Your Pricing Strategy Guide

[Dragonfly]

I work as a Sr. Business FP&A Analyst (Financial Planning & Analysis) in a profession, so I thought it would be interesting to do a complete analysis on various pricing strategies. I will tell you, in summary, your best bet is to keep your prices at about 10% above market value. For those interested in the details here you go...

Hopefully the economics in the game change to more complex dynamics. The developer really should evaluate this, because if he wants to encourage store owners to put products on sale, then the sale prices need to increase demand to influence revenue, which it doesn't appear that sales do that, currently.

For this test, (lvl 50's), I did not expand the product line or the store. The only thing I changed was the prices. I ran 3 days for each pricing strategy and for my analysis, I kept the COGS (Cost of Goods Sold) as the average of all days I ran each test under that pricing strategy. The results below are clear that the +10% Market Value is the best strategy as it maximizes your profit and maximizes your Gross Margin.

For the non-finance people:
The best way to measure results is in your Gross Profit and Gross Margin. The reason you don't want to depend solely on Sales Revenue is because if your Sales increase, so do your COGS (Costs of Goods Sold) and Direct Costs. This means you need to account for your costs of doing business to best determine your actual results. Gross Profit and Gross Margins account for these costs and is a better indicator of your actual performance.

In Summary:
Sales do not increase demand or revenues
Marking up prices increases complaints - They do not buy the products, thus reducing revenues & profits. However, at about 10% above the market price, the loss of sales is over-ridden by increase profit on the products that DO Sell. However, going above 10%, the number of complaints (and lost sales) begin to overwhelm the profits gained and you begin to lose on your bottom line.

Here are the detailed results:

Pricing Strategy: 5% Sale (5% below Market Value)
Average Revenue: $3416
Customers: 58
Rev / Customer: $58.90
Direct Costs: $3060
Gross Profit: $400
Gross Margin: 11.7%
Complaints: 0

Pricing Strategy: AT Market Value
Average Revenue: $4427
Customers: 57
Rev / Customer: $77.67
Direct Costs: $3175
Gross Profit: $1252
Gross Margin: 28.3%
Complaints: 0

Pricing Strategy; +5% above Market Value
Average Revenue: $4395
Customers: 56
Rev / Customer: $78.48
Direct Costs: $2793
Gross Profit: $1602
Gross Margin: 36.5%
Complaints: 5

Pricing Strategy: +10% above Market Value
Average Revenue: $4402
Customers: 56
Rev / Customer: $78.61
Direct Costs: $2750
Gross Profit: $1652
Gross Margin: 37.5%
Complaints: 12

Pricing Strategy: +15% above Market Value
Average Revenue: $4103
Customers: 57
Rev / Customer: $71.98
Direct Costs: $2708
Gross Profit: $1395
Gross Margin: 34.0%
Complaints: 45

Pricing Strategy: +20% above Market Value
Average Revenue: $3967
Customers: 58
Rev / Customer: $68.40
Direct Costs: $2393
Gross Profit: $1574
Gross Margin: 39.7%
Complaints: 64

You could argue that the +20% strategy margin is the highest result, however, your profit isn't the highest, and the +20% strategy is the higher risk strategy that doesn't provide as high of a profit. I believe if I ran the test for longer than 3 days each, this would be even more clear. Also, when I graphed out the results, there's a bell curve that shows the peaks for each metric around the 10% mark, which indicates the design of the economics of the game seems to benefit from the +10% strategy, as it currently is built out.

Future updates may change these numbers and it may be worth re-running this test once there's an update that seems to warrant re-running the test or if actual results over time seem to be off from my pricing strategy. It also might be worth increasing the sample size from 3 days each test to 5 days each. Lastly, what I could do to best even out the direct costs between strategies is to run 2 days at a new pricing strategy before taking the measured results.

[Vrede]

Interesting. Thanks for the tip!

