percent.
The high-low strategy works best for:
(1) Branded fashion-trendy items with a “time value” … think: in season clothes versus commodity items that are available whenever.
(2) Retailers that manage their supply chains efficiently and, thus, signal potential scarcity. Think: Costco (“but it was here yesterday”) and Zara (”it’s the only one they have in my size”). I
Conversely, “stack ‘em high” and consumers may feel less urgency to buy.
“If you’re a consumer who likes to stay current, it can be tough to fight the feeling of urgency that savvy brands plant in your mind.”