Priced based selling is a technique where a good or service is sold solely on its price. This technique is generally used for commodities – an item that is no different to competing items being sold, i.e. iron ore.
Priced based selling was generally not used for retail sales, however, as economies tighten, consumers become more price sensitive, and the temptation to sell and buy based on price points only, increases.
But is this a good thing?
Whilst many consumers rate the price point as an important purchasing decision influence (2007 Shopzilla survey showed 49% of 2000 consumers feel that price is an important factor in their buying decision), there are a corresponding number of retailers that also adopt price based selling – not because it is the most profitable selling model (far from it), but because it is perceived as being the easiest way to attract customers.
The expected outcome is to gain a Competitive Edge over their competitors. This is typically implemented using one (or more) of the following strategies:
Price match Guarantee
Retailers certainly need to achieve a competitive edge, however, the price selling method to achieve a competitive edge can be an expensive option to implement and, in the longer term, can have a detrimental effect on the brand and the business viability. The longer reduced margins are maintained, the less likely a margin normalisation will be accepted by the consumer - generic milk is now $1.00 per litre – it is unlikely that this will increase.
Your competitive edge does not need to be priced based.
Although there are a number of price sensitive consumers (they have always and will always be there), they tend NOT to be the most loyal. Your loyal customers (read the ones that will come back to you) will also look for value for money, value added features, after sales service and support, product conversations, peer engagement and acceptance, etc, etc. This type of competitive edge can be achieved whilst maintaining healthy margins and without devaluing your goods and services.
Discounting may be suitable to liquidate a slow moving line or act as a loss leader, but it should not be the standard selling technique of your business.