Two Constants for Retailers’ Pricing Strategies

Alan Perlis, the first head of the computer science department at Carnegie Mellon University, often told his students that "one man's constant is another man's variable." Pricing is one area in which understanding how constants can become variables can help businesses be successful.

The first pricing constant is that price is always on the table. Every customer in every purchase setting is aware of price. It's always one of the factors that enters into their decision. If other factors such as product attributes, service and location are seen as equal, price becomes the factor. We can all cite a few examples we've observed where that wasn't true, but most of them fall into the realm of "you can fool some of the people all of the time and all of the people some of the time."

Fooling customers is rarely a business model that leads to sustained success, particularly in today's era of price transparency online. It's far better to believe in this first constant and recognize that price is always a factor.

The second pricing constant is more uplifting. In every market, there are segments that will reward a different offer with a premium price. Most businesses aspire to be in this environment. The basis of differentiation can vary widely from product to product and market to market, but there's always one there if you look hard enough.

It may be embedded in the product — e.g., a better way of sourcing music via iTunes or a better tasting hamburger from Five Guys. It may be associated with surrounding services such as short lead time delivery, expert support, on-site warranty repairs, etc. The examples of how one business differentiates itself from its competitors are incredibly varied, often provoking amazement as to how someone thought of that (or why others hadn't).