Join us in these
(If you like this article and wish to pass it along to someone else, please use our on-line form)
Our Pricing Strategy
How Much Can You Charge?
When a customer walks into your golf shop and picks up a product, they are likely to eventually look for a price tag and try to decide if the item is worth the price you are asking. If they agree with your pricing, perhaps they will buy it. When they think your price is great, they may decide to buy several. But if they think your price is too high, they would purchase it only if they had to have it right then. And, only if there was no other place to get one on short notice.
Surely with so many mass merchants selling golfing products today, you may think that every customer is trained to shop solely for price. While that is not true, we can share with you some ideas that will give your business a much better price image in the eyes of your customer. And yet, in following these suggestions, you will improve your bottom line.
We will identify four groups of merchandise, with the unique feature of an item that is in one group cannot be in another group. Then we will look at a strategy of overall price rounding. Together these techniques will give your golf shop an image of being priced right like a mass merchant, yet allowing you to achieve an improved overall margin.
The first group of products are those we refer to as "blind price items". These are the products that your customer has no idea what they should sell for. Items that belong in this group are not advertised, less likely to be sold in a mass merchant, and are unique because they are a natural "add on sale", seldom used, and have status or luxury appeal. The more unique a product, the higher the gross margin you can obtain.
Items you determine to be "blind price items" should have a gross margin that is greater than 40% and up to 80%.
The second group of items are referred to as, "everyday sale price items". These are the products that many buyers hate. These products are easily identified in a mass merchant as they are stacked high and have a very low price. You may look at one of these in a mass merchant and say, "they are selling this for what it costs me!" And the truth is, they are selling it for what it costs them. This product is designed just to get the customer in the door to look at what else the merchant has. For a small business, the decision is whether or not you want to match the price. And for reasons you will see as we continue, most definitely you should match their prices.
Initially you should expect to see these items with a single digit gross margin. As you work with vendors in your business and at trade shows, you should be able to get these gross margins into the mid and high teens.
Group number three are items we refer to as "promotional priced items". These are the items that you will use in your advertising. This group consists of two types of items. The first are the everyday sale price items that you have decided to advertise to show your community that you are priced right. The second part of this group are the products that you have asked your vendors to supply you at special prices as well as having asked for some co-op advertising money.
Group number four are items that are "price sensitive items". Items in this group are often related to the everyday sale price items with one substantial difference. The everyday sale price items are usually what the customer wants. The price sensitive items are what the customer really needs.
When you will take the time to find out why a customer has asked for an item when they come into your business, you will often find that the product they have in mind is not going to give them the results they desire. When you direct the customer to the correct product, there is an additional value perceived. And for that additional value, you can have a higher price of up to 10%.
After identifying items for these four groups, we can then implement a technique of rounding prices for our items so as to maximize profits.
We begin with items that are sold for less than two dollars. Because of their being an assortment of small items, we have a tendency to take the cost of the item, double it and allow that to become our retail price.
Instead, allow me to suggest that each of these items need to have a "surcharge" added to their price as it takes just as much time and effort to ring up a one dollar item as it does a five hundred dollar item. Use our example of an item with a cost of 50 cents. As compared to selling it for one dollar, let's add a 24 cent surcharge to make it $1.24. Then we will round the number up to end in a nine, resulting in a price of $1.29. Using this formula throughout your shop, you will see margins on these inexpensive items now in the 58% to 80% range.
As easy as this idea will work for items that originally sold for two dollars or less, we can apply a similar rounding strategy for the rest of your golf shop.
With items having a retail price of $2.00 to $10.00, take whatever you currently have for a retail price and round up the last two digits so that your new price will end in one of these four numbers: .29, .49, .79, or .99.
For items in the $10.00 to $20.00 range, we will simplify the procedure by rounding our current retail price up so that the last two digits are now .99.
Continuing through all of our shop, we will take items in the $20 to $50 range and round their last three digits upward to hit one of these six numbers: $_1.99, $_2.99, $_4.99, $_6.99, $_8.99 or $_9.99.
Our last group of price changes occurs for items that sell for more than $50. We will use four of the same sets of numbers as above, but deleting the $_1.99 and $_6.99. Remember that throughout all of this rounding, we are rounding the current price upward to one of the suggested prices.
While these changes may seem minor, they can greatly affect the profitability of your business. One shop recently reported to this writer that in implementing this strategy eighteen months ago, the gross margin has been increased by 1.9%. Of course, all of this added gross margin will fall to the bottom line of the business. Imagine a shop with a current net profit of 4% implementing these ideas and now having a net profit of 5.9%. Better yet, look at the bottom line of your shop and add another 1.9% to it. How much extra profit will you be taking to the bank?
There are a couple of questions often asked about such a strategy. The first is with regard to everything ending with a nine. The price strategy will work just as well with the last digit being a four, a five, an eight, a zero, or any other digit you choose. The second question is usually about the everyday sale price items. What if my business makes no profit on the item? Should I still carry it?
The answer is a resounding YES. For this is the way that customers know that your shop, regardless of how large or small, is price competitive with any of the mass merchants. Without your having these products, and at the everyday sale price, your business will unfortunately be placed in that category of being just another shop that cannot compete with the mass merchants.
Using these techniques, you are sure to improve your bottom line. Maybe the title of the article should not be, "How much?" but, "When are you going to get started on improving your profitability?"
This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 1577, St. Petersburg, Fl. 33731. Phone 727-464-2182. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.
Profits Plus Solutions, Inc.