Week 9 - Pricing and Discount Strategies Many Businesses Use

Many Merchandising Businesses depend on the profits they make from selling inventory. In order to increase that profit, businesses must either increase the selling price or decrease the Cost of Goods Sold. When looking at increasing profits by raising the selling price, it becomes obvious that if a business increases the price too much then the consumer will not buy that product. In order to combat this, many different pricing strategies are used in order to increase the selling price of an item to the point where it is still reasonable enough for a consumer to purchase that product. One of the main strategies companies use, almost universally, is by not using whole numbers when pricing. For example, when shopping at any store, the price of an item is usually $XX.99. The 99 cents is used to somewhat distract the consumer because consumers look first and foremost at the whole number amount rather than the decimal amount. This is naturally caused because of our human psychology. By pricing an item at $9.99 instead of $10.00, a consumer will most likely rationalize that $9.99 is a much more reasonable price to pay compared to $10.00.

A very common discount strategy that many businesses use is to price their inventory with consideration to a future or ongoing discount. For example, if a business wishes to sell future boxes of nails at a discounted rate for a period of time, they might factor that into the equation to determine what the selling price should be now in order to compensate for the discount in the future. Many businesses use both of these strategies in order to increase their profits, and based on the success of businesses like Target, Walmart, or Menards one can infer that these strategies do work exceptionally well.