Key Takeaway: We all know that a pricing increase, when performed properly, has the potential to exponentially increase profits.
As the economy begins to pick up, it will be important for companies to extract greater value out of their current portfolio, which may be heavily discounted.
The most effective price-increasing strategy may be “Steadily Decreasing Discounting” (SDD), which was found to increase both sales and profitability for the companies using this method. Unlike typical strategies, SDD involves slowly raising prices from the sale price back to the initial level rather than all at once.
This will continually create incentive for a consumer to purchase the product right now, and won’t leave the consumer with a sense of regret if she missed the lowest price.
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Excerpted from NACS Online, “Study: Retailers Can Increase Profits by Changing Pricing Strategy” by The University of Miami School of Business Administration, January 7, 2010
The University of Miami School of Business Administration released results of a study this week that shows retailers can substantially increase sales and profits if they increase the price of a sale item to its original cost in gradual steps rather than in one swift move.
Over a 30-week field study, the school reported a 200 percent increase in sales and a 55 percent increase in profits by using this strategy, which it calls “Steadily Decreasing Discounting” or “SDD.”
“SDD starts like Hi-Lo pricing in that you have a big sale, but the main difference comes after the initial sale when you progressively increase the price back to its regular level versus in one shot,” explained Michael Tsiros, an associate professor and chair of the Marketing Department at the University of Miami School of Business and the study’s lead author. “By doing so, SDD avoids a key problem of the Hi-Lo strategy – the big dive in sales at the end of the promotion that results from people stocking up on the item during the promotion or because they perceive the price to be too high because it was recently much lower.”
“SDD could be particularly effective in the current economic downturn,” Tsiros said. “Many retailers have been offering discounts of 60 percent or even 80 percent, and stores can’t offer those prices forever. But if they bring prices back up in increments, consumers will have time to adjust.”
Edit by JMZ
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Full Article:
http://www.nacsonline.com/NACS/News/Daily/Pages/ND0107107.aspx
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