Revenue Management & Pricing Strategies
Absorbing high payment costs through strategic pricing and product mix
Credit Card Surcharging
Passing credit card costs directly to consumers at point of sale (credit cards only, not debit or prepaid)
Advantages
- ✓ Direct cost neutralization - Eliminate credit card margin erosion
- ✓ Mathematically precise - Surcharge equals exact processing cost
- ✓ Behavior incentive - Encourages customers to use debit/cash
- ✓ Immediate implementation - Can be deployed within 30 days
- ✓ Credit only - Cannot surcharge debit or prepaid cards
Considerations
- ⚠ Customer friction risk - May reduce satisfaction/loyalty
- ⚠ Compliance requirements - Must notify acquirer 30 days prior
- ⚠ No Visa notice - Direct Visa notice no longer required (as of 2023)
- ⚠ State restrictions - Some states prohibit surcharging
- ⚠ Capped rate - Lower of merchant discount rate or 3%
Implementation Requirement:
Surcharging requires careful market analysis and customer communication planning. Surcharging is credit-only (no debit or prepaid), capped at the lower of your merchant discount rate or 3%, with 30-day acquirer notice and required disclosures. Consider A/B testing in select locations before full deployment.
E-Commerce Differential Pricing
Separate pricing structures for online vs. in-store to account for elevated costs
Two Proven Models
Model 1: Offset Pricing
Product prices on e-commerce platform are marginally increased (typically 3-5%) compared to in-store prices.
Advantages:
- • Silent cost recovery
- • No explicit service fees
- • Preserves perceived value
Model 2: Up-Front Pricing
Maintain price parity between online and in-store, but charge explicit pickup or delivery fees.
Advantages:
- • Transparent pricing
- • Clear value proposition
- • Better customer trust
Recommended Approach:
Up-Front Pricing with curbside pickup fees is optimal for grocery. Since curbside pickup remains the most popular e-grocery method, charging a nominal $3-5 fee for this service protects margins while maintaining transparency. This fee covers both elevated CNP processing costs and fulfillment labor.
Private Label Profit Maximization
Creating internal margin buffers through high-margin store brands
vs. 10-15% for national brands
Higher margin per unit sold
Incremental profit potential
Strategic Implementation
Category Focus:
- • High-frequency purchases (milk, bread, eggs)
- • Staple commodities (rice, pasta, canned goods)
- • Premium categories (organic, specialty)
Promotion Tactics:
- • Prominent shelf placement and signage
- • Aggressive price positioning vs. national brands
- • Loyalty program incentives for private label
Goal: Shift 30-40% of purchases to private label to create a margin cushion that absorbs high credit card fees.
Regulatory Landscape
Understanding current regulation and preparing for future changes
The Durbin Amendment: Key Lessons
Regulation II (implemented 2011) remains the most consequential merchant fee regulation
✓ Successes
- Massive fee reduction: Average debit interchange dropped from $0.51 to $0.24 per transaction
- Direct merchant benefit: Quantifiable savings for high-volume retailers
- Routing choice: Merchants gained right to select debit processing network
- Cost transparency: Fixed-fee structure simplified accounting
⚠ Trade-offs
- Cost shifting: Banks recovered lost revenue through account fees
- Consumer impact: Reduced perks and increased banking fees
- Lower-income effect: Disproportionate impact on those with lower balances
- Limited pass-through: Minimal retail price reduction to consumers
Key Insight for Grocers
The Durbin experience demonstrates that payment system costs are often zero-sum—fees are shifted, not eliminated. Merchants who maximize Durbin's benefits through proper routing technology capture real savings. The regulation created genuine cost advantages for those who implement least-cost routing effectively.
Credit Card Competition Act (CCCA)
Proposed legislation aims to extend Durbin principles to credit card transactions
CCCA Core Provisions
The proposed Credit Card Competition Act would require large credit card issuers to enable transactions to be processed over at least two unaffiliated networks, mirroring Durbin's debit routing mandate.
Potential Benefits
- • Network competition drives interchange rates down
- • Merchant routing choice for credit transactions
- • Structural relief from 2.10%+ premium credit fees
- • Estimated $15B+ annual merchant savings
Opposition Concerns
- • Potential reduction of consumer credit card rewards
- • No guarantee of retail price pass-through
- • Banks may recover losses via other consumer fees
- • Possible impact on credit availability
Strategic Imperative:
If CCCA passes, grocers should be prepared to demonstrate transparent use of savings. Model the financial impact now and develop communications strategies showing how reduced interchange costs will benefit consumers through stable or lower food prices.
Comprehensive Action Plan
Your roadmap to merchant fee reduction and margin protection
Implementation Priority Matrix
Prioritized by impact potential and implementation complexity
🚀 IMMEDIATE ACTION (30-90 Days)
1. Audit Current Payment Processing
Review statements to identify actual blended rate and routing patterns
2. Deploy Least-Cost Routing (LCR)
Implement or upgrade POS systems for dynamic debit routing
3. Negotiate Processor Markup
Leverage high volume to reduce the only negotiable fee component
4. Optimize Interchange Data
Ensure Level 2/3 data submission and daily batch settlement
📊 MEDIUM TERM (90-180 Days)
5. Implement E-Commerce Pricing
Deploy up-front pricing with pickup/delivery fees
6. Expand Private Label Penetration
Increase store brand promotion and shelf placement
7. Evaluate Surcharging Feasibility
Conduct market analysis and A/B testing for credit surcharges
8. Optimize COGS and Shrink
Improve inventory management to create margin buffer
🎯 STRATEGIC POSITIONING (6-12 Months)
9. Monitor CCCA Progress
Track legislation and model financial impact
10. Develop Transparency Strategy
Prepare communications showing savings pass-through
11. Industry Advocacy
Engage with Merchants Payments Coalition
12. Technology Roadmap
Plan for next-gen payment optimization systems
Expected Outcomes & Financial Impact
Comprehensive Strategy Implementation Results
By implementing all recommended strategies, the average grocer can recover more than half of their processing fee burden and increase net profit margins by approximately 40%.
How Can UniSight Help Lower Your Merchant Processing Fees?
UniSight specializes in payment cost optimization and margin protection strategies for high-volume retailers. Our team can audit your current processing infrastructure, implement least-cost routing technology, and develop custom pricing strategies tailored to your specific market and customer base.
Book a Demo Today →Schedule a consultation to discover how much you could save
Key Takeaways
✓ Merchant fees consume 45% of grocery profit margins - This is not merely an expense; it's a survival threat
✓ Dynamic debit routing is the highest-leverage strategy - Can reduce per-transaction costs by 80-90%
✓ E-commerce requires separate pricing models - CNP fees and fulfillment costs demand specialized treatment
✓ Private label expansion creates margin buffers - High-margin store brands absorb credit card costs
✓ Regulatory changes present opportunities - CCCA could deliver structural relief if implemented strategically