Pricing in the Wholesale Market

By Kris Lamey, April 27, 2021

Choosing the right price is one of the biggest challenges for wholesale and distribution companies. How you approach wholesale pricing will make or break your business. If the prices go too low, you lose money. If they go too high, your customers may defect to your competitors.

Price is the top driver of consumer buying decisions, according to Forrester Consulting. In fact, 81% of buyers shop around to find the best deals. To formulate effective wholesale pricing strategies, your company needs the following capabilities:

Collection of market data
Analysis of market data
Knowledge of your position against competitors
Optimal pricing that attracts clients

A successful pricing strategy will increase sales and boost revenue. Keep reading to learn about the main competitive pricing approaches, examples of these approaches and the pros and cons of competitive pricing.

Three Pricing Approaches

There are three main wholesale pricing strategies:

Loss Leader
Price Matching
Premium Matching

What Is Loss Leader Pricing?

Loss leader pricing refers to aggressively pricing one product below cost to increase the sale of more profitable items. You knowingly accept the loss to draw traffic away from your competitors. This isn’t the same thing as predatory pricing because your end goal is stimulating overall sales.

For example, you might assign an introductory price to new products or services to gain market share. Then, once you capture the client, you can upsell them to more expensive products.

What Is Price Matching?

One thing drives the most customers to your online or physical store — price. Consumers hope to compare prices and get the best deal. Price matching strategy hones in on the saving instinct of shoppers.

When you adopt a price matching policy, the responsibility for market research goes to the consumers. You may also keep an eye on your competitors’ sites, but you can rest assured that your shoppers are doing so too. Typically, they bring the “just right” price to your doorstep by requesting a price match.

There are dangers to price matching, which can put you in a race to the bottom with your competitors. Consequently, Amazon doesn’t have price-matching guarantees. Instead, the retail giant uses aggressive repricing to keep its position in the marketplace.

Prolonged campaigns of price matching can degrade margins across the entire business. So, not all wholesalers are comfortable using the strategy — especially given the already tight margins in wholesale selling.

What Is Premium Matching?

To use a premium matching strategy, charge higher prices than competitors for your products. This helps you build a brand reputation for the highest value products. You’re assuming that consumers won’t dig too deep to find out if your product is superior to the competition. Studies show that consumers equate price with quality — even when it’s not true.

Marketing managers aim to transform the brand name into a commodity that customers pay to own. This competitive pricing strategy boosts profit margins and erects entry barriers to any newcomers to the market. If you have a unique brand in an unsaturated market, this approach offers a strong competitive advantage.

Examples of Competitive Pricing

Following, you’ll find examples of how established brands use each of the competitive pricing strategies effectively.

Loss Leader Pricing Example

In 1959, BMC’s Mini car sold for $496 for the no-frills model. The company lost $30 on each sale. It directly competed with the Ford Anglia, which was slightly cheaper but lacked many of the features of the Mini.

Price Matching Example

Walmart.com is probably the largest retailer to use price matching. If customers find a cheaper price for the same product online, Walmart will match it.

Target has the same policy for many products but only applies it to in-store sales. This gets the customer back to the store where they will likely make additional purchases.

Premium Pricing Examples

Rolex uses a premium pricing strategy to perpetuate its reputation as a high-quality producer of luxury watches. If you were just looking for a way to tell the time, you could just look at your phone or buy a cost-effective Timex for around $30.

Your Timex might have more functionality than the $15,000 Rolex — but which one will you perceive has the best value? Rolex is an ultimate status symbol and the one that’s most likely to get passed down in your will. Other companies that use premium pricing include Bentley cars, Savoy Hotel rooms and any airline selling first-class tickets.

Pros & Cons of Using Competitive Pricing

Wholesale pricing strategies are more delicate than other market segments due to the need to move bulk inventories and maintain thin margins. Sustainable pricing must consider competitors’ prices but should also focus on the customer.

Ultimately, pricing your goods at rates that attract consumers strengthens your brand and positions your products well. The trick may be having other attractive products that will catch your clients’ attention and boost your average sales per transaction.

Pros of Competitive Pricing

Some of the advantages of competitive pricing in the wholesale market include:

Greater control over your pricing strategy
Competitive intelligence on competitor strategy
Ability to integrate competitive pricing and dynamic pricing strategies to test multiple price points — maximizing margins without yielding market share

Cons of Competitive Pricing

Competitive pricing can net you an advantage in the short term. For long-term success, you need to consider the following:

Compete on quality
Add value to the customer experience
Build loyalty programs to retain your valued customers

Combine competitive pricing with other wholesale pricing strategies, such as psychological and geographical pricing — that align with your business objectives.