Retail Volume Pricing

Retail volume pricing refers to offering price discounts for larger quantity purchases of a product. Consequently, the more that a customer buys at once, the larger the discount.  As illustrated in the examples below, volume pricing is most commonly presented through differences in product size and number of units bought at once.

Example

Small plate: $1.00

Medium plate: $1.15

Large plate with unlimited extra helpings: $1.43

Example

1 unit of shampoo X: $1,00

3 units of shampoo X: $2.85

Benefits of volume pricing

• Larger orders. Larger orders provide customers with the reward of a lower price and possibly lower shipping costs.
• Creating new customers. First-time customers can have a lower price to try the product before getting the standard price for the second order.
• Compensates consumers for  their perceived diminishing marginal product value. one theory posits that as someone consumes a product, the initial wow effect diminishes over time. The lower price helps to compensate for this.
• Frees up human and other resources. This is a matter of working more efficiently. 

Beware. Volume pricing is NOT a panacea as it applies favorably in only some cases.

'DOs & DON'Ts' and Considerations

• Customers expect a discount, even though there are often no or very negligible differences.
• Customers are considerably more likely to buy volume priced products if the products are non-perishable or has an extended shelf life.
• Price sensitive customers report taking out a calculator at stores to verify the level of saving.
• Proceed ONLY IF volume pricing still generates more sales and a profit. For instance, personal care commodity product savings are likely to range from roughly 4% to 14%, with the higher priced products having the higher discounts. When asked, some low resources individuals said they will not buy the discounted product if the saving is on the much lower end, especially since they must pay out more initially. Ironically, this is the segment that seeks savings more but less likely to get it with the products that target them. Respondents suggested that they are more likely to buy with discounts like '2 for the price of 1' (ie 50% off) or '3 for the price of 2' (ie 33% off). You may consider ways other than price discounts as a means of increasing sales. Interestingly however, higher discounts on higher end products can help to target lower resources individuals.
• Establish prices around customer perception and not simply a markup on manufacturing costs. On this basis, price discounts may be inappropriate for products needing to use higher prices to signal higher quality. For such high end products, volume pricing may be inappropriate for retail. Tier pricing (mentioned below) might be more suitable for wholesale customers. 
• Know your customers' buying patterns as they relate to volume. For instance, if your customers usually buy small volumes, volume pricing is worthwhile. Otherwise, if they already buy in high volume, do NOT proceed as the discount will be un-necessary.
• This point has 2 messages; 1) Investigate to understand the reason for lower sales and 2) Segment your market to price accordingly. Slow sales may have nothing at all to do with prices. For instance, there are case studies of products being priced between 2 segments without adequately capturing the demand of either. Prices for such products need not be discounted. Rather, the opposite, ie raising the price has worked to better target a market that strongly believes that higher price suggests higher value.
• Initial price of $1,000 perceived as too high for consumers
• Initial price of $1,000 perceived as not sufficiently serious by professionals
• Solution that worked: Raised the price by 63% and targeted professionals. Sales soared with the professional segment.
• Higher margin products are best suited to volume pricing.
• If your customers like small volume sales, ensure they still have that option when applying volume pricing.
• Like other forms of price discounting strategies, volume pricing can negatively impact customer perceived value of the brand. Consequently, stress the benefit of higher volumes versus stressing the obvious economic saving. For instance, 'buy for the whole family', 'stock up on travel size units for the upcoming travel season', 'Share the joy! Give one to a friend', etc  
• If you decide to implement volume pricing, allocate someone to analyze whether volume pricing is worthwhile regarding raising sales and profitability.

CONTENT RELATED TO VOLUME PRICING

• Volume pricing ought not be confused with tier pricing. Tier pricing establishes unit price tiers and is often used in wholesale pricing, an area in which sale volumes are considerably larger (than retail). Notice the volume ranges in the example immediately below.

