Pricing Compression: Using Competitive Pricing to Beat CompetitionJul 12, 2022
The last time that you went to get a coffee, had they raised the price? With inflation recently, it wouldn’t be surprising.
How much of an increase would it take before you turned around and walked away without the coffee? $0.50? $1.00? Would you still go get coffee if it cost $5 a cup?
To use this to their advantage, some businesses adopt competitive pricing models - where they use competitor pricing as a benchmark and then make a conscious decision to price products below that line.
Competitive pricing is usually driven by product value; especially in industries where there are a lot of similar products and price is one of the only differentiators.
Cannabis retailers need to think about how prices might affect customers, and at which prices they may go somewhere else. This applies both to your online store, as well as prices featured at physical retail locations.
However, there are both pros and cons to using competitive pricing strategies:
PRO: This can be effective if you can negotiate lower prices from suppliers, while simultaneously cutting costs and promoting these special prices.
CON: This can be difficult to sustain as a smaller retailer. Lower prices = lower margins. You’ll have to sell more than your competitors to make the same revenue. Also, depending on your products, your customers may not always go for the cheapest options.
For products where the ‘apples-to-apples’ comparison isn’t as easily discernible, there’s less need to enter into these types of price wars.
Instead, focusing on a target customer segment and leaning on brand appeal alleviates the need for tactics like competitor pricing.
- Ensure your displays and product signage offer a variety of differentiators other than price
- Educate budtenders so that they can comfortably guide customers through products by strength, terpene profile, listed effects, and category, rather than directing by price
- Provide signage/displays for retailers to use that focus on highlighting product differentiators which aren’t cost-related
- Visit retail locations and provide education kits alongside products, so that budtenders can expand their knowledge and offer better-personalized recommendations to customers that aren’t driven by cost
Competitive pricing is causing the discounting spiral plaguing cannabis retail, which is undercutting the value of the products being sold.
In turn, when too many retailers adopt this strategy, it creates price compression across the entire cannabis industry - and that isn’t good for anyone.
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