Psychological pricing tricks businesses must use to survive this Christmas
A former market boss reveals the counterintuitive strategy that could save struggling retailers this Christmas while customers pay more but feel better about it.
A former Melbourne market boss has revealed the “psychological pricing tricks” small businesses must use to survive Christmas – and why traditional discounting will kill them this year.
It comes as Australian financial services company, Zeller, releases a business report showing three in four small business owners are heading into the Christmas season with a tighter cash flow, limiting the potential for discounts.
The report reveals 58 per cent of small business owners are experiencing soaring costs, including insurance, electricity and products.
Josh McNicol, Zeller’s director of growth, said retail and hospitality businesses were the hardest hit.
“I think the one thing that made me concerned was the fact of three-quarters of business owners reported cash flow was strained ahead of the holiday rush,” Mr McNicol said.
He said 80 per cent of retail operators and 78 per cent of hospitality businesses were experiencing issues and it was surprising as they are major sectors that should be thriving going into the Christmas season.
Malcolm McCullough, the former CEO of Melbourne’s famous Queen Victoria Market who know owns deli, Bill’s Farm, is no stranger to cash flow issues at Christmas.
Having dealt with the holiday squeeze and common challenges like insurance hikes and increasing overheads, Mr McCullough has advice to help other business owners survive:
Mindset shift: Mr McCullough said small business owners should stop focusing on negative aspects of increased costs from the past, but instead look for ways to grow the business.
“At this important time of year – because it is the most important time of year for retailers – when we make all that money … if you don’t get it right, you’re in strife,” he said.
Planning can change the outcome: Mr McCullough said business owners should use sales data to identify what works and “make decisions that change the outcome”. He said having a clear indication of bestsellers across the year can help owners prepare better for the peak season.
Optimising Product Sizing: Mr McCullough said in his Deli shop, instead of increasing the prices, he increased the average cutting portions of the cheese, upping it from 220g to 250-270g. The business sold 30–50g more per piece and customers perceived it as “the right size”. This small adjustment grew sales for that item by 10 per cent to 15 per cent annually.
Preventing ‘lost sales’: The business veteran said it was important to look at register data to see exactly when products sold out in previous years. He said his strategy was to buy more stock, ensuring he captures sales right up to Christmas Eve, rather than celebrating selling out early.
Intelligent incentives over lazy discounting: Mr McCullough warned small business owners against simply marking down products to generate sales, as it may generate more volume but “may not necessarily grow your top line”.
Instead, he advised using strategic incentives to increase the average transaction value for customers, who may buy more of one item if offered a multi-buy discount.
This could push the customer past their intended budget while making them feel good about the saving, effectively growing the top-line sales.
While Xero economists have revealed if Australians redirected just 10 per cent of household spending from big businesses to small businesses, it could mean $76 billion more in the hands of small retailers.
Xero’s managing director and global chief strategy officer, Angad Soin, said small businesses needed to remain more disciplined as the major retailers have the option to sustain sales campaigns from Black Friday to Christmas.
“The data tells a powerful story, a simple ten per cent shift in spending unlocks a massive $76 billion for the small business economy,” he said.
“While major retailers have the war chest to sustain marathon sales campaigns from Black Friday to Christmas, small businesses have to be more disciplined. This holiday season, where you spend matters more than how much you spend.
“We’re calling on conscious consumers to consider where they can make spending swaps from big businesses to small this holiday season.
“We recognise that everyone has personal circumstances and household budgets to consider, but shopping small doesn’t always have to cost more. It’s about remembering that every purchase from a small business isn’t just a transaction; it’s an investment in local families, jobs, and communities.”
Analyst company, Digital Darts, has conducted research on the trends of shoppers during Black Friday and Cyber Monday, concluding it had become a money saving tactic for struggling households – not just a sale event.
Director Joshua UebergangUebergang said the pattern was predictable in a cost of living crunch and was reinforced by retailer behaviour.
“Black Friday has become a budgeting strategy,” he said. “People are buying essentials, refills, practical items, and Christmas gifts early to get ahead of rising prices.”
He warned the trend is hitting smaller retailers hardest who already have tight margins.
“This pattern trains customers to only buy on sale. Smaller brands lose their normal November revenue and then feel pressured into deeper cuts they cannot sustain.
“That pressure is increasing each year as big retailers set expectations around heavy discounting.”
