Dispensary tips

Cannabis price discounting: the basics

By
Dutchie
September 27, 2021
January 18, 2022

While the cannabis retail industry has its nuances, it’s still a retail industry. Consumers still value a great location, accessible products, and a good bargain. A customer’s understanding of what makes up a “good bargain” is rooted in consumer psychology, which is why discounts work so well across almost every industry in every market. The customer will be more likely to purchase now if the deal is available now. With that being said, there are limitations to keep in mind.

Discounts are more complex than they seem, however, choosing a specific pricing strategy can act as a framework for reducing pricing without hurting profits. Simply slashing prices throughout your cannabis store will not maximize profits. It takes discipline and planning to create an effective discount strategy for your dispensary.

How much should I discount from the full price?

Cannabis retailers need to pay close attention to how much they shave off their profits by offering discounts. Since every state has its own independent cannabis regulations, these discounts will vary by location. Oftentimes, cannabis retails cannot discount below the purchase cost. Pair discounts with a proper pricing strategy for the most effective outcome.

Pricing strategies

Many retail pricing strategies take these factors into account in beneficial ways for cannabis consumers. Choosing the right kind of pricing strategy can help you strategize discounts without negatively impacting your store’s reputation or hurting your bottom line. Don’t stress, we are here to help.

Check out these 3 types of pricing strategies:

1. Price skimming

Price skimming involves releasing new products at an artificially high price. This is common among prestigious consumer tech manufacturers whose products are also status symbols (you know the one). It can work for cannabis dispensaries in the short term because legal cannabis is still a new concept for many people.

But maintaining high prices requires creating and sustaining a powerful brand. Your dispensary has to mean something to people who can easily obtain similar quality products for a much lower price.

2. Penetration pricing

Compared to price skimming, penetration pricing sits on the other side of the spectrum. This strategy encourages retailers to sell their products at low prices. They undercut their competitors to earn a larger share of the market. The brand then focuses on locking in loyal customers to either upsell different products or gradually increase the prices of its usual products.

Cannabis dispensaries often use penetration pricing when dealing with highly competitive environments. Be wary: in urbanized areas with multiple competing dispensaries, things can turn into a race to see which dispensary can lose money the longest without going out of business—a race to the bottom in which only the consumer wins until a local monopoly results.

3. Value-based pricing

Value-based pricing doesn’t sit easily on the spectrum between price skimming and penetration pricing. This is because it focuses on the customer’s perception of value—trying to determine who is willing to pay (and how much) for any given product on the market.

This requires a great deal of research, especially customer surveys and interviews. To tell how much cannabis is worth to a customer, you need to step into your customers’ shoes and ask yourself what they’re looking for.

Value-Based Pricing often relates directly to the customer experience, and any extras the cannabis wholesale brand or retailer has included with the product. These don’t have to be price incentives, they could include educational materials, tokens for a brand contest, elaborate or multi-use cannabis packaging.

The cannabis industry has its own unique set of value determinants. For example, most customers and patients choose location over product quality and selection.

Price your products according to your environment.

The most successful cannabis industry entrepreneurs are often the ones who have taken the time to develop the most comprehensive plans. Dutchie can help you understand your store’s consumer behavior. Use your Dutchie Sales Analytics to determine the average basket size of your shopper and strategize an appropriate discount with that information in mind. Learn from the experience of others and develop a plan that addresses the specifics of your community to make your dispensary a stable, profitable retail venture for years to come.

About the author
Dutchie
The Dutchie Squad