How to implement an effective price ladder
The key things to consider if you want to implement a price ladder are:
• What is the price range (minimum to maximum) that my ideal customer would expect to pay for this kind of item?
• Set the prices so the steps (the rungs of the ladder) are fairly equally spaced – try to ensure all your items deliver a consistent % gross margin
• Merchandise the product with the cheaper items to the left and with the more expensive to the right
• Make sure the product packaging / POS clearly demonstrates the additional value-adding attributes to the customer if this is not abundantly clear
To find out how well it can work for your business will require some level of trial and error. A good price ladder that is well merchandised will enable customers to up-sell themselves with no intervention from sales staff – what retailer could ask for more?!
What is the benefit of the price ladder?
If your retail business typically realises an average 60% gross margin then of course the higher up the ladder the customer goes, the more they spend, increasing both cash delivered margin and average transaction value (ATV).
What is a price ladder?
Retailers who understand their positioning should have prices that offer the target customers choice within their budget for products that meet their mission.