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Pricing Strategies For Clothing Brands Explained
How to do product pricing
So how to pick the right price tag for your clothing brand?
Maybe you think your product is worth a certain ticket price, or you’ve seen other brands with similar prices and decided to follow their examples when deciding how to price a product to sell.
But if you don’t make the right pricing decision for our business, you could be leaving profit on the table, every day!
I share my top 10 best pricing methods that work for MOST clothing and accessories brands. And I bet one of these is right for your business.
As a fashion merchandiser pricing strategy is as essential to success as product choices!
This post explores 10 pricing strategies to guide your product pricing decisions. Finding the right balance is crucial, as a low price may lead to insufficient profits, while a high price could deter budget-conscious customers.
When it comes to how to price a product, Small businesses must consider production costs, consumer trends, revenue goals, and competitor pricing.
While some math is involved, pricing products is also an art that considers the psychological impact of human behavior on price perception. Explore various product pricing methods and their effects on customers to make informed decisions.
Here are the pricing strategies I’ll cover in this post:
Cost-Plus Pricing
Competitive Pricing
Value-Based Pricing
Discount pricing
Keystone pricing
MSRP Pricing
Multiple pricing
Loss Leader Pricing
Psychological pricing
Premium pricing
When it comes to choosing a pricing strategy for your clothing brand, these are the 10 best pricing strategies I recommend as a merchandiser that you need to know to get started:
Pricing Strategies: How To Pick The Right Price Tag For Your Fashion Brand | Merchandiser Explains
1. Cost-Plus Pricing
What’s the easiest way to determine the price of a product? And if you’re already tracking your production costs and labor costs, you’re halfway there.
Think about using Cost-plus pricing, also known as mark-up pricing. You make the product, add a fixed markup percentage on top of the costs, and sell it for the total.
Let's say you're starting out with a dress for your online business and you want to calculate the price. Here's how we're going to do that.
First, you take the cost of making the dress. So your materials might be $10, your labor costs 20, and shipping costs $5. Add to that, your marketing and your overhead, and perhaps that's another $10. So your total cost for creating that dress is $45.
The cost of making the dress is:
· Material costs: $10
· Labor costs: $20
· Shipping costs: $5
· Marketing and overhead costs: $10
You could then add a markup–say 35%—to the $45 total it costs to make your product. Here’s what that formula looks like:
Cost ($45) x [1 + Markup (1.35)] = Final Price Tag ($60.75)
The benefits of using cost-plus or markup pricing is that it is very easy to calculate and you can do this consistently over time.
As long as you know your costs and your shipping, you can always apply the same or similar markup percentage to any goods that you sell. For any product in your assortment, the only downside to cost-plus pricing is it doesn't take into consideration what the market is doing or your competition.
For that, you should think about using competitive pricing for fashion brands that have similar products or trade in similar niches out there.
2. Competitive Pricing
In the business world, often price can be an important differentiator for your brand, but it's not always easy for small businesses to compete on price. Lower prices mean lower profit margins, and that can really erode your overall income and your bottom line over time, depending on products that compete on price alone, will also train your customers to look for the lowest price, and that might not always be your brand.
Competitive pricing refers to a pricing strategy where your brand will look at other benchmarks out in the industry and set your prices accordingly. Somewhere along the lines of your competitors out there in the market, this strategy is really effective if you can get your price on your goods, so your costs are down really low. But again, not always easy for a clothing brand or a small business.
A perfect example of competitive pricing is Walmart. Walmart trades almost exclusively on price and the competitive advantage that they have by buying in large quantities. You can see how a small business and also a fashion and potentially luxury or prestige business can't work this way.
3. Value-Based Pricing
Sometimes customers want products that they feel enhance their self-image and they're willing to pay for them. The value of the product is really their perception value-based pricing or price-to-value pricing means that a customer is willing to pay the price that they perceive that product is worth.
This works really well for certain brands. With this approach, it's your target audience and willingness to pay a specific amount for your product that sets your prices value-based pricing is really common in the luxury sector, which mostly trades on this factor alone.
