PRICING

Definition

Pricing refers to the entire process by which a company determines, adjusts, and manages its selling prices over time. It is a discipline in its own right, at the intersection of marketing, finance, and—increasingly—data: it involves analyzing demand, calculating price elasticity, monitoring the competition, and adhering to internal business rules (minimum margin, product line consistency, price-image alignment).

The distinction between price and pricing is simple but often blurred in everyday language: price is a result—the number displayed on the shelf or online—while pricing is the process that produces that result and causes it to change. A retailer may have thousands of prices, but only one pricing strategy that governs them all.

Why it matters

• A margin lever that can be activated immediately: Unlike measures targeting costs or volume, a pricing adjustment can improve profitability without requiring investment or changes to the product mix.

• An organizational challenge, not just an analytical one: pricing almost always involves multiple departments (purchasing, marketing, category management, executive management)—the hardest part is often not calculating the right price, but aligning the organization on who decides what.

• A field transformed by data and AI: Historically driven by intuition or spreadsheets, retail pricing is shifting toward data-driven approaches that allow for prices to be set differently by store, channel, or time, rather than using a uniform pricing grid.

Major Pricing Methods

• Cost-based pricing : The price is based on the cost of goods sold, plus a target margin. It is simple to apply, but does not take into account what the customer is actually willing to pay.

• Value-based pricing : The price is based on the value perceived by the customer, regardless of cost. More profitable in theory, but more challenging to implement (since this perceived value must be measured).

• Competitive pricing : The price is positioned relative to the competition for comparable products—a key factor in KPIs, where the customer makes direct comparisons.

• Dynamic Pricing : Prices are continuously adjusted based on demand, inventory, or other factors (commonly used in transportation and the hospitality industry, but more limited in brick-and-mortar retail).

A mature pricing organization does not choose a single method; rather, it combines methods on a category-by-category basis, depending on the specific challenges (margin, price perception, inventory turnover) associated with each product family.

Real-world example

A grocery chain applies strict competitive pricing to its 200 most-compared SKUs (the KPIs, which are aligned daily with the competition), traditional cost-based pricing to its stable core product lineup, and value-based pricing to its differentiating private-label SKUs, where a direct comparison with a competitor doesn’t make sense. Pricing, in this context, refers to the rule that determines which of these three approaches applies to which product—not the calculation of a single price.

Common pitfalls

• Treat pricing as a purely analytical issue: without clear governance (who validates, who makes the final call), even the best calculation model will produce inconsistent decisions.

• Applying a single method to the entire catalog: a one-size-fits-all approach fails to recognize that each category has different margin and perception challenges.

• Confusing pricing with discounts: Lowering a price is just one of the possible decisions in a pricing strategy, not its ultimate goal.

FAQ

What exactly is pricing?
It is the process by which a company determines, adjusts, and manages its selling prices over time—a process that should be distinguished from the price itself, which is merely the visible result of that process.

What is the difference between pricing and price?
A price is a number: what the customer pays for a given product at a given time. Pricing is the process—data, rules, trade-offs—that determines that number and causes it to change over time.

What are the main pricing methods?
Cost-based pricing (price = cost + target margin), value-based pricing (price based on the value perceived by the customer), competitive pricing (price aligned with the competition), and dynamic pricing (price continuously adjusted based on demand or context). Most retailers combine several of these methods depending on the product category.

Who is responsible for pricing in a retail company?
Most often, a dedicated pricing team that works directly with purchasing, category management, and sales management—the data used for pricing (costs, sales, competition) rarely comes from a single department, which makes governance just as important as the calculations themselves.

How is artificial intelligence changing retail pricing?
It enables the calculation of pricing recommendations across thousands of SKUs, taking into account price elasticity, competition, and business constraints simultaneously—provided that business rules and human validation guide the recommendations, rather than fully automated decision-making.