What Is Customary Pricing?

Customary pricing is a pricing method in which the price of goods or services is ultimately based on customers’ collective perception of the value of the item or service. Usually, this method is used for products or services that have been sold for a certain amount of time at a retail location. It is this retail location that will dictate the actual price for a given product or service.

A customary price is the amount of money that customers get used to paying for goods or services. In other words, it is a usual, habitual price that is taken by customers for granted, or a “normal" price for a particular item or service. It goes without saying that the term “customary price” can only be applied to goods or services that have some selling history on the market and which have been sold for a certain amount of time. For newer ones that have just entered the market, obviously some time is needed for their price to become customary or habitual.

Customary prices are fixed to products or services and don’t change for a long time, remaining stable and invariable. This feature of the price is used for the customary pricing approach. The nature of customary pricing is revealed in products and services that have been present on the market for a considerable time. It should be noted that this price should be high enough for an organization or company to be able to profit considerably on their products or services. The very term “customary price” is derived from its distinct feature of stability at various retail locations.

This approach is based on the perception of the company’s products by their customers, who usually think that price is totally OK for that particular product or price.

The stability of the product’s price determines its cost. As a rule, the price is not affected by seasonal changes and doesn’t depend on economic cycles.

For new products and services, it is obvious that this approach will not work. Business owners and managers should first get their feet wet in the market and decide upon the price by the trial and error method. The customary pricing approach will work for products and services that customers get used to, and for ones that they frequently use in their daily lives. Usually, these products don’t have substitutes, and due to their longevity, they create brand loyalty with the customers.

A loaf of bread is one example of customary pricing. It is a product that thousands of customers buy every day, and when they go to the store, they keep in mind the price of one loaf. For example, say it costs $0.50, and the price does not change for a long time. Housewives and customers have long been accustomed to this price, and they do not even realize whether the price is high or low. They also don’t pay attention to the “fair" price of bread. If the price suddenly rises to $1 in some stores, customers will immediately decide that it is too high and simply walk away. Such consumer behavior is due to habit and the long time that they have been buying bread.

Another good example is cinema tickets. As a rule, movie fans know the price they will pay for a ticket and budget the needed amount. In case cinemas suddenly rise the price for tickets, many movie lovers will just turn to home watching or start looking for a cheaper price at other cinemas.

Businesses can effectively use the customary pricing strategy and the customary price phenomenon itself, thanks to the nature of a customary price (it is essentially a price that is applied to some products for a prolonged period of time; clients get used to it and become loyal customers to a brand). As such, business owners can refer to the following steps as part of their Customary Pricing strategy:

First, they set some price for a product. The clients then start to perceive this price as a “fair” and habitual one. They purchase the product often enough, thus transforming this amount into the customary price.
Then the company might use this newly set customary price as a basis for seasonal discounts or offers to draw even more customers’ attention to the brand and improve the company’s image.

The nature of customary prices helps regulate the amount of profit a retailer makes as their products and services are sold in volume.

Even a simple change in customers' perception might lead to a significant increase in profits. Thus, with just a slight price rise, retailers can earn much more; however, this will depend on how the customers react to this price increase. To understand how prices affect the customers’ behavior, analytical e-commerce tools should be used. They can greatly help in determining the right pricing strategy to be used.

The most obvious advantage of customary prices is the fact that they are based on customers’ expectations. With a customary pricing strategy, companies can gain loyal customers as they sell their products at regular, habitual prices. Consequently, if companies start selling their products at the same prices but with higher quality compared to their competitors, they can attract more people’s attention and trust towards their brand.

However, there are cons as well. The nature of customary prices implies a certain extent of stability, and companies are limited in terms of setting their pricing and might not be able to increase their profit whenever they want. However, they do have to sell a portion of their products or services at customary prices in order to avoid adverse reactions from their audience. A sudden increase in prices can change customers’ perception of the products they’ve been purchasing for a long time. That means a company’s efforts to earn more profit by raising prices can lead to customers walking away. It can also lead to distrust and negative reviews from customers, which will deteriorate the company's image. That is why companies need to be extremely careful when dealing with customary prices.

Reducing customary prices can be a great tool for increasing customer loyalty and brand awareness. Discounts are something that always raises interest in a brand and attracts new customers.

Businesses can use different discount schemes, such as:

• Discounts on future purchases when they sign up for newsletters;
• Discounts offered only to certain groups of customers;
• Discounts offered only to new customers;
• Promotions for special dates (the company’s anniversaries, official public holidays, etc.).

A good tool for adjusting customary prices is the price tracking solution by Priceva. With its help, business owners and managers of large chains can:

• Get up-to-date information on prices from competitors;
• Determine the optimal price for their goods and services to increase sales or revenues;
• Track competitors’ prices as to outbeat their offers;
• Find the right price reduction in order to increase sales and still achieve good revenue;

An illustrative example of a customary price point is seen in the vending machine industry, where certain snacks or beverages are traditionally priced at a dollar or under, creating an expectation among consumers. This pricing strategy stems from historical consumer behavior and the competitive landscape, where consumers have grown accustomed to accessing quick snacks or drinks at low, standardized prices. Such price points are maintained across various locations and vending machine operators to meet consumer expectations and maintain competitive parity.

The implementation of customary pricing strategies comes with several key disadvantages, including the potential for diminishing profit margins as costs rise without a corresponding ability to increase prices. This approach may stifle innovation and product differentiation, as the focus shifts towards meeting traditional price points rather than offering unique value propositions. Moreover, businesses may find themselves trapped in a pricing model that does not adapt well to fluctuations in supply, demand, or economic conditions, limiting their ability to strategically position themselves in a changing market.

On educational platforms like Quizlet, customary pricing is commonly described as a pricing strategy that sets prices based on what has historically been acceptable or expected by consumers within a particular market or industry. This definition emphasizes the reliance on established norms and the understanding that certain price levels have become ingrained in consumer expectations, guiding their purchasing decisions. The concept underscores the importance of historical pricing practices and their influence on current pricing strategies.

Traditional pricing methods are characterized by their simplicity and straightforward approach, often relying on a cost-plus formula where a standard markup is applied to the cost of goods sold to determine the final selling price. This contrasts with more contemporary pricing strategies, such as dynamic pricing or value-based pricing, which take into account a wider range of factors including market demand, competitor pricing, and perceived value to the consumer. While traditional pricing methods offer stability and predictability, they may lack the flexibility and responsiveness required to effectively compete in today's rapidly changing market environments, potentially leaving businesses at a disadvantage if they cannot adapt their pricing strategies to reflect current market realities.