For brands like Prada, rolls Royce, Gucci, and Louis Vuitton, just to name a few, they're really trading at this value-based, highly perceived value tier for all of their customers. One of the benefits is because there's a larger income per product, a value-based brand can also create a lot of innovation and newness because they have the capital to do it within their product mix.
The downside to this pricing strategy if you're a smaller business, is that you really need to have a lot of valuable or perceived value in your brand equity itself. So to be perceived as a luxury or high-tier brand to command the kind of prices that come along with this strategy.
An interesting example of this is the new Phoebe Philo launch that just happened a month ago. Those prices are in the stratosphere. Even the fashion industry is kind of reeling from the price tags really along the lines of The Row, which is another highly prestigious value-based brand.
This marketing strategy has been effective for Phoebe Philo, making it a status symbol for buyers. Women who purchase from the brand value its brand image and what they perceive it adds to their lives. This allows Phoebe Philo to have freedom in setting prices for its products.
A lot of high prestige perception around those products as well as the materials and the design that go hand in hand. But the Phoebe Philo collection is a perfect example of having that brand equity. In this case, the designer herself going from Celine where she built the equity now to launching her own business and taking all that equity with her into the new venture is allowing her to command those prices.
Value-based pricing is tricky to pull off unless you're building a value-based proposition within your brand DNA. Okay.
4. Discount Pricing
You probably do too. There's a survey from Tidio that says 28% of customers are browsing for coupons and discounts before they even start shopping, and up to 80% browse online for deals before going into stores in real life.
That's a major statistic that really tells us how much a discount or a bargain matters to the customer. There are lots of benefits to having discount pricing for your business. One is that it drives a lot of traffic.
The other is that it can really create a lot of demand for repeat purchases and for customers to buy more when they get to your website.
But there are also some downsides if you use discount pricing too often it trains your customer to look for bargains every day and to resist buying anything from you at full price. And there are global national brands that have this problem and it's very hard to reverse once you have created it.
For example, Macy's department store has trained its customers to really look for those big sale days, and most of the product is discounted. Once you get past the cosmetics and handbag floor, most of the product is discounted probably 80% or more of the time in a Macy's store and online.
If you don't believe me, just check it out and watch what they're doing with their sales and discounts. Often sales and discounts can be masked in a couple of different ways. It could be 20% off, it could be a buy one, get one deal.
It's a little bit sneaky and you won't always see it as a discount or a price slash or percentage off, but those discounts are now baked in, particularly in the US market. This is something you want to watch for. Think of using discounts on a seasonal basis or just as basically popups.
5. Keystone Pricing
Having a simple, go-to way to set your process, no matter the season or category can simplify your business and help ensure you’re always profitable. Keystone pricing works as a quick-and-easy rule of thumb that ensures an ample profit margin.
That’s why Keystone Pricing is another tried and true product pricing strategy.
If you're a small brand. If you want a simple tried and true everyday way to set your prices consistently so that you always know that you have ample markup and margin baked in, then you want to think about keystone pricing.
This is the simple tried and true way to do it every day in your business, across all your categories. For keystone pricing, you create your retail price by simply doubling your wholesale cost or the cost that it took you to create your garment.
The simplest way to think about keystone pricing is your wholesale price. Times two equals your retail price. For example, if a product costs you $15 from the manufacturer, your retail price would be $30.
$15 x two equals $30 retail price.
The only downside to this is if your wholesale costs fluctuate and you're not able to change your retail price, which you shouldn't be changing every day as the customer doesn't particularly like that, you can really lose margin profit margin on your pricing over time.
This is something you want to be very careful about and think about using this pricing method on some of your key basics and perhaps you build in a little extra margin in there to account for fluctuations because you don't want to change your keystone pricing.
With Keystone Pricing, you mark up the retail price by simply doubling the wholesale cost paid for a product.
The simplest way to think of keystone pricing is:
Wholesale price x 2 = Retail price
For example, if a product costs you $15 from the manufacturer, your retail price would be $30.