• You may be selling retail now. However, you never know if the future will present opportunities for wholesale, as crazy as it currently seems. Consider wholesale pricing as part of the process of calculating your retail prices (for the volume offers). Ensure that all parties can reap some financial benefit, especially yourself.
• Wholesale payment terms
• Learn more about why raising prices for product decommoditization is sensible

Product Bundle Pricing

Product bundling is a marketing strategy with several uses and benefits (some of which are listed below). It involves selling multiple products or components together as a single, more holistic customer solution. Combinations commonly include main product components with their auxiliaries. It is therefore the alternative to selling a la carte. Common product bundles, often called 'packages' include the following.

• tickets for a cruise that include food, entertainment and destination tours (ie a main product with different but complementary products, ie 'cross-sell' products)
• the purchase of a professional camera that includes additional interchangeable lenses (ie a main product with others that amplify its value and functionality, essentially transforming the original basic product into a an 'up-sell version of itself product')
• offer deals based on minimum order volumes. Incentives may include free shipping or a gift that adds value 

Uses & Benefits

• To create pricing advantages since a single price can not be subject to line-by-line scrutiny (ie if a pricing breakdown for each component is excluded). Customers are unlikely to negotiate discounts when price product bundle pricing is used. After all, based on the brand, they are usually willing to pay the advertised price as they perceive it to offer value worthy of the single price. Bundles are particularly useful in pushing price-sensitive customers through the sales funnel more quickly.
• To provide perceived customer value regarding pricing simplicity (ie over numerous items that are priced individually which minimizes cognitive load in the buying decision-making process). Just consider how each credit card purchase is essentially an individual loan. However, a bank's single interest rate is a pricing bundle for all those loans whose calculations could make the average person's head spin.
• To up-sell items that buyers rarely use, especially for technical products. For instance, most people who buy the latest versions of entire software suites (like Apple, Microsoft, Adobe and so on) barely use more than the basic functions. Such purchases essentially finance the research and development of advanced functions for the few advanced / professional users who truly need advanced functions.
• To introduce new products within a product line.
• To up-sell items that enhance the overall perceived value of a single purchase. For instance, a dialysis customer looking for a home dialysis machine clearly has needs related to kidney health. Consequently, sellers can add value by offering water distillers that minimize the amount of his hard water intake is increasing the modes for value creation. This approach also adds value as it relates to added convenience.
• To increase your store's average order value. This is simply a matter of increasing sales volume, even if the a la carte sale value would have been higher. Bundling can be a strategic response to buyers' reservation prices.

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DOs & DON'Ts

• Do itemize the products, their unique value propositions, synergistic value propositions (but only a single price for the bundle). Customer perceived value is noteworthy because it is their primary purchase motivator. In fact, customers are usually willing to pay premiums for what they value and are therefore likely to perceive a bundle as an amazing deal. Additional, itemizing on the basis of component products and corresponding value also offers the sense of transparency that otherwise price-sensitive customers would seek. Common examples of value propositions include the following.
• Solutions: solve customer problems; prestige and image of unique products; satisfy business needs like cutting costs, raising profitability, etc
• Convenience: customer savings of time or money
• Do NOT provide itemized price breakdowns for individual products or components. This often turns off customers who may value components differently. For instance, a high end restaurant can use its brand to charge $120 for a meal with a $20 dessert. However, when shopping a la carte, when ordering the meal for $100, a customer is likely to be more resistant to buying the dessert for a separate $20. The only exception to itemizing price is that you may promote a main product bundled with something else that you call a 'free gift valued at $10', ie the retail value (which may even usually be $8 but not something someone will check or belly-ache over).
• Do analyze profitability for both bundled and unbundled options. Bundling is worthwhile only if both parties benefit; specifically if it generates higher profits for sellers and better solutions for customers.
• Do analyze your market's sensitivity to bundling with and without options to buy a la carte. Some people view bundling as pushy and even an unethical way of getting more money out of buyers. In that case, offering the option for individual product as well as bundled sales may be prudent. However, the key point is to gently help customers get more value and not aggressively push products only with your profitability in mind.
• Do use shelf-talkers and other sales promotion tools to communicate the advantage or value proposition of bundling, whether it is price advantage or otherwise (like functional benefits).

