Pricing Strategies in Fashion
Brandon Mingo Retail Math Spring 2010
When I started to write this paper I was going to focus on pricing and the psychology behind it that makes consumers make the purchase. I was going to look at the information out there in general and realized in about a couple minutes that there is tons of research and articles on pricing psychology all over the internet. To tackle the issue I decided to focus on a smaller portion of this study, specifically the pricing psychology in the fashion world. I decided to do fashion for two reasons, I love it, and it is my major here at the Art Institute. When I did a quick internet search for pricing psychology in fashion, quite a lot less information came up but it was all still very useful. I think this will be an interesting learning experience and even though I find out all of the strategies used in fashion pricing, I will probably still, like everybody else, fall for the schemes. The main goal of a retailer is to turn a profit. One of the major steps taken towards making a profit is setting the right price. To determine how much a product should run at retail price, the first thing that needs to be done is to understand the costs that are associated with the specific product that is going to be for sale. We learned about a lot these things to think about in class since the first week. There are a variety of factors: how much paid for the product (plus any shipping and handling costs) and operating expenses such as overhead and payroll, office supplies, etc. No matter what pricing strategy you decide to go with, it needs to cover the cost of the goods and the business operating expenses for sure (West Chester). After finding the basic idea behind pricing in fashion I found a lot of website explaining the methods we talked about in class all the time. These methods are definitely a staple in the fashion retail world and are proven to work over and over again (Home Business). I can vouch for that also, seeing that I know all of the strategies used by marketers in full detail and I still give in to them and they totally work on me every time I go to the mall it seems like.
Keystoning was the pricing method I came across the most often it seemed like. It is probably the easiest pricing strategy, but it isn't always the most effective. This strategy involves doubling the cost paid for the merchandise for an automatic retail price. For example, if you had purchased a shirt for $40 wholesale, the retail price would be $80. However, today, with the cost of merchandise, it is really difficult to do this and cover all of your business costs (Infomat). I agree that today it would be hard to do this with the way you can get items so cheap now, but costs of running the business are so high. I think most of the time doubling the cost simply isn’t effective enough to cover yourself financially. Discount pricing was explained on quite a few websites as well. This and reductions in price are very common in retailing, and are actually a “natural” part of it. Discounting includes a variety of things, such as rebates, memberships and buying clubs, coupons, markdowns, and seasonal sales and prices. The type of merchandise will determine when and what type of discount will be made available, and also the amount of competition and whatever stock you have available (Infomat). We did talk about this exact strategy in class on a few occasions. I think this one works so well because it gives the consumer a feeling that they are a part of that business and as a “member” or “loyal customer” they get these special privilege or prices. It gives the customer a happy feeling I think that keeps them coming back for more. A strategy you don’t often see in fashion retail is the multiple pricing strategy. This involves bulk selling; selling a number of units for one price, for example, 10 for $5.00. Retailers have found this to be a good strategy because it encourages larger commitments and purchases from customers. It also does well during clearance and regular sales (Infomat). I agree that during sales or clearances that this method can work very well to clear out stock and make way for new items but in general all
of the time I don’t think that it is used because it would not bring in much of a profit and might make consumers feel their purchases aren’t as special since they are priced like “bulk.” I am not sure we talked about mark up on cost pricing in class but I do think it is an interesting way to ensure profit and sales in a business. It involves adding a pre-determined profit margin to the cost of the products. The markup therefore should be enough to cover any costs and expenses, or even reductions, anticipated or not, and can still deliver a needed profit. There can be different markups for different product lines (Infomat). This seems like an easy way to make sure the profit and money needed is made but I can see how it wouldn’t always work because consumers may not always want to and actually pay the prices you need to set on selected items. I think that competition in the fashion world is crazy. I would say more competitive than most other industries. Therefore I understand the use of the next strategy of pricing items above or below the competitions prices. Pricing your own items above the competition should only be used in special circumstances. For example, a retailer may have merchandise of established and wellknown brands that aren't available in other stores nearby, therefore they can afford to price above their competitors. Only if you have a special service or type of product should you price above your competition, and this also has to do with your location. We did discuss this in class and I agree that under certain circumstances this can work for a business and actually bring in a lot of profit. Pricing your items below the competition is as simple as beating the competitor's price. If you buy at the best prices, you can sell at the best prices. Follow an inventory plan, and design a good marketing plan so that you can concentrate on price specials (Infomat). This is totally why Wal-Mart is so successful and also WinCo Foods. That is there main selling point, their incredibly cheap prices on items.
Specifically psychology pricing is used in any profit making business in the sale of their items, You can definitely see it in the fashion retail world as well.It Involves pricing based on other popular price points and what the consumer believes are good and fair prices. Another form of psychological pricing is odd pricing, which involves making the price end in 5, 7, or 9 (Infomat). There were multiple studies on what prices sell the most between prices of $9.90 all the way to $9.99. They found that 10% more of consumers purchased the same exact items when priced at $9.99, $9.97, and $9.95. The items with the other numbers in the end sold substantially less than those three prices (Pricing). This really shows how the human mind works and what we think is a good deal. After all of my research on the pricing strategies in the fashion world I doubt I will change my shopping habits but I think it is very important that I know them now. I think being aware of methods used by retailers can make you shop smarter and in the end be a better business owner yourself. I obviously need to know about all of these strategies used so I can try out each one and see what one works well for my own business or retrial store I am working for. I know that working for my optical shop now I will definitely share some of this information to my coworkers and boss and give advice on some strategies that may work for our office and our surrounding demographic. I can’t wait to see how it turns out!
Works Cited:
"Infomat Guides | PRICING STRATEGIES: SET THE RIGHT PRICE, Business Article for Fashion Professionals." InfoMat - Home Index. Web. 28 May 2010. <http://www.infomat.com/fido/getarticle.fcn?&type=guides&SearchString=handbag&id= 737870PF0000049 &startstart=1&tr=10>. Pricing Psychology Strategies. Web. 28 May 2010. <http://www.pricingpsychology.com/.>. "Psychology of Price." West Chester University. Web. 28 May 2010. <http://www.wcupa.edu/_academics/sch_cas.psy/career_paths/consumer/subfield5.htm> "The Psychology of Pricing." Home Business, Start Your Home-Based Business, Work from Home with PowerHomeBiz.com. Web. 28 May 2010. <http://www.powerhomebiz.com/vol119/psychology.htm>.