$15 x 2 = $30 retail price
Depending on the availability and the demand for a particular product, a retailer doubling its markup might be risky for customer acquisition and sales.
6. Manufacturer Suggested Retail Price – MSRP
If you want to set standardized costs for your consumers so that they know they won't be able to find the product for less, then you probably want to think about using manufacturers- suggested retail or MSRP.
You've probably seen this out there and it usually is referred to as the ticket price The MSRP manufacturers started to do this so that they could really standardize pricing across the industry across certain sectors of the industry, but it doesn't always work in your favor.
MSRP’s are often the highest ticket price that you would expect to find that item at retail.
The price without any markdowns applied. The negative here is that it's sometimes hard to compete on price if you need to because you've already set a benchmark and in everything you do with your price, then if you want to make any adjustments, it really needs to look like a discounted price, which you might not want to do.
MSRP's are mostly used for brands and businesses that really are large within the marketplace and can sort of drive prices within certain sectors.
You often see this with grocery drugstore products and their competitive brands' use often see it with commodity type products, t-shirts, socks, et cetera, where the MSRP really sets the standard for the consumer so they can price shop across brands and categories, but they might not necessarily be looking to make a fashion purchase based on MSRP alone.
7. Multiple Pricing
If you're looking for a pricing strategy that can create higher perceived value with lower cost and the possibility to drive more purchases over time, then think about multiple pricing or price bundling as is often called, which is common for beauty companies, drug stores, and apparel brands to use multiple pricing across specific categories like socks, underwear, tights, for example.
Multiple pricing is a great way to think about driving additional sales. Businesses often do this where they might sell two products together for a certain price, but they're able to sell the products individually, both for a higher price.
For example, a shampoo and conditioner together as a multiple-priced item might be $10. Those products individually might be seven and $8. So by getting the multiple or bundled price or product, the customer is saving money, so they're much more likely to buy two rather than walk away with one $7 shampoo. Makes sense.
The downside is if you don't have a lot of volume, then you can lose money on price bundling because you're really selling that second product at a discount and you're not covering that with the volume of sales.
8. Loss-Leader Pricing
Is there a pricing strategy that encourages customers to buy multiple items in a single transaction to boost overall sales per customer and to cover the loss of marking down the products? Initially? We call that in the industry a loss leader.
Loss leader pricing can also be a great way of promoting underperforming products within your product mix. Loss leader pricing is when a customer is lured into your business, your website, with a really advantageous reduced price that they almost can't resist and it starts to drive more traffic to a site.
Customers get kind of excited because they've got this great deal and in psychologically the perception is they have more money to spend or they have the remaining money that they just saved potentially to spend exactly where they are and fill up their shopping cart.
Loss leaders are a great way to generate revenue, not just on the discounted product, but across your entire business.
Think of a loss leader this way. You might have a simple item in your assortment, like a T-shirt for example. You mark the T-shirt down, and it creates a lot of buzz. You can promote it on social media in your advertising, and your marketing on your email list, and it brings traffic to your site.
You might be marking that product down and making just a tiny profit margin on it, but there are products that you can show to your customer that are related to that, that are easy purchase or an add-on something like if they're buying socks, they might also buy a T-shirt, they might buy socks, they might also buy a cardigan that goes with the T-shirt or scarf.
You offer those products related, you can present them in lots of different ways and you're making more sales around that loss leader and it covers the markdown.
The only downside with using loss leaders, but it's a big one, is using it too much.
You are going to really erode your profit across your entire business. Use this in a very selective way. Choose your moments and make sure that you cover the loss leader with some other products that are going to make up that profit margin over time for your business.
Take the stress out of pricing your products right with this plug-in-your-numbers Profit Calculator. Simply input your numbers and let the magic happen.
9. Psychological Pricing
If you want to know the pricing method that is really tough to resist, can trigger impulse purchases, and let the customer feel they're getting an amazing deal, then think about psychological pricing.
