Thursday, July 29, 2010

Pricing strategies – step-by-step increase in prices brings more revenue than immediate price increase

So far, retailers had two possibilities when reducing prices: Either the products are offered cheaper for a short amount of time, in order to increase the price again to the (normal) price before. Or the products are advertised with “everyday low prices”.

Studies (Michael Tsoiros, University of Miami, ALBA Graduate Business School and David M. Hardesty, University of Kentucky in the Journal of Marketing) show that there is a third possibility that is even more effective.

A store can create more revenue with a price promotion, by increasing the prices step-by-step after a price reduction – instead of offering the product for the original price again.

Customers expect a higher price in future and therefore buy (inaction regret).

You should therefore think twice about setting your prices and also work out a good pricing strategy. However, this strategy should also fit into your marketing or business plan.

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