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The Price is Getting Right
Establishing a pricing strategy for your business
On television, "The Price is Right" is a game show that portrays consumers attempting to guess the retail prices of popular items found in stores. Prizes are awarded based upon the contestant's ability to be the closest guess to the actual price. It is always amazing how far off the guesses are, while the items vary in price from under a dollar to several hundred dollars. The idea works on TV; does it work in real life? Absolutely!
Ask six people to quote the price of something as simple as a roll of film, and the variance in price will be tremendous. But what about the hobby business? There are actually five areas where you should pay attention to your pricing in an effort to create a price competitive store, yet be a store that can actually see the gross margin increase.
Everyday Sale Price - You know all of your competition does a lot of advertising, but have you ever taken the time to make a list of these items? You will be pleasantly surprised to find there are only 100 or so items that your customer knows the price of. Matching the price of the competition on these items, cancels their tremendous advertising advantage.
Price Sensitive Items - This group can contain two types of items; the first being those which are related to an everyday sale price item. The customer may know the price of the item they came to purchase, but what about the accessories? These are the items on which you can make a decent margin. This price sensitive group can also contain items you carry which are similar, but not identical, to that which your competition carries.
The customer may be asking for an item they saw in the competition's advertising, but you are stocking an item with the same features. Your item may be superior, and for that you can charge a minimal additional amount. Usually this amount can be up to 10% more, but no more than four dollars.
Promotional Priced Items - The items contained in this group are the ones you advertise with. While you may sometimes include items that are also found in the ads of the competition, your advertising should not be a reflection of theirs. Allow your advertising to tell your story to the consumer, by showing the products you have chosen to carry, and the services you offer. It is crucial that the people working in your business are not only aware of your advertising, but where each product is located within the store, and how to use each of the products advertised. With the limited budget for advertising, you cannot afford to shoot yourself in the foot by having some employee lacking expertise.
Blind Priced Items - After having determined all of the items which fall into the first three groups, there remain thousands of items that are available for sale. What are the prices of these items? For the items that fall into the blind price category, the answer is, "nobody knows". Unfortunately, these are the items that, too often, have a retail price that is substantially less than what the market is willing to pay. Other than through process of elimination, you can find these items by shopping the competition. Make a point to note the price on ten items every time you or someone from your business visits their store.
If you are like most retailers, you will be surprised to see how much less you are charging for some of these items. There is no advantage, or reason, to have the lowest price in town on any item you sell.
Price Rounding Items - One of the places where we always advise retailers to spend money is technology. The chain stores have tremendous amounts of information available to them with regard to their products and gross margin. For example, can you answer these questions about your business? Do you have a better margin on kits or accessories? And when it comes to accessories, how is your margin on cements? Being able to answer these questions, allows you to know where you are making money. As you have the answers to these questions, you can next examine where each of these product categories are in your store. How much square footage is given to each? Don't you want the ones on which you make the most margin to be the most accessible to your customers?
As you examine these types of questions, you will see it takes technology to be able to provide the answers. And having the answers allows you to design a store that not only appeals to your customers, but one which is designed to maximize your bottom line. As you examine this data, you will probably find areas of your business in which you should concentrate your efforts. You will also find areas that will cause you to wonder why you have not been able to obtain as much markup as you thought you should have.
As these types of items are examined, you will find opportunities to increase your sales, your prices, and your profits. There is one more strategy we would like to share with you. From years of retail experience, we found this unique pricing technique to be quite profitable. Think about the products you sell that have a price of two dollars or more; just about everything in the store. Look at all of the different prices; you don't really need to have all of them.
With everything you sell that has retail between two dollars and ten dollars, you can round up the prices to where the items end with .29, .49, .79, and .99 cents. For products between ten and twenty dollars, round up the prices, causing all items to end in .99 cents. From twenty dollars to fifty dollars, have your prices end with 1.99, 2.99, 4.99, 6.99, 7.99, and 9.99 (i.e. 31.99, 32.99, 34.99, 36.99, 37.99, and 39.99).
For items of fifty dollars and above, use the same formula for rounding up as above, making a small change to eliminate the 2.99 and the 6.99 levels. What does all of this change in rounding up do for you? For a store with annual sales of $750,000, you will see an additional $25,000 appear on your bottom line. All of these pricing strategies work very well with each other. The benefits you will receive are the perception with your customer that your business is priced competitively, and a substantial increase to your net profit. Now, the price is getting right.
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.