Small business promotion with retail speaker Tom Shay
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Time for a new way to price

Using a strategy to improve margins

 “How much is that doggie in the window? The one with the wiggley tail. How much is that doggie in the window?”

You probably remember the rest of the song, though rumor has it there was a second verse. In that verse, the little boy points out that he has also visited the big box pet store down the street, seen a comparable dog there, and now he is checking prices at the local independent pet shop. Ever feel like this is happening to you and your business?

Even though statistics tell us about nine percent of shoppers do so because of price, it may seem like all nine percent in America shop with you. However, the situation may be that your customers are in tune with items that are categorized as “everyday sale price items”.

To solve this, start collecting the ads from your big box competitors. You will see a pattern of all the competitors advertising the same items, as well as the basics they advertise one spring are repeated the next spring. These represent the items that your customers are well aware of what the price is.

Think of going to the grocery store for eggs, milk and bread. Most repeat shoppers are well aware of the going price for these staple items. The same concept happens with the staple items in any business. For these items the only answer is matching the price of the big boxes. Of course, this will mean little or no margin on these items.

Before you think this writer is trying to turn you into a non-profit business, take a moment to read the rest of the strategy. Overall, you will see your margins increase.

One of the places you are going to receive increased margins is with products we categorize as “blind price items”. Think about the hundreds of items that you stock that a mass merchant does not. Each of these items should have margins that are far greater than average.

A second place you are going to receive increased margins will be with the products you advertise in the media. Far too many businesses decide what they are going to put in the weekend newspaper by walking through their business on Monday and making a list. Instead, design your advertising on a quarterly basis. Now you are buying your advertising ahead of time, you will also be buying your product well ahead of time. As you work with wholesalers and manufacturers, tell them of your plans to advertise their merchandise and that you are looking for special buys and prices on those items. As your customers do business with you, they expect to find items at special prices. As you shop with your vendors, you too should expect to find special prices.

A third way to gain some additional margin is by looking to tweak your merchandise mix. Look to add to your product mix, items that are in different sizes or colors from what most other businesses stock. Let’s take a look at how people shop to find some of these items. They come into your business knowing what they want to purchase.

However, the skilled sales person through the right questions is able to determine what that customer needs for their home or business. After all, there are many products this customer likely purchases only once or twice a year. The skilled sales person deals with this situation numerous times every day. Not only through their education but through the repeated customer interaction is better qualified to know what the customer needs. A person that came in to purchase a small item at a sale price may find that the large size of the same item does a better job of fulfilling their wants and needs.

Our fourth method of improving our margin comes from changing the way we determine the price of an item. Far too many ‘buyers’ decide the retail price of an item only after looking at the cost. Many ‘buyers’ have a basic multiplier factor they apply to the cost of an item. This is not being a buyer; this is being a mathematician.

The proper way of being a buyer is to examine the product and ask yourself, “How much can I get for this?” After determining that retail price, then ask for the cost of the item and decide if you can live with that margin. Doing so in this manner will do two things. The first is that it will help you to become a better buyer. The second is that you will likely find extended margins.

Our last method of improving margins deals with the actual price you charge. As an example, many garden centers could have a price on an item of $17.49; but would the customer shop elsewhere if the price were $17.99? If not, then that business has unfortunately left fifty cents and some margin on the table.

The strategy is called pricing barriers. While each business should develop their own levels of pricing barriers, readers are invited to visit the website, to utilize the price rounding calculator that will demonstrate many of the opportunities to extend margins.

We have outlined five ways of increasing your margins; all designed to more than offset the lost margin for having matched the big boxes on prices of the most frequently shopped for items. What will be the result of your effort? You will find that you have leveled the playing field about low prices, as well as having increased your margin. Enjoy the extra profit; you deserve it!

Tom Shay is a fourth generation small business owner providing proven management and business building ideas through his Profits Plus Seminars, Profits Plus Solutions coaching, books authored, and articles written. Tom can be reached at 727-464-2182 or through his web site:

Profits Plus Solutions, Inc.
PO Box 1577
St. Petersburg, Fl 33731
(727) 464-2182
Fax: (727) 898-3179