Speak to any average consumer and mention the names of some high quality, leading businesses. The chances are high that one of the first words they will use is "expensive". Not "excellent service", "marvellous range" or even "helpful staff". Possibly "Expensive but worth it", or "You get what you pay for", but in the average consumer's mind, price is almost always a key factor. This article is copyright 2015 The Best Customer Guide.

Differentiating on price - good or bad move?
Let's take a quick look at popular traditional pricing strategies, as well as a new one - Access Pricing - that overcomes many of the challenges that we've have had to deal with in the past. Most pricing strategies clearly appeal to one category of shoppers but not to others. EDLP, for example, would appeal to time-poor/money-poor shoppers who have little to spend and no time to shop around - it would make sense for them to choose a solid EDLP store and do all their shopping there. Hi-Lo pricing would appeal to cherry pickers - who fall into the time-rich/money-poor category. But Access pricing should appeal to all categories of shoppers - a significant advantage. But what exactly is 'access pricing'? Well, it's a loyalty-based pricing technique that allows a retailer to differentiate prices between regular customers and occasional shoppers in an open, transparent way. It's the ultimately fair tiered pricing system. Customers collect points on their purchases as usual - but throughout the store, key items are priced at two levels: the price that the item would normally sell for, and a very much lower price that's available in exchange for some of the customer's loyalty points.

The four key pricing strategies
There was a time when manufacturers recommended a price for each item, and retailers simply charged that price. Any differentiation then was purely on convenience, ambience, product range and quality of service of the retailer. Let's look at the four key strategies:

  1. Hi-Lo Pricing
    In order to introduce another element of differentiation, some retailers started reducing the prices of key products, in order to attract customers into their stores, where they would buy other products as well as the reduced-price products. Hi-Lo pricing was born, and fairly quickly became the norm. The retailer made little profit, or even a loss, on the price-reduced products, but recouped the revenue in the increased sales of other profitable lines. Hi-Lo pricing also introduced an element of excitement into shopping - shoppers felt good when they had bought an exceptional bargain, and this would tend to encourage them to return.
  2. EDLP (Every Day Low Pricing)
    To appeal to the more 'no-nonsense' shopper, and to simplify shopping for the time-poor shopper, other retailers adopted a pricing strategy whereby they charged a fair, but low-as-possible price for all products. While this is thought by some to be boring, it is very successful to this day. To those for whom shopping is a chore to be handled as painlessly and quickly as possible, EDLP is the perfect solution. No need to shop around, no need to clip coupons, no need to waste time, simply buy what you need from the same place every week and know that you're getting a square deal. However, EDLP presents a challenge to the retailer: in the absence of other differentiators any loyalty exhibited is to the prices charged, not to the business. EDLP shoppers will defect to a competitor who begins to charge slightly lower prices.
  3. PUF (Profit Up Front)
    Some thirty years ago, Hi-Lo pricing and EDLP were joined in the marketers' armoury by a new weapon: Profit-up-front pricing. PUF pricing is seen in the warehouse club industry (for example, Costco, SAM's, and BJ's) where qualified customers pay for the privilege of buying items at bedrock prices which include extremely low profit margins. Usually, customers buy membership by paying an annual fee in advance. This admits them to the warehouse, where they can buy goods at 'wholesale' prices. The operator can sell goods at these low prices because the revenue from these up-front membership fees account for about half of its pre-tax profits.
  4. Access Pricing
    Just lately, a fourth way, called 'Access Pricing' (brainchild of retail marketing guru Brian Woolf) is making its appearance. Its unique feature is to differentiate prices on basic items between regular customers and occasional shoppers in an open, transparent way. up until now it's been very difficult to offer higher prices for casual customers and lower prices for regular customers within the same retail store, without offending some customers. In countries with a well-developed social conscience (the UK, for example) a policy of better prices for those who spend more can result in quite vociferous negative publicity. "Why should the poor old pensioner pay more than the rich young businessman?" would be a frequent cry. But Access Pricing, using readily available technology and a points-based loyalty card programme now make it possible.

How Access Pricing works
Customers collect points on their purchases, using a seemingly standard points-based loyalty programme. There, the similarity ends. Throughout the store, key items are priced at two levels: the price that the item would normally cost, and a second price, very much lower, but supplemented by some of the buyer's loyalty points. For example, as expected, a product usually priced at US$9.99 could be bought off the shelf for US$9.99. But alternatively, it could be bought for US$3.99 plus 900 of the loyalty points that the customer has already collected. That US$6 discount was earned (at 10 points for US$1 spent) by spending US$90 - not counting bonus points; even then, it's a substantial reward. This means that the customers have control of the prices they pay, and how they spend their loyalty points. For loyalty programme operators this is excellent news: it maintains member interest, and gets customers interacting with the programme on a frequent basis - every time they go shopping. As Woolf says, it's effectively putting "Golden Handcuffs" on your best customers.

Apart from retail... where else is access pricing good?
Clearly, food retailers can use access pricing. But many other sectors of business can, too. For example, consider two disparate sectors: airlines and office supply stores. Airlines' frequent flyer programmes could use access pricing techniques to offer a ticket on any domestic trip for, say, US$100 plus 10,000 miles (instead of 25,000 miles). That would inject much-needed cash into an airline's purse while providing a meaningful reason for travellers to fly on that airline, even if individual flights are not always the lowest priced. And office supply stores could use access pricing, neutralising and even bettering their warehouse club competitors by offering really low prices on key items that warehouse club competitors carry instead of thinly discounting everything else.

This right pricing strategy is critical not only to the business model, but to the target audience, and it's essential to use the right combinations to attract and reward the right customers. And it can be a mistake to think that only one strategy should be employed, too - it's could be an advantage to combine pricing techniques to suit market conditions, as well as customer attitudes and buying motivations.