[MisterXLacrador]

I'm currently marking up everthing 6.5% above market price. Sales change nothing in terms of customer behavior. I was wondering about the difference between customers complaint and prices, thanks for the info!

[Starfoth The Burgundy Silk Rug]

I am roleplaying mostly.

For general necessities (cereal, flour, toilet paper, hand soap) I am charging below market. Standard cooking oil and salt still count for this so a very open ended interpretation of 'necessities'.

I charge roughly +5-10% market price for p much everything else including any food items that are premade like sushi or I don't consider very necessary like olive oil. Not subsidizing those, I need to run a business and make money.

I gouge tf out of products I just don't care for like the fancy bottled milk haha. Get the refrigerated milk or refillable bottle and drink from the tap you numnuts! Fancy milk aren't going down unless there's another fire tornado! Not for daily consumption!



Also note: this isn't the best strategy at all because the products I gouge and the things people buy the most are both marginally sub optimal :P
It is fun to be a business tyrant though

[falconwind]

If the dev implements product expiration, he'll need to give us a way of increasing sales on specific items in case we have too much overstock, or else it will increase our shrink. This is most commonly done by lowering the price, but other tactics work too, like putting an item on display. There is a lot of customer psychology involved retail sales, and he should be trying to replicate that.

[AmpegJoe]

in my opinion the best pricing method is this, and you still see a profit. If a item cost between 1-50 cents I go down to the nearest dollar. and 51-99 cents I go up to the nearest dollar. Prices always end in .00. It makes it easy to tell if you haven't priced something and miss the notice that pops up. So If something cost 2.49 I price it at 2 dollars. If something costs say 11.72 I price it to 12 dollars. No need to deal with change. Everyone of course has their own way of doing things, This is my way and I thought I would share

[Sima | Marco]

i round up to the next full value, so i save time for money exchange.
for cheap products i round down

[Undying29]

My strategy is to increase by no more than 10% and round price *down* to the nearest quarter.

[Maya-Neko]

i just add 10 % onto the market price and then go down to the nearest price ending with a 9 (though i rather estimate than actually calculate. It's not like it does matter that much to get the best spot^^). Might make the change more complicated, but i make it a little game to return the money as fast as possible, since i've not really anything to do anyway while waiting for the day to end^^.

[CrazyIvan512]

Originally posted by Dragonfly:

I work as a Sr. Business FP&A Analyst (Financial Planning & Analysis) in a profession, so I thought it would be interesting to do a complete analysis on various pricing strategies. I will tell you, in summary, your best bet is to keep your prices at about 10% above market value. For those interested in the details here you go...

Hopefully the economics in the game change to more complex dynamics. The developer really should evaluate this, because if he wants to encourage store owners to put products on sale, then the sale prices need to increase demand to influence revenue, which it doesn't appear that sales do that, currently.

For this test, (lvl 50's), I did not expand the product line or the store. The only thing I changed was the prices. I ran 3 days for each pricing strategy and for my analysis, I kept the COGS (Cost of Goods Sold) as the average of all days I ran each test under that pricing strategy. The results below are clear that the Market Value is the best strategy as it maximizes your profit and maximizes your Gross Margin.

For the non-finance people:
The best way to measure results is in your Gross Profit and Gross Margin. The reason you don't want to depend solely on Sales Revenue is because if your Sales increase, so do your COGS (Costs of Goods Sold) and Direct Costs. This means you need to account for your costs of doing business to best determine your actual results. Gross Profit and Gross Margins account for these costs and is a better indicator of your actual performance.

In Summary:
Sales do not increase demand or revenues
Marking up prices increases complaints - They do not buy the products, thus reducing revenues & profits. However, at about 10% above the market price, the loss of sales is over-ridden by increase profit on the products that DO Sell. However, going above 10%, the number of complaints (and lost sales) begin to overwhelm the profits gained and you begin to lose on your bottom line.

