What is your pricing strategy?

My dad was a career grocery store guy. He had many other interests, but this was the work that he put most of his adult life into doing. A lot of what he did seemed not that interesting to me as a kid, until one conversation I recall very well to this day. I was about nine or ten at the time. My dad was explaining how a food store made money. He told me about how the store would pay $0.50 for a can of peas and then sell it for $0.52 which seemed like a very tiny profit and hardly worth doing.

I had a savings account in a bank at the time that was paying me about 3% or so. Four percent return was not that impressive to me. I was hoping to hear how they made 10 or 15% maybe.

Photo: Contributed

When he then explained that the store had made the $0.02 per can the day it sold it, and it now also had the $0.50 back and could buy another can of peas to repeat the process, that the store could now sell a new can of peas and make another $0.02 the very next day, I began to really see the huge potential. If they can effectively sell that same can of peas, once per week, the store could make $0.02 X 52, or a $1.04 per $0.50 of money invested in inventory, a whopping 208% return. Wow, you could pay for a lot of stock boys for that kind of return. Well, of course, not every unit on the shelves of a food store will turn every week, nor is inventory the only thing that the store ties up cash in. But it does give a reason to think and look at pricing in a slightly different way.

While the idea of inventory turnover is a familiar and standard measure of business, it is not a common dialogue when pricing strategy comes up these days. A lot of pricing strategies are now based upon the value of the service or product in the mind of the buyer. For example, Tuccini Corp, according to Entrepreneur Magazine, has tested several pricing models during the day by raising and lowering prices three times daily to see when a price change will be most effective, with 6 PM being the most effective for their fragrance sales on Amazon.

Another trend of late is to give something away to get people to then be interested in other services and upgrades to services as a common pricing strategy. In fact the recent book authored by Chris Anderson, the editor of Wired Magazine, is called Free: the future of Radical Pricing, and it proposes that some of a business' offerings should include a free element to create interest in the business.

A great example, here in Kelowna, of finding a unique pricing model and free service element is New Fangled Computers. This local start-up has both an offering of a free initial consultation along with three levels of pricing with associated levels of service. By making the services so available, this new business has seen some excellent growth since its start.

If you are looking for a new angle on your business to create some growth, consider your pricing model in a new way.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.