Psychological pricing or charm pricing influences a customer's perception of their desire to buy and that they're getting an amazing deal pricing ending in odd numbers, uneven numbers can really have a psychological effect on the consumer and make them think they're getting an amazing deal, and this can be really hard for consumers to resist.
The strategy to accomplish this is usually by using 0.99 cents on the end of a price tag or occasionally 0.97 on the end. To the consumer, something that's marked at 7.99, the perception is that it's a lot less expensive than something that's marked at a straight $8 price ticket.
If you don't believe me, go to some discount retailers and look at their pricing, and then go to any mid-tier store and look at the pricing that ends in zero.
You're not going to find, for example, a brand like Tory Birch having a price that's marked at 49.99, that's a discount price, that's a psychologically priced item, looks and feels a lot different than a $50 piece. The only downside to this is again, you can really train your customers to be looking and on the alert and emotionally invested in finding these triggering price points in your business.
You are going to need to make a decision early on in your brand journey about where you go with your pricing so that you avoid some of these traps. That's why looking at all the major pricing strategies that clothing and accessories brands should be using is one of the key reasons I'm writing this post.
10. Premium Pricing
This pricing strategy and it's my favorite, has the ability to give the perception of higher quality, and higher value and set the tone for your entire business. It also is the pricing strategy that can lead to higher profit margins as well as revenue from your sales with premium pricing brands, identify their price tiers with their competition, and then establish their own prices accordingly.
This gives the impression of exclusivity, luxury, and a premium brand. Premium pricing works for brands like Tory Burch when their customers pick Tory Burch products over a lower price competitor in the better traditional, slightly preppy space over someone like a Kate Spade.
Alternatively, a brand like Prada might not benefit if they're using their premium pricing strategy in certain markets where the customer doesn't have the spending power and they're not going to make as many sales if they are trading at the premium level.
Premium pricing can be challenging to implement if you're not sure about your target customer and what their desires and preferences are.
Learn how to identify your target customers so you can better understand how to price your products, and discover the quirks of your chosen niche.
Premium pricing goes hand in hand with having strong differentiators for your business.
A brand like Prada trades on their high quality, their brand, DNA, their design ethos and style fabric, and innovation within the business. Those are all key points that allow them to command a premium price.
Premium brands don't just make this up. They really build this over time. They also don't do some of the other pricing strategies that we talked about, discounting, bundling, et cetera.
Those aren't the strategies for premium pricing or a premium brand. So pick the pricing strategy that matches your business. A brand like Prada is typically rarely on sale, and if they are on sale, they've planned very specifically and strategically for those products to show up in certain places, certain stores on sale at very limited times throughout the year.
Their customer, most of their customer base is going to buy full price most of the time, and then they do have a sector that they know and they welcome into the brand that is buying on sale at a discount. But you know, you're still going to be paying probably a hefty price ticket, but just not as high or premium a price.
CONCLUSION
Using those pricing strategies very strategically. So how do you find the right pricing strategy for your business? This is not a black-and-white conversation, obviously.
It's going to mean looking at where you're currently pricing your products, taking a look at the market around you, figuring out where you want to trade, and deciding where you want your pricing to sit over time.
It doesn't mean you have to make any major shifts, but it's good to know what the 10 best clothing and accessory pricing strategies are so that you can apply the right one to your business.
There are more strategies, but for my approach, these are the top 10 that I've used as a merchandiser in the New York fashion industry and I think are applicable to most small businesses at least when you're starting out. Look at how you can mix and match some of these strategies and which ones to avoid as you grow your business over time.
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ABOUT THE AUTHOR
Trudi Roach specializes in helping small and emerging fashion and accessory brands scale successfully - even without any prior business or fashion industry experience.
A former fashion executive and merchandiser (aka the real Business of Fashion) she led product development for multi-million-dollar fashion brands, crafting a strategy with the Marketing, Sales, and Finance teams. Trudi learned how to run a business, from top to bottom the hard way, through hands-on experience creating products, working with vendors, and launching products, from test quantities to million-dollar programs … every month!
As a fashion brand consultant, Trudi can help you get there too.
