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High Low Pricing: Meaning, Examples, Pros & Cons

By Thomas Bennett Financial expert at Priceva

Published on December 20, 2023

In the complex world of retail pricing strategies, high low pricing stands out for its dynamic approach. This strategy, a favorite among retailers, involves cycling between higher regular prices and strategically timed lower promotional or sale prices. It’s designed to create a sense of urgency and excitement among consumers, making it a crucial tactic for businesses looking to boost sales and consumer engagement. This article explores the nuances of high low pricing strategy, its benefits, potential drawbacks, and practical examples in the marketplace.

What is High Low Pricing?

High low pricing, a prominent pricing strategy in retail, involves setting prices above the market average, only to periodically offer significant discounts or promotions. This pricing strategy is designed to generate additional sales by creating a perception of exclusive deals among customers. In the high low pricing method, the fluctuation between higher price points and substantially lower prices can effectively attract a diverse range of consumers. Notably, this established marketing strategy capitalizes on the allure of lower prices following periods where products are persistently offered at high prices, enhancing consumer excitement and driving sales.

How Does High Low Pricing Work?

The high low pricing strategy begins with products being introduced at a high price point, often above the normal selling price. After a period, these high price items are then offered at a lower price point, often during clearance sales to clear excess inventory. This approach leverages consumer psychology effectively. The initial high prices serve as a reference price, making any discounted price appear more attractive, thus encouraging customers to purchase full-price items. The strategy also includes selling off-season goods at a lower price, further maximizing sales floor stocked with both high price and low price items. The optimal price point is carefully calculated to balance between attracting bargain hunters and maintaining profitability.

Advantages of High Low Pricing

High low pricing strategy offers numerous advantages for businesses, making it a popular choice across various industries:

Increased Profitability

High low pricing strategy allows businesses to initially set higher prices, potentially leading to greater profit margins. When discounts are offered, these products, though priced lower, can still generate considerable profits due to the initial higher markup. This approach often results in overall higher revenue compared to consistently low-priced models.

Creates Brand Excitement & Increases Store ‘Foot Traffic'

Strategically timed sales and discounts generate customer excitement and anticipation. This, in turn, increases foot traffic in physical stores and online visits, potentially leading to additional sales of regularly priced items.

Bundle Products and Clear Inventory

High low pricing strategy is an effective strategy to clear out inventory, particularly seasonal or slow-moving products. By bundling these items with popular products at a discounted rate, businesses can efficiently manage their inventory while offering value deals to their customers.

A Recyclable Marketing Strategy

This pricing model can be repeatedly applied to different products or during various seasons, providing businesses with a flexible and recyclable marketing strategy. It can be particularly effective during major shopping seasons or events, such as holiday sales.

Expand Your Customer Base & Retain Existing Customers

High low pricing can attract a diverse range of customers, from bargain hunters to those willing to pay full price for early access to products. This strategy helps in expanding the customer base while retaining existing customers who perceive value in both the high and low price points.

Disadvantages of High Low Pricing

While high low strategycan be an effective strategy, it's not without its drawbacks. Understanding these disadvantages is crucial for businesses to make informed decisions about their pricing strategies. Here are three primary challenges associated with high low pricing:

Customers Waiting for Deals Can Affect Profitability

A significant downside is the tendency of customers to wait for sales, which can impact the regular sale of items at full price. This wait-and-see approach by customers can lead to unpredictable sales patterns and potentially affect profitability.

Customers Can Doubt Your Product Quality

Frequent price fluctuations might lead customers to question the quality and value of the products. If consumers perceive the regular price as inflated, it can harm the brand's reputation and customer trust.

Cost of Advertising

High low pricing strategies often require substantial advertising efforts to inform customers about ongoing sales. This increased marketing cost can reduce the overall profitability of the sales strategy.

Examples of High Low Pricing

High low pricing strategy is a versatile pricing strategy employed across various industries, each using it in unique ways to generate additional sales and manage inventory.

Example 1: Smartphones

In the smartphone industry, high low strategy is a key part of the established marketing strategy. Manufacturers initially offer new models at a high price point, capitalizing on consumer excitement for the latest technology. Over time, or during promotional periods, these high price items are offered at a lower price point, making them accessible to a broader audience and helping to clear excess inventory.

Example 2: Video Game Products

The video game sector frequently adopts the high low pricing method. New releases, often priced at a premium, gradually see their prices lowered, particularly during sales seasons. This strategy not only generates additional sales but also caters to different customer segments, from those willing to purchase full-price items to bargain hunters.

Example 3: Mid-Range Sports Apparel

In the sports apparel market, high low pricing is effectively used to sell off-season goods. New lines are introduced at a higher price point, with prices substantially lowered during the off-season. This helps clear sales floor stocked with out-of-season items while attracting customers looking for quality products at lower prices.

When to Use High Low Pricing

The high low pricing strategy is most effective in markets with varying customer price sensitivity and pronounced seasonal trends. It is an optimal pricing strategy for new product launches, creating initial demand through high prices and later widening market reach by lowering prices. This method is particularly suitable for items that can be offered as loss leader pricing, drawing in customers who may then purchase other items at full price.

When Not to Use the High Low Pricing Strategy

The high low pricing strategy has its disadvantages and may not be effective in certain market conditions. It is less appropriate in markets where there is a consistent demand throughout the year, as frequent price changes can disrupt customer trust. For luxury or niche products, where maintaining a high price point is crucial for brand image, this strategy can be counterproductive as discounting may devalue the brand's perceived exclusivity.

Conclusion

High low pricing is a dynamic pricing strategy that offers numerous benefits but also poses challenges. It requires a deep understanding of market trends, customer behavior, and optimal price point determination. Businesses should consider both the advantages and disadvantages of high low pricing before implementation. For those aiming to effectively implement this strategy, tools like Priceva can provide valuable insights, helping navigate the complexities of different pricing strategies, from high low strategy to everyday low pricing.

FAQ

What company uses high low pricing?

Retail giants such as Macy's and Kohl's are notable examples of companies that use high low pricing strategies. These companies initially offer products at higher price points (reference price) and then provide significant discounts during sales events (using their optimal price points). This pricing method helps them generate additional sales and manage inventory by clearing excess stock.

Why high low pricing?

High low pricing is employed as it creates a sense of urgency and perceived value among consumers. By fluctuating between high prices and discounted rates, it attracts a wide range of customers—from those who are willing to purchase items at the initial high prices to those who wait for the lower prices during sales. This strategy effectively increases sales by tapping into different customer segments.

What is high low and EDLP pricing strategy?

High low pricing and Everyday Low Pricing (EDLP) are distinct pricing strategies. High low pricing strategy is characterized by its fluctuating price points, where products are initially offered at high prices and later sold at discounted rates. In contrast, EDLP maintains a consistently low price, foregoing the traditional sales and discounts model. Each strategy has its own set of advantages and is chosen based on the market and consumer behavior.

What are high and low prices?

In the context of high low pricing, 'high prices' refer to the initial price point of products, which is typically set above the average market price. 'Low prices,' on the other hand, are the reduced rates at which these products are offered during sales or promotional events. The contrast between these two price points is central to the high low pricing strategy, playing a crucial role in attracting customers and influencing their purchasing decisions.

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