Just as wholesale distribution software is critical to your success, so too is your pricing strategy. The choices you make related to pricing can make or break your business, so it’s important to take the time you need to determine your wholesale pricing strategy.
If you don’t carefully consider pricing, you might just price yourself out of business. Be sure to take your time, do your research and gather prices from as many competitors as you can to help you make an educated decision.
So, let’s jump into four ways to determine your wholesale pricing.
4 Wholesale Pricing Strategies
A competitive pricing strategy refers to establishing pricing based on how your competitors are pricing similar products. For example, let’s assume you are a wholesale distribution company selling home appliances. By setting pricing slightly lower than that of your competitor’s, you can capture that business and more through other high-margin items, like accessories for home appliances. This is what’s referred to as a loss leader. Although you may lose some margin on home appliances, you gain the margin you lost via your higher-margin accessories. Couple this strategy with stellar customer service and you might just be able to attract a customer from a competitor and keep them for good.
Also known as product bundling, price bundling refers to when two or more products are bundled together, yet priced as one. Typically, customers save money when they purchase products that are bundled together versus when purchased separately. As a way to ensure your margins are strong, you might bundle low-margin products with high-margin ones in order to ensure your profitability.
Absorption pricing is defined as a pricing method in which you calculate the product price based on ALL the costs you absorb when purchasing, storing and shipping those items. This should include the labor and warehouse costs—or overhead costs— you incur in order to receive and stock product. This might include salaries and warehouse equipment as an example.
Geographical pricing that you price items based on where they are purchased. One geographical pricing method—FOB (Free On Board)—can be used when you don’t incur freight or transportation costs when selling to your customers. This occurs when your customer pays the transport costs.
Another form of geographic pricing is zone pricing. This requires that you price items higher the further away your customer is. The closer they are to you, the less their cost.
Why Wholesale Pricing Strategies Matter
Be sure to review local and national pricing from your competitors before setting your own prices. Consider market factors like consumer demand and industry norms as pricing is often very different depending on those rapidly-changing conditions.
Setting prices is a continual job that requires constant attention to manage, so be sure to assign this task to someone that monitors it on a full-time basis. Otherwise, your pricing losses could reduce your margins and dramatically hurt your business.
If you’d like to learn how Systum can help you manage your pricing, fill out the form below.