RELATED CONTENT

• Up-sell, Cross sell, Add-on and Bundle Product Offerings Explained, Compared, Contrasted & Effective Persuasion
• Add ons in Shopify without paid apps
• Minimum Advertised Pricing (MAP) and Manufacturer Suggested Retail Price (MSRP) an article by the US Small Business Administration. Value-based bundle pricing MAP and non-MAP products can sometimes counteract the effects of price-driven competition
• Bundling Decisions that consider the correlation of demand based on reservation price and marginal costs (third party video instructions)

Product Offerings:Effective Persuasion

When a shopper has only one product in mind, a marketer can often persuade him or her shopper to buy more, in value and or in volume. 

Persuasion in marketing has been called 'unethical' and it often is. In response, this post quickly mentions best practices and common forms of persuasive product offerings. If done well, both the marketer and buyer win with higher profits and solutions found, especially when the product selection challenge the buyer.

Rule #1: Get to know your customer's current problem. You likely already know the solution. When communicating with him, focus on how the offering will benefit him specifically ... (not the long list of features or product awards)

Rule #2: Admit when your product offering can not benefit him. Believe me, a trusting customer pays the premium of loyalty! Although you lose a sale on that day, you are likely to gain a customer for life.

Rule #3: Constantly update his total, including shipping costs. People do not like surprises.


Upselling

• An offering within the same product category as the buyer's initial choice but more up-market (as the name suggests) and with greater perceived value. Upsells are intrinsically related to the buyer's need and initial product choice. Driven by a need to solve a problem, buyers are likely to pay the premium required to get the product that better meets his or her needs. Not surprisingly therefore, upselling has been reported as being as considerably more effective than cross-selling before the final checkout stage, especially among existing customers. In fact, upselling can also be done in conjunction with cross-selling. Upselling examples include the following.
• the next higher model to replace the current one that the buyer has in his shopping cart (this is the most common and effective way of upselling)
• a store owner promotes an upgrade for a product the customer already has at home

Upsell DOs

• Upsell products should not exceed roughly 25% of the original product

• Upsell products should be those that generate the most positive interest like best sellers and have the most and or best reviews 

• Create default add-ons but ask customers to de-select which add-ons they do not need
• Automate the suggestive process by creating categorizing and tagging products

Cross sells

• An offer of a product that is different in form but complements the main product. Cross selling adds volume to the sale and not necessarily more intrinsic value to the buyer's main focus. Cross sell examples include the following
• car rentals offered at the 'Checkout' page when customer is about to pay for a hotel room (An upsell is different as it might have been a more luxurious room) 

This cross-sell appeared on Amazon product page for a blue bottle.

Add-ons

• An offering that complements a main product and is unlikely to exist as a stand-alone product. Once included, add-ons can essentially transform a main product into an upsell version of itself. Add-on examples include the following.

• Travel insurance that is added to an airline ticket 
• Tires that come with a car. They may be changed at any time. They are sold separately and as add-ons

• A plug in for a program, just as WooCommerce is added to WordPress and can not exist on its own

Add-on DOs  

• If you offer add-ons automatically as default options from which buyers may opt out, make this clear. If not done correctly, buyers can become distrustful.

Bundling

• An offering that packages multiple products together for a single 'combo' sale. It usually combines a main product with its auxiliary / ies. Stores may offer products only within bundles 'pure bundling' or give buyers a choice, 'mixed bundling'. Sometimes, a single main product may have several bundle variants. (See full articles dedicated to bundling)

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RELATED CONTENT

• Bundling DOs and DON'Ts