Price based selling
Encyclopedia
Price-based selling is a specific selling technique in which a business
exclusively reduces their price in attempt to close the sales
cycle. Price-based selling clearly exists in businesses such as: commodity
sales, auto sales, hospitality
, and even some retail
stores. However, it is only recommended that commodity
items like petroleum be sold exclusively by price. Selling on price is even more apparent now in the current US economy as most businesses make the switch to the lowest price approach in attempt to attract more consumers
. Car insurance companies like Progressive Auto Insurance advertise specifically with their price, as they promote the amount of money that can be saved by making the switch.
Price-based selling may result in a good or service becoming a commodity and a commodity by definition is a product or service that has no differentiating qualities or characteristics from competing products or services in its class. A survey of Canadian consumers by Wishabi
in 2009 finds that only 10% of shoppers see price as the only factor, but a 2007 Shopzilla
survey of 2000 shoppers showed that 49% of consumers feel that price was the most important factor in their buying decision. Thus it can be seen that while pricing is not the only factor that matters, it is definitely the most important.
and Target
have the most control over the pricing in their industry. However, to be able to sell at the lowest price, these chains are continually pushing, if not demanding, that their suppliers give them the lower prices as well.
department of a business, and any good revenue manager will make sure they are doing everything possible to maximize profits
.
markets. Lowe's
Home Improvement Warehouse is a great example, as they frequently state that they are the ‘lowest’ price store, and they will match the competitors. Best Buy
has always been known for their price-matching guarantee as well. While a store with price matching guarantees has no fear of losing customers to rivals’ price cuts, it has every incentive to raise its own price to charge a higher price to its loyal customers. It is an anti-competitive tactic that warns competitors not to attempt to steal market share by undercutting prices.
give an economic incentive for the customer to use when purchasing a brand. The effect on consumer redemption of coupons has mostly been positive as it attracts customers, and gives them interest in a particular brand. On the other hand, discounting can really hurt a business as seen with Nordstrom
this past holiday season. The clothing retailer reported that their fourth quarter earnings fell 68%, in large part due to the heavy discounting. According to a Cornell University study, in the hotel business, discounting in attempt to gain more occupancy does more harm than good, lowering the RevPAR
and creating less profit.
, is most present in businesses where items have no fixed price
. Sellers will often price the item higher than they want to sell it, knowing that buyers are going to want to negotiate the price. Houses, cars, and services are the most common products sold using this model.
does more harm than good for the brand or company selling. A commodity is something for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk. In other words, copper is copper. Rice is rice. These kinds of items have a set price no matter where you buy. Commodities are and should be sold predominantly upon their price.
With the advent of the Internet, price, service and support are often the only contact points with the customer. Identical products shipped across state lines with no tax have no other differentiators. Refusal to provide an upfront price is very hostile to Internet customers who will purchase a good or service elsewhere.
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
exclusively reduces their price in attempt to close the sales
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
cycle. Price-based selling clearly exists in businesses such as: commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
sales, auto sales, hospitality
Hospitality
Hospitality is the relationship between guest and host, or the act or practice of being hospitable. Specifically, this includes the reception and entertainment of guests, visitors, or strangers, resorts, membership clubs, conventions, attractions, special events, and other services for travelers...
, and even some retail
Retail
Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...
stores. However, it is only recommended that commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
items like petroleum be sold exclusively by price. Selling on price is even more apparent now in the current US economy as most businesses make the switch to the lowest price approach in attempt to attract more consumers
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
. Car insurance companies like Progressive Auto Insurance advertise specifically with their price, as they promote the amount of money that can be saved by making the switch.
Price-based selling may result in a good or service becoming a commodity and a commodity by definition is a product or service that has no differentiating qualities or characteristics from competing products or services in its class. A survey of Canadian consumers by Wishabi
Wishabi
Wishabi is a Canadian online shopping platform that is owned and maintained by the Wishabi corporation. Wishabi's mission is "to give Canadians the best tools to make informed shopping decisions"....
in 2009 finds that only 10% of shoppers see price as the only factor, but a 2007 Shopzilla
Shopzilla
Shopzilla is a price comparison service. Founded in June 1996 by Farhad Mohit and Henri Asseily as Binary Compass Enterprises, the company changed its name to BizRate.com in January 1999...
survey of 2000 shoppers showed that 49% of consumers feel that price was the most important factor in their buying decision. Thus it can be seen that while pricing is not the only factor that matters, it is definitely the most important.
Relationship to sales
Most businesses sell their items, whether they are expensive automobiles, or inexpensive services based upon price. They do this not because it is the most profitable, but because they believe it is the easiest way to attract customers. Consumers and Business-to-Business buyers alike may be easily enticed to buy based upon price. Consumers are always hunting for the best bargain and price has a direct impact on whether or not they will buy a product or service. Businesses know that offering the lowest price gives them a competitive advantage against other similar products the customer may be looking at. Big chains like Wal-MartWal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
and Target
Target Corporation
Target Corporation, doing business as Target, is an American retailing company headquartered in Minneapolis, Minnesota. It is the second-largest discount retailer in the United States, behind Walmart. The company is ranked at number 33 on the Fortune 500 and is a component of the Standard & Poor's...
have the most control over the pricing in their industry. However, to be able to sell at the lowest price, these chains are continually pushing, if not demanding, that their suppliers give them the lower prices as well.
