Retail Strategy Secret #15: Keystone Pricing

keystone

Welcome to the fifteenth post in our series of “Retail Strategy Secrets”!  Here you will learn the angles, approaches, and tactics retailers are using every day to try and separate you from your hard-earned cash.  Understanding these unlocks the door to spotting great deals, and you never want to pass up a Dealicacy…

Keystone pricing

This is the act of taking the cost of an item being purchased from a vendor and doubling, tripling, etc. it to achieve an actual or suggested price for resale.  Once the rule for how to price at retail, pure “Keystoning” has more or less fallen out of favor in recent years. These days, it seems to have “mutated” into a fresh new form…First, a little history.

Keystone pricing appears to have some roots in the Great Depression era.  With money difficult to come by, the pricing strategy helped to overcome many obstacles to being (and staying) in business.  For example, jewelry was commonly keystoned at 3 times the cost, and then offered for resale for no money down plus a weekly payment.  The amount of margin made up for poor/bad credit (there were no credit score reporting services then), missed payments, and the like.  As you can see, keystoning generally made things easier in a time of inconsistent wages and banks unwilling to extend loans.

Fast forwarding to today, there is much more competition in nearly every market (not just jewelry).  Plus, the internet has made it extremely fast and easy to comparison shop for everything from commodities to large ticket items, furniture, and even professional services.

Since so many consumers are shopping on price alone, it is difficult to sustain “triple-key” or even the doubling of price. In fact, failure to offer a discount of some sort frequently drives consumers away, with many price-conscious consumers never returning.

This consumer mentality of anticipating and expecting discounts has led to an evolution in how keystone pricing is put to use.  Keystone’s latest form can be seen in “discounting”:

  • Items for resale are purchased from the vendor at a low negotiated price,
  • “Keystoned” as much as 500% to achieve a list price / MSRP,
  • and the actual retail price is set at a “discount” that better generates consumer interest (50-75% off list price)

From this point, some retailers then rotate through a constant promotion cycle for the product (10% off in week one, BOGO week two, 33% off week three, etc.), or consistently mail out 15-20% off “any item” coupons.  Retailers that are notorious for this practice include department stores and chains specializing in low prices.  Notable examples include Kohls, Gordman’s, and many others.

As you can see, now we have additional reasons why we don’t want to buy at list price or MSRP.  More times than not the first price you see is more or less arbitrarily set by the vendor or reseller as a starting point. The sole purpose to gain your attention through offering a contrasting price.

In other words, if it isn’t currently on sale, it likely will be soon.  If it is on sale (and you don’t absolutely need it right away), make a note and see what discount next week brings. If you bite now shopping on convenience alone, you are simply giving extra money to the retailer – which they gladly take, of course.

Your Dealicacy awaits – you simply have to be patient.

Next up, Multiple Pricing.

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9 Responses to “Retail Strategy Secret #15: Keystone Pricing”

  1. Lisa Evancho says:

    You mention such a great things here and it is always pleasure to read. Hope to hear more and learn from you.

  2. Falkner Larson says:

    Great post, really. Thanks for this!

  3. Bli M says:

    Great information! I’ve been looking for something like this for a while now. Thanks!

  4. B Limirits says:

    Beneficial info and excellent design you got here! I want to thank you for sharing your ideas and putting the time into the stuff you publish! Great work!

  5. Ron Tedwater says:

    Thanks for the post

  6. Klemens says:

    Glad to find this information. I have been searching in Google for long time.

  7. […] a simple retail promotion.  You see, many stores loosely practice a concept referred to as “keystoning“, where the cost of any sale prices, discounts, coupon codes, or free shipping are already […]

  8. Small Business Owner says:

    Don’t forget. Those are CHAINS or large stores you are referring to! Many small boutiques only double (and if you are lucky you may be able to do 2.5 only in rare instances)!!!!!! Just because the items retails for $100 in a small boutique does not mean they are making a huge profit. It means the price you see is probably only double. And they have to cover electric, rent or mortgage, water/waste, advertising, donations given to fundraisers locally (which large stores wont do locally), purchase their own inventory, when you return an item, they usually can’t send it back to the manufacture to get a refund, so they take the loss of wholesale plus their mark-up, plus they have to pay themselves with whatever money they can to support themselves (which isn’t much within the first 4 years or so of being open) etc…… Don’t put the little guys out of business with the wrong mindset or you will be stuck with CHAIN STORES ONLY with no option to shop at a local boutique!!!!!! I believe everyone in this country should understand the principles of owning their own business (well a business with a good head on their shoulders anyway)!!!!!! They work hard to create a unique shopping experience within your community! When those doors are “closed for the day” they are usually still working on so much it would boggle your mind! They do their own store lay-outs, their own merchandising, and they take a gamble every single time they bring new products into their store. If it doesn’t sell and it’s only doubled and they have to mark it down, they are already taking a loss.

    Just something to think about for you who like to “bargain shop” the little guys!!!!!! ROSS and stores alike FEED off of small stores not making it!

  9. Ron Matthews says:

    The actual origin of Keystone pricing is in the Bible and can be clearly seen in Jesus’s parable of the servants and the talents (Matthew 25:14-30). The master gave the first servant 5 talents, the second servant 2 talents and the third servant 1 talent. The Master then left on a journey. Upon returning, the master learned that the servant with 5 talents had used the 5 talents to gain another 5 talents. Likewise, the servant with 2 talents gained another 2 talents, while the servant with 1 talent had buried it and had no gain to report.

    Take 5 and turn it into 10; take 2 and turn it into 4 – pretty clear.

    Lessons to be learned:

    – there is nothing wrong with making a profit.
    – using your “talents” is a “good thing.”

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