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Advantages and Disadvantages of High-Low Pricing TogglenavigationHighLowPricingStrategy|4minsreadCommonAdvantagesvs.DisadvantagesoftheHighLowPricingStrategyByChloeHenderson,July26,2020TableofContentsAdvantagesandDisadvantagesofHigh-LowPricingHowHighLowPricingWorksHighLowPricinginFashionRetailUsingOrderingSoftwaretoOptimizeProfitMarginsAsproductsseeminglygainandlosepopularityovernight,companiesneedpriceelasticitythatcansteadilybringinthemostprofit.Highlowpricingachievesflexibilitybycombiningelementsfromthepriceskimmingandlossleaderpricingstrategies.Byimplementingthehighlowmethod,businessescaninitiallysetahigherpriceandlaterloweritthroughdiscountsifneeded.Thismethodalsogivesmanagementtheabilitytoincreaseordecreaseratesovertime.Whenbusinesseslowerproductprices,itattractscustomerswhodon'twanttomissagooddeal.Companiesthatreceiveaninfluxofdailysalescansubsequentlyraisetheratesagaintoboostprofitmargins.Thispostwilldiscusstheprosandconsofthehighlowpricingstrategy,itsimplementation,andhowtomakethemostofthismethod.AdvantagesandDisadvantagesofHigh-LowPricingAswitheverypricingmethod,thehighlowstrategyhasitsprosandcons.Theabilitytofluctuatepricesgivescompaniesusingthisstrategyleveragebutcanalsoruntheriskofunstableprofits.Reasonsforandagainstusinghighlowpricinginclude-AdvantagesGeneratesProfits-Companiescanincreasetheirearningsbyraisingratesorgeneratingmoresalesfromdiscountedprices.SalesPromotions-Consumersareoftenlookingforbargains,sorunningdiscountpromotionsincreasessalesbycreatingarushforbuyerstogetthedealwhileit'savailable.HigherTraffic-Aspromotionsgainmoreexposure,customertrafficincreasesaswellassalesforbothdiscountedandregularpriceditems.IncreasedTurnoverRate-Providingeverydaylowpricingonslow-movingproductshelpsfreeupcapitalstuckininventorybyincreasingthestock'sturnoverrate.DisadvantagesMarketingFees-Runningadvertisementsfordiscounteditemsrequireheftymarketingexpendituresthatcouldaffectthecompany'sbottomline.CustomerExpectations-Regularlypromotingloweredpricescouldcreateatrendinwhichconsumerswaittopurchaseitemsuntiltheyaremarkeddown.RiskManagement-Ifcustomersareonlyloyaltoabusinessbecauseoftheirdiscounteditems,salesmaystayconsistent,butprofitmarginswillsuffer.Storesgainingtrafficfrommarkeddowngoodsneedtorelyonregular-pricedproductstosustaintheirprofitmargin.QualityofGoods-Whendiscountsarefrequentlyoffered,itmaygivecustomerstheimpressionthattheproductsorcompany'sbrandisoflowquality.Onlineemployeeschedulingsoftwarethatmakesshiftplanningeffortless.Tryitfreefor14days.StartMyFREETrialHowHighLowPricingWorksBytakingelementsfromthepriceskimmingandlossleadermethods,highlowpricingallowsbusinessestochangepricetagswhennecessary.Bymonitoringelementssuchascustomerdemand,inventorycosts,andmarketprices,managementcanincreaseordecreasepricestoboostsalesandprofit.Likethelossleaderstrategy,highlowpricingtriestoincreaseconsumertraffictosellnotonlydiscounteditemsbutalsomarked-upproducts.Then,usingtechniquesfromthepriceskimmingmodel,thebusinesscanskimcapitalfromtheotherhigh-profititemstosupplementthesmallerprofitmarginfromdiscountedgoods.Whenchangingaproduct'sprice,thebusinessdoesnothavetoreverttotheoriginalretailrateifsaleswerenotideal.Forexample,ifaproductwasinitiallyretailedfor$60butwasnotreceivinganidealsalesaverage,thestorecouldrunasalemarkingthemdownto$45.Promotingthissaleasamarkdownmakescustomersmoreinclinedtopurchasetheitembecausetheyfeeltheyarebuyingavaluableproductmarkeddownfromapremiumprice.Infact,astudyshowedthat79%ofshopperstakeadvantageofavailablediscounteditems.However,ifthereisleftoverstockevenafterthesalepromotion,thebusinesscanincreasethepriceto$55ratherthan$60andrepeattheprocess.Thisstrategygivesthecompanyinsightintohowdifferentproductsperformatdifferentpricepoints.Byusingpsychologicalpricing,customersaremorelikelytopurchaseanitemthat'sbeenmarkeddownwhenareferencepointisestablished.Areferencepriceisthecostofanitemwithoutthediscount.Intheexampleabove,thereferencepricewas$60.Clearlydisplayingthispricedifferencetothebuyersvalidatestheirperceptionthattheyaregettingagooddeal.HighLowPricinginFashionRetailThefashionretailindustryisnotoriousforusingthehighlowpricingmodel.Whenanewfashiontrendhitsthemarket,designersandretailerswilldropanewcollectionatarelativelyhighprice.Inthebeginning,itemsareavailableineverycolor,size,andstyle.Thelesspopularitemsareleftinstockonceloyalcustomersofthebrandpurchasetheirarticlesofclothingatfullprice.Theselow-demandarticlescanquicklybecomeobsoleteasfashiontrendschangewiththeseasons,sotheyaremarkeddown.Theseclothesareoftenrepeatedlydiscountedtogetridofthestockandmakeroomfornewincomingclothing.Fashionretailersgenerallyusehighlowpricingbecauseitprovidesawaytoincreasesalesbymarkingdownunpopularitems.Clearingouttheunwantedstockbeforethestylebecomesoutdatedcanfreeupmorecapitalwithintheinventory.UsingOrderingSoftwaretoOptimizeProfitMarginsInthisstrategy,themorebusinessescanofferalowprice,thebetter.However,it'sessentialtomakesuretheyarestillabletomaintainahealthyprofitmargintoavoidlosses.Anexcellentwaytodothisistotracksuppliercostsandcontinuallysearchforthemostaffordablevendors.Ifsupplierssuddenlyraisepricesorbusinesseswanttofindmoreaffordablevendorstoincreasetheirprofitmargins,companiesshouldkeepacloseeyeontheirinventoryorderpricesaswellasothervendorcatalogs.Implementingorderingsoftwarethatcanprovideallofthisinformationinoneplatformcansimplifythisprocessandensurepricingstrategiesarealwaysoptimized.Businessesthatareabletofindthelowestwholesalecostscanoffertheircustomersmoreaffordableprices,boostingsalesandsatisfaction.Companiesusingthehighlowmethodtosetpricesshouldunderstandthemechanicsofhowitaffectscustomersatisfactionandprofitmargins.Businessescanavoidlosingprofitbyfluctuatingproductpricesbasedoncompetition,demand,andmarketcosts.Onlineemployeeschedulingsoftwarethatmakesshiftplanningeffortless.Tryitfreefor14days.StartMyFREETrialNamePleaseenteryournameEmailPleaseenteryouremailaddressSubmitCompleteGuidetoPricingStrategiesforIncreasingProfitMarginsCompleteGuidetoPricingStrategiesforIncreasingProfitMarginsWhatisKeystonePricing,andIsItRightforYourBusiness?CompetitivePricingDefinition-HowDoesitWork?CaptiveProductPricing-WhatAretheProsandCons?5TopTipsforProfitableProductBundlePricingHowtoImplementDecoyPricingtoIncreaseProfitMarginsCommonAdvantagesvs.DisadvantagesoftheHighLowPricingStrategySCHEDULEADEMO×SignUpStartimprovingprofitmargins,savingtimeandincreasingsalestoday.FREETRIALBycreatinganaccountyouagreetotheTermsofUseEmployeeSign-upSignUpBycreatinganaccountyouagreetotheTermsofUseandPrivacyPolicy.StartbysearchingSite/storename,address.RequestInviteMyWorkplaceisn’tlistedRequestInviteGoBackRequestSent!OK×SignUpForADemo×PleaseprovideyourinformationSubmitthisformandanexpertwillbeintouchsoon.
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