Pricing Strategies for the Apparel Industry
Pricing a piece of apparel can be a very complicated process. While it used to be that companies would simply double what they paid, that model is less useful today. Optimizing prices requires a keen sense of brand and competitive research. At times, it can also take a sensitivity to marketing concerns.
One classic rule of thumb in apparel pricing is to use what is called keystone pricing. Under a keystone pricing scheme, prices typically get doubled at each step. An apparel item that costs $10 to produce gets sold in the wholesale market for $20. The retailer then doubles the wholesale price to come up with a retail price of $40, although some retailers may add a little more to allow for discounting. Keystone pricing is simple to do but doesn't always maximize prices when customers would be willing to pay more.
In competitive pricing, apparel prices are set relative to other brands. For instance, if a certain type of shirt sells for between $50 and $60, a new maker of comparable shirts could use that as a baseline. Pricing its shirt below the range set by competitors could bring in cost-sensitive customers. Choosing a price within the range lets it directly compete, while setting a higher price could be justified if the new shirt has features and benefits that justify the higher cost.
In a discount pricing strategy, the apparel company prices the item assuming that it will be discounted. For instance, a company could price a $25 shirt at $40, allowing it to still sell for $26 after a 35 percent discount. These "fake" discounts and constant sales are a major part of the apparel pricing process. Some companies that have become dependent on the strategy tried to abandon it, only to suffer severe declines in sales.
Some brands can also choose to set a high price for no reason other than the exclusivity that it brings. While many consumers can afford a $20 shirt, relatively few can afford to spend $200 or $2,000 on one. In this way, high prices justify themselves by creating a seemingly unattainable item that attracts high-end and aspirational customers. Typically, this approach is chosen by designer and luxury apparel brands that also offer products with a high level of underlying quality.