High–low pricing

High–low pricing (or hi–low pricing) is a type of pricing strategy adopted by companies, usually small and medium-sized retail firms, where a firm initially charges a high price for a product and later, when it has become less desirable, sells it at a discount or through clearance sales.[1]

Prospective customers may be unaware of a product's typical market price, or have a strong belief that "discount" is synonymous with "low price", or have strong loyalty to the product, brand or retailer.[2] High–low pricing strategy is effective because of consumer preference and shopping frequency.  Consumers with higher income strongly prefer the high-low pricing and they shop frequently in the brand stores they like.[3]

Usage

There are many big firms using this type of pricing strategy (including, in North America, Reebok, Nike, and Target). Competition in shoemaking and the fashion industry is partly through high–low pricing (for example Macy's, Nordstrom). But some firms will not provide discounts and work on a fixed rate of earnings following everyday low price strategies to compete in the market.

An alternative way to use high–low pricing is to increase the price for a short time, sometimes as much as 500%, after which it is "discounted" to what its normal selling price.[4] After the price is reduced to the "sale" price, it may often stay at that price for a long time, sometimes longer than two weeks, after which customers may begin to question whether the reduction is genuine.[5] Artificial discounts of this sort are illegal in the United Kingdom.[6]

See also

References
  1. Kaufmann, Patrick (1994). "Deception in retailer high–low pricing: A "rule of reason" approach". Journal of Retailing. 70 (2): 115–138. doi:10.1016/0022-4359(94)90011-6.
  2. "High-Low Pricing - AccountingTools". www.accountingtools.com. Retrieved 1 October 2016.
  3. Fassnacht, Martin; El Husseini, Sabine (April 2013). "EDLP versus Hi–Lo pricing strategies in retailing—a state of the art article". Journal of Business Economics. 83 (3): 259–289. doi:10.1007/s11573-012-0648-y. ISSN 0044-2372.
  4. "Ratgeber & Kaufempfehlungen". www.bestsellerkaufen.de. Retrieved 1 October 2016.
  5. "The Psychology of Retail: How Pricing Affects Buying BehaviorRunning". CC. April 12, 2013. Retrieved 18 July 2013.
  6. Mackie, Phil. "Tesco fined over 'half-price' strawberries claim". BBC News. Retrieved 2016-05-28.


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