Keystone pricing is a simple pricing strategy used by retailers. Essentially, retailers determine the retail price by doubling the wholesale price of the product to set a reasonable profit margin. In many cases, using keystone pricing can result in products being priced too low, too high, or just right for your business.
Here’s a simple formula to help you calculate your retail price:
Retail Price = [Cost of Goods ÷ (100 – Markup Percentage)] x 100
For example, if you wanted to price a product that originally costs $15 at a 45% markup (instead of the usual 50%), you would calculate your retail price like this:
Retail Price = [15 ÷ (100 – 45)] x 100 = $27
If your product moves slowly, is expensive to ship and handle, or is unique or scarce in some way, you might be underselling yourself using keystone pricing. In any of these cases, sellers might use a higher markup formula to increase the retail price of these popular products.
On the other hand, if your product is highly commoditized and easy to find elsewhere, it might be harder to achieve using keystone pricing.
Pros: The keystone pricing strategy is a quick and easy rule of thumb that ensures ample profit margins.
Cons: Depending on the availability and demand for a particular product, it might not be justified for a retailer to price your product that high.
Other Types of Pricing Strategies Manufacturer Suggested Retail Price
As the name implies (no pun intended), the Manufacturer Suggested Retail Price (MSRP) is the price that the manufacturer recommends that retailers use when selling a product. Manufacturers originally began using MSRP to help standardize different product prices across multiple locations and retailers.
Retailers often use MSRP for highly standardized products (i.e., consumer electronics and home appliances).
Pros: As a retailer, you can save some time by simply pricing your products using MSRP.
Cons: Retailers using MSRP cannot compete on price. When using MSRP, most retailers in a particular industry will sell that product at the same price. You need to consider your profit margins and costs. For example, your business may have additional costs that the manufacturer does not consider, such as international shipping.
Keep in mind that the MSRP is very niche. While you can set your price however you want, large deviations from the MSRP may cause the manufacturer phone number list to end its relationship with you, depending on your supply agreement and the manufacturer’s goals for its MSRP.
Dynamic Pricing: Adjusting Prices Based on Variables
Have you ever tried to hail an Uber on a Friday night, only to find that the price was higher than normal? That’s dynamic pricing in action. Dynamic pricing is when a company constantly adjusts prices based on different factors, such as competitor pricing, supply, and consumer demand. The goal is to increase a business’s profit margins.
For brands like Uber, passenger fares depend on a variety of variables, including the time and distance of the route, traffic conditions, and the current passenger demand for drivers. Prices are determined by rules or self-improving algorithms that take these variables into account when making pricing decisions.
Pros: Dynamic pricing allows retailers and brands to use machine learning to automatically price products and services at scale. They can customize prices to meet current market conditions, saving time and maximizing profits through automation.
Cons: It can be difficult and costly for small businesses to how long does it take to perform? manage. Dynamic pricing makes more sense for large retailers with thousands of SKUs in e-commerce be numbers and retail stores. Consumers may also react negatively to frequent price changes, which can reduce revenue.
Multi-Pricing: The Pros and Cons of Bundled Pricing