Every business should have the correct pricing in place if it wants to appeal to its customers, whether in a brick and mortar store or across the digital shelf.
Of course, this means first understanding the different price types applicable to your products/services.
In this article, we explore the debate around list price vs net price and show how each of these pricing models can impact overall profitability.
What does list price mean?
It’s best to think of the list price as the headline price you offer customers.
Sometimes referred to as the manufacturer’s suggested retail price (MSRP), the list price is what shoppers will end up paying for your products/services without taking into account external factors, such as trade discounts.
Calculating products’ list prices is essential to putting together a strong retail pricing strategy. You can calculate the list price of a product/service by a) comparing other similar products/services throughout your industry, and b) understanding how much it costs your own company to offer these products/services.
Finding the right list price means considering both production and distribution costs, before settling on a price range that allows you to not only recoup your expenses but also make a profit!
What does net price mean?
Net price is how much your customers will pay once all relevant sales discounts and/or sales promos have been applied.
Nowadays, most businesses live and breathe by their net price structures. Take sofa experts and prominent furniture retailer DFS, for example. Running several different promotions throughout the financial year means they must keep track of their net price margin very closely, otherwise they risk overspending and putting the company’s profits in jeopardy.
Factors that influence list price vs net price
When it comes to your business’s pricing strategy, you must take into account the following factors before determining both list price and net:
- Production cost
- Labour cost
- Shipping cost
- Projected sales revenue
- Desired profit
Some additional factors to consider include:
- How unique your products/services are (i.e. how much value they add to the customer)
- Competitor pricing
- Market relevance of your products/services
- Government and legal requirements
- Supply vs demand
- Social and ethical concerns
List price vs net price: How do you align them?
There are ways of aligning both your list and net pricing so they do not cause a problem for your margins going forward.
You should start by:
1) Analysing the competitive landscape
Competitor monitoring means seeing what they’re up to and acting fast to ensure you maintain a viable position within your overall market.
You should make sure you’re priced reasonably – neither too high nor too low – to present as a viable option for consumers. As Goldilocks knew the value of ‘just right’, so you too must find a happy medium when considering a competitive list price vs net price.
2) Gauging shopper sentiment
Why are shoppers coming to you? Why should they stay? What are you offering them that no one else can?
Get to grips with your brand sentiment by looking at reviews – from search engines, social media, even landing page comment sections! If your everyday low pricing or other similar model is what’s pulling in the punters, don’t drastically change a strategy that’s clearly working.
3) Calculating cost-plus pricing
Balance your list price vs net price by calculating cost-plus pricing across your business.
Take combined production and distribution costs then set your desired profit and, hey presto, you’ll have the metrics needed for a successful business strategy!
4) Communicating with distributors
If you want a fair distribution agreement, it’s best to be on good terms with your resellers – at all times.
Ensure effective communication channels are in place to facilitate this and maintain a strong relationship for the most mutually beneficial discounts.
5) Understanding your unique selling propositions (USPs)
What makes your product/service unique? Why should customers pay attention to you and not shop elsewhere? Have you priced your products/services out of your target market without even realising it?!
Remember, it’s your job as a business stakeholder to identify the problems your customers are facing and position yourself as the solution provider. But if your list price vs net price ratio is amiss, they will shop with your competitors instead, so it’s important to get things right – and fast.
Managing list price vs net price with Magpie DBX
Ecommerce businesses can use Magpie DBX for effective price tracking around the clock. We provide filterable, searchable results for your own products as well as those of your competitors, so you always know where you stand within the market.
It’s even possible to receive real-time alerts whenever prices change, so you never have to miss a beat when it comes to staying ahead of the competition.
Feel like Magpie could help you get your list price vs net price back under control? Contact us and request a demo today!
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