What is the Definition of Keystone Pricing?
Keystone pricing is a traditional retail strategy definition. This strategy sets the selling price at double the product’s acquisition cost, creating a 50% markup. This pricing approach traces back to the jewelry trade in the late 19th century. A publication named ”The Keystone” introduced the concept to jewelers. Keystone Pricing advises against revealing manufacturer-level prices to consumers. Instead, this way recommends doubling the actual value of the selling price.
This pricing method has become a standard in many industries. For example, wholesalers might add a 20% markup, while some restaurants triple food costs. The essence of keystone pricing is its simplicity: double the cost for a clear pricing approach.
Benefits Of Keystone Pricing
Keystone pricing is simple and traditional, favored especially in brick-and-mortar stores like department stores and small businesses. The method often aligns with value-based pricing. Higher prices often signify better quality to customers, especially in in-store shopping scenarios.
However, this strategy has limitations and overlooks market variables like demand and competition. This oversight can lead to missed profit opportunities, especially for premium products that could warrant higher margins. While straightforward for an extensive product portfolio, a more holistic approach considering various market factors might yield better profitability and sales optimization.
Keystone pricing impacts pricing at each stage of the supply chain. Consider a product with a manufacturer’s sale price of $5. This price becomes the wholesaler’s cost. With a 20% markup, the wholesaler sells the product to the retailer for $6. Using the keystone pricing strategy, the retailer doubles this cost, setting the retail price at $12 for consumers. This example showcases the simplicity and effectiveness of keystone pricing in ensuring a profit margin at each level of the supply chain, making it a straightforward and traditional pricing approach in retail.