Did you know there were 8 ways you could strategically price products in your dispensary? In this article, we’ll cover 3 of the more popular ways that you can increase revenue while still delighting customers.
Keystone pricing means marking your saleable items for double the price you pay for them. If the wholesale price (what you paid) is $10, then its retail price (what your customer pays you) is $20.
As a small business owner, you probably have other tasks that require your attention, so streamlining your initial pricing approach makes good sense. For the sake of avoiding cumbersome arithmetic, keystone pricing makes it simple to calculate your profit. Just double the cost it took you to acquire the item and you’re done. While rent, utilities, supplies, insurance premiums, taxes, and employee wages will always take a bite out of those profits, keystone pricing works to your advantage if you’re a one-store owner.
Much like the apparel industry, many dispensaries adopt the keystone pricing approach because it’s the simplest, but you should always take your store’s expenses into consideration. As a member of a budding industry, you’re the best suited to determine if you can exploit a lack of competition or supply a product that customers will drive long distances to purchase. Whatever the situation, it’s best to strategize your approach and prioritize what’s best for your store.
Today’s consumer has access to pricing information at the swipe of a finger. Comparing prices is simply part of the purchasing game, and consumers want to make sure they’re not getting taken for a ride. So, how can you price your products in a way that commands big bucks?
One of the most obvious examples of premium pricing can be found in the luxury goods market. Be it cars, handbags, or watches, premium items come with equally high price tags. Take Tiffany & Co., for example. You can buy a white gold chain and diamond pendant from just about any jeweler for $249, but stamp the Tiffany name on it, and you’ll pay five times the price (and often more). Is there any real difference between the no-name brand and the designer necklace? Not really, but consumers equate luxury pricing with high caliber merchandise and they’re often willing to shell out more money for the perceived excellence of a premium priced product.
Pricing items higher than your competitor can definitely increase your profit margin, if handled correctly. Premium pricing often requires additional marketing, so be sure your budget can tolerate the increased expense of advertising. If you’re the only dispensary in town, then you’ll still need to spread the word about your premium goods in order to reach your desired customer base.
There’s only a one cent difference between $10 and $9.99, but that difference appears to trigger something in the brain that perceives $9.99 as far less than $10. If you decide to try this in your store, be sure the leftmost digit on the price tag changes (i.e. from $20 to $19.99). Lowering a $10.70 sticker to $10.69 will have no mental impact on consumers. But if you mark something $29.99 instead of $30, then you’ll probably see results.
Research suggests that customers are more likely to purchase items with psychological pricing when they’re not marketed as being on sale. Apparently, our brains switch off that discerning value switch whenever we’re told that something is a deal. So, if you want to get the most out of this approach, use it cautiously and not on every item.
This is an excerpt from the Green Bits resource "How to Price Your Products: A Guide for Marijuana Retailers”. Green Bits creates technology that helps marijuana retailers thrive. Read more in-depth about these pricing strategies and discover the other five by reading “How to Price Your Products: A Guide for Marijuana Retailers”.
You can download the full guide for free here.