Sales Goal
The goal of price based selling is to capture the business of price sensitive sellers. Customers who shop purely based on product cost will have the most interest in bargain buys. Pricing is directly related to the revenue managementRevenue management
Revenue Management is the application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth. The primary aim of Revenue Management is selling the right product to the right customer at the right time...
department of a business, and any good revenue manager will make sure they are doing everything possible to maximize profits
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
.
Price-matching guarantees
Price-matching guarantees are commonly used in consumer and industrialIndustry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
markets. Lowe's
Lowe's
Lowe's Companies, Inc. is a U.S.-based chain of retail home improvement and appliance stores. Founded in 1946 in North Wilkesboro, North Carolina, the chain now serves more than 14 million customers a week in its 1,710 stores in the United States and 20 in Canada. Expansion into Canada began in...
Home Improvement Warehouse is a great example, as they frequently state that they are the ‘lowest’ price store, and they will match the competitors. Best Buy
Best Buy
Best Buy Co., Inc. is an American specialty retailer of consumer electronics in the United States, accounting for 19% of the market. It also operates in Mexico, Canada & China. The company's subsidiaries include Geek Squad, CinemaNow, Magnolia Audio Video, Pacific Sales, and, in Canada operates...
has always been known for their price-matching guarantee as well. While a store with price matching guarantees has no fear of losing customers to rivals’ price cuts, it has every incentive to raise its own price to charge a higher price to its loyal customers. It is an anti-competitive tactic that warns competitors not to attempt to steal market share by undercutting prices.
Price slashing
Price cutting is a sales technique that reduces the retail prices to a level low enough to eliminate competition. Businesses will implement this as a way to under-cut the competition and offer the best price to the consumer. Wal-Mart frequently uses the term “rolling back prices” when they cut prices on particular items.Discounting
Discounting is something seen in almost every retail store, and grocery store. Discounting is present in just about every business in some way, whether it be coupons, advanced purchases, or bulk buying, businesses are quick to offer a pricing discount. Coupons and promotionsPromotion (marketing)
Promotion is one of the four elements of marketing mix . It is the communication link between sellers and buyers for the purpose of influencing, informing, or persuading a potential buyer's purchasing decision....
give an economic incentive for the customer to use when purchasing a brand. The effect on consumer redemption of coupons has mostly been positive as it attracts customers, and gives them interest in a particular brand. On the other hand, discounting can really hurt a business as seen with Nordstrom
Nordstrom
Nordstrom, Inc. is an upscale department store chain in the United States, founded by John W. Nordstrom and Carl F. Wallin. Initially a shoe retailer, the company today also sells clothing, accessories, handbags, jewelry, cosmetics, fragrances, and in some locations, home furnishings...
this past holiday season. The clothing retailer reported that their fourth quarter earnings fell 68%, in large part due to the heavy discounting. According to a Cornell University study, in the hotel business, discounting in attempt to gain more occupancy does more harm than good, lowering the RevPAR
RevPAR
RevPAR, or revenue per available room, is a performance metric in the hotel industry, which is calculated by multiplying a hotel's average daily room rate by its occupancy rate...
and creating less profit.
Haggling
Haggling, otherwise known as bargainingBargaining
Bargaining or haggling is a type of negotiation in which the buyer and seller of a good or service dispute the price which will be paid and the exact nature of the transaction that will take place, and eventually come to an agreement. Bargaining is an alternative pricing strategy to fixed prices...
, is most present in businesses where items have no fixed price
Fixed price
The term "fixed price" is a phrase used in the English language to mean that no bargaining is allowed over the price of a good or, less commonly, a service...
. Sellers will often price the item higher than they want to sell it, knowing that buyers are going to want to negotiate the price. Houses, cars, and services are the most common products sold using this model.
Maintaining product integrity
If the customers do not find value and integrity in the products they are buying they will be quick to leave for the next lowest price. Selling on pure price turns the product into a commodity. CommoditizationCommoditization
Commoditization is the process by which goods that have economic value and are distinguishable in terms of attributes end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition and from...
does more harm than good for the brand or company selling. A commodity is something for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk. In other words, copper is copper. Rice is rice. These kinds of items have a set price no matter where you buy. Commodities are and should be sold predominantly upon their price.
Products sold primarily based on price
There are a select group of products that should be sold based primarily upon their price and this includes all: consumables that have very little direct impact upon the consumer. Examples include items like: sand, gravel, and aggregate used in construction.With the advent of the Internet, price, service and support are often the only contact points with the customer. Identical products shipped across state lines with no tax have no other differentiators. Refusal to provide an upfront price is very hostile to Internet customers who will purchase a good or service elsewhere.