One of the things that most surprise people about cannabis retailers is that they require the same thought and consideration as other established businesses. One of the main considerations that operators need to strategize is how their products will be priced.
When pricing products at a cannabis retail store, it’s all about covering costs and then some. Here are a few of the most common pricing strategies for cannabis retailers and how to choose the one that’s right for you.
What’s Involved in Pricing at a Cannabis Retail Store?
The basic formula to figure out pricing is to consider your costs. How much does your location cost to rent or own? How much does it cost to purchase your product for resale and have employees working to sell it? How much do your marketing efforts cost you or are you able to use free resources like this free graphic design invoice template by FreshBooks, for example.
Your price needs to cover your costs, then provide a little bit extra to be profitable. However, it’s not always as simple as calculating your costs then ramping up prices to get rich. Your key variable will be your customers and the basic economic principles of supply and demand. If you live in an affluent area where people have ample disposable income, you’ll be able to charge more than you would in low-income areas. If you’re the only cannabis retailer in your community, you’ll be able to charge more than if you have direct competition.
First, understand your costs. Next, understand your market. Only then will you be able to figure out pricing.
5 Common Cannabis Retail Pricing Strategies
There are lots of pricing strategies to consider when putting a price tag on your product. You can try a few to see what works or combine your efforts. Here are some of the most common pricing strategies for cannabis retailers:
1. Keystone Pricing
Keystone pricing is when you set your price at double the cost of the product. So if it cost you $25 to put something on the shelf, the price tag would be $50. While this strategy is simple and effective, it’s also contingent on your current market and competition.
2. Multiple Pricing
When you go to the grocery store and see a reduced price for buying five boxes of crackers rather than one or a buy-two-get-one event, you’re witnessing multiple pricing. This strategy drives revenue by cutting into your margins slightly.
Discounting should be an infrequent occurrence in your store, or it will lose its attraction. Consider offering holiday discounts or the occasional promotion to help bring new customers into your store.
4. Psychological Pricing
Use the strategies of big-box stores and have your prices be a few pennies below the dollar. Consumers feel as though they’re getting a deal when a product is $9.99 rather than $10. You can also use this strategy to undercut your competition, shaving a few dimes off your price to appear far cheaper. Also, show your consumers how much they’re saving to enhance that feeling of getting a deal.
5. Loss-Leading Pricing
This strategy is meant to get people through the door, where they will often buy more products than just the one advertised. Loss-leading pricing is when you lose money on one product to encourage consumers to buy others. Using the cracker analogy, a box of crackers might be heavily discounted to the point a business is losing money, but the cheese that goes so well with it is still full-priced and hard to resist.
Caveats when Pricing Cannabis Retail Inventory
One of the most important things to keep in mind when choosing a pricing strategy is your local laws and regulations. You may not be allowed to offer loss-leading, multiple pricing or discounting, depending on the rules of your area. Be sure to investigate thoroughly.
Another thing to keep in mind is that there are other aspects to running a business, so if something isn’t working, you need to look beyond your price. How can you cut costs to improve your margins? How can you use promotions to get customers through the door?
Remember the four P’s of marketing: price, promotion, place, and product. If something isn’t selling, chances are good that the problem stems from one or more of the four P’s.
The key to running a successful cannabis retail store is to understand your clientele and the market in which you operate. Once you have a firm comprehension of those aspects of your business, the rest will fall into place.
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