Here are the detailed results:

Pricing Strategy: 5% Sale (5% below Market Value)
Average Revenue: $3416
Customers: 58
Rev / Customer: $58.90
Direct Costs: $3060
Gross Profit: $400
Gross Margin: 11.7%
Complaints: 0

Pricing Strategy: AT Market Value
Average Revenue: $4427
Customers: 57
Rev / Customer: $77.67
Direct Costs: $3175
Gross Profit: $1252
Gross Margin: 28.3%
Complaints: 0

Pricing Strategy; +5% above Market Value
Average Revenue: $4395
Customers: 56
Rev / Customer: $78.48
Direct Costs: $2793
Gross Profit: $1602
Gross Margin: 36.5%
Complaints: 5

Pricing Strategy: +10% above Market Value
Average Revenue: $4402
Customers: 56
Rev / Customer: $78.61
Direct Costs: $2750
Gross Profit: $1652
Gross Margin: 37.5%
Complaints: 12

Pricing Strategy: +15% above Market Value
Average Revenue: $4103
Customers: 57
Rev / Customer: $71.98
Direct Costs: $2708
Gross Profit: $1395
Gross Margin: 34.0%
Complaints: 45

Pricing Strategy: +20% above Market Value
Average Revenue: $3967
Customers: 58
Rev / Customer: $68.40
Direct Costs: $2393
Gross Profit: $1574
Gross Margin: 39.7%
Complaints: 64

You could argue that the +20% strategy margin is the highest result, however, your profit isn't the highest, and the +20% strategy is the higher risk strategy that doesn't provide as high of a profit. I believe if I ran the test for longer than 3 days each, this would be even more clear. Also, when I graphed out the results, there's a bell curve that shows the peaks for each metric around the 10% mark, which indicates the design of the economics of the game seems to benefit from the +10% strategy, as it currently is built out.

Future updates may change these numbers and it may be worth re-running this test once there's an update that seems to warrant re-running the test or if actual results over time seem to be off from my pricing strategy. It also might be worth increasing the sample size from 3 days each test to 5 days each. Lastly, what I could do to best even out the direct costs between strategies is to run 2 days at a new pricing strategy before taking the measured results.

well done on the Testing

The problem is.. at this point in the game with the Lock on how many customers You can have, and there seems to be a fixed amount of Money You can earn daily no matter how high You mark items Up since the Customers are predetermined as to how much they will be spending on that particular day, I have run my store for multiple days at no mark up and have run my store multiple days at double the price for every item,. when Averaging how many customers came in over those days, i had an average of 56 customers each day (between 55 and 58) and for each of those days I earned an Average of $5500 (between 5200 and 5800)
My point is.. make the prices whatever You feel like making them.. it wont gain You or cost You more then a couple hundred bucks either way, and It wont get You that next Expansion or License at much of a different pace, You will still be grinding the days for the next unlock :) Its all part of the Fun :)

[Vert Startail]

I seem to be able to mark everything up 5% above market and I haven't been having anyone complain.

[Swisspike]

Originally posted by Vert Startail:

I seem to be able to mark everything up 5% above market and I haven't been having anyone complain.

7%. I am tracking every sale, every day. At 8%, I start to see a significant increase in the number of sales that are lost.

[TJgalon]

i just keep everything under market price, more or less making sure the price ends in sets of .25, for easy change, lol

[Swisspike]

Originally posted by TJgalon:

i just keep everything under market price, more or less making sure the price ends in sets of .25, for easy change, lol

You can round up to the nearest quarter, for easy change, and gain a BIG boost in profit.

[desertrose0601]

Thank you for this tip. I’ve switched to pricing this way and it’s going great. I like to calculate roughly 10% and then round down to the nearest quarter.

[desertrose0601]

Originally posted by TJgalon:

i just keep everything under market price, more or less making sure the price ends in sets of .25, for easy change, lol

Why under? They’ll pay 5-10% over with minimal complaints. You’re losing money.