The Promo Price List
Working With Variable Pricing
and Promotional Price Lists
With the coming of each new
year, we have made it an annual practice to evaluate several areas
of concern. We review our advertising budget and plan, the hours
that our store is open, and the sales per each hour of personnel.
In preparing for a new year,
we spend a great number of hours working on our pricing philosophy.
Our efforts are directed towards two areas. The first is the initial
margin that we designate for our store's departments and finelines. The
second area of concern is our promotional price list.
We are fortunate
to be able to receive from two of our suppliers, detailed reports
of our purchases with the information being divided according
to their departments and finelines. Departments are defined as broad
categories. Examples of a department would be hand tools, power
tools, cleaning supplies, paints, and paint sundries. Finelines
are our sub-categories within a department. Examples of our paint
sundries finelines are brushes, stains and varnishes, solvents,
and adhesives.
As our store is computerized
at the point of sale, we are able to receive similar reports which
will reflect a more accurate picture. The more accurate picture
is caused by our computer reporting margins from sales, including
our promotional prices, as compared to our suppliers reports which
report according to purchases.
We compare these three reports
to statistics that our suppliers also provide which show margins
according to national and regional averages. It continues to amaze
us, that when we can add a point or two to the margin of a fineline
that, with the exception of our rent overage, these extra dollars
fall to the bottom line. While we are careful in deciding to increase
a margin, we feel that it is crucial to our
profitability to examine the entire store annually.
Working
on our pricing philosophy, the changes we have made to margins
is something that we expect our customers will not notice, while
the promotional items that we select are expected to be noticed
by each of them as they shop in our store.
The promotional price
list is a collection of approximately 150 items which we have
determined to be price sensitive. In our paint department, our
promotional price list includes a gallon of paint thinner, 2 foot
and 6 foot wooden ladders, a paint roller set, gallons of water
seal and wood preservative, and a line of interior and exterior
gallon size paints.
In selecting the items to be
included in our promotion price list, we have read and retained
articles from many trade publications detailing how to create a
promotional list. Surprisingly, in looking at these articles, we
find that the idea of creating a promotional price list has been
written about since the early 1980's.
We have also studied our competitor's
ads for the past five years, and have found a group of products
that appear repeatedly in their ads.
In displaying our promotion
price items, some of the bulkier products are used for end caps,
while smaller products, such as caulks, are displayed with the
regular selection. Each of the items still has a price tag that
shows our wholesaler's suggested retail price. However, there
is a sign in front of the item to show our promotional retail
price on the item, while our computer has been programmed to reflect
the promotional price.
Our experience has shown that
we do not have to have the lowest price in town. With an item having
a promotional price of approximately $5.00, we can be as much as
$1.00 higher than a home center or warehouse retailer, and still
retain our image of having sharp prices.
There are items on which
we do have the best price. When this occurs, we display the competitor's
ad, in front of the product so that the shopper can compare prices.
We feel that this implants in the shopper's mind, an idea that they
do not need to go to the warehouse store to get good prices.
During
the year, we receive sales reports from our computer. If we
have an item, that does not sell well, we remove it from the promotion
list. Likewise, an item that is found to be a part of our competitor's
advertising, and has shown moderate sales in our store, is reviewed
to see if our increased margin is causing
us to lose sales.
When we decide to add a product
to our promotion price list, we do so cautiously. We begin by determining
the price we will need to have to sell the product. We will then
research how we will need to buy the product to be able to still
make a profit. Unfortunately, there have been items that we have
been unable to purchase at a price or quantity that would allow
us to have a promotional price. With these items, we have diminished
their appearance in our store. When we find that we can obtain
the product by purchasing from the manufacturer or other method
of ordering, we begin promoting the product with the inventory
that we already have on hand. While this does sacrifice some margin,
we prefer this method compared to ordering a substantial quantity
of the product at a more favorable price, and risking the possibility
of having selected a product that will not sell in our store.
We feel fortunate at this time
to be able to state that we have maintained a 20% margin on our
promotional priced items, and do not have any item of which we own
a two year supply of inventory.
Finally, the most pleasant experiences
come from customers as they tell us that it is not worth the few
cents of savings by driving to the home center and having to search
for the products. Or when they come to our store with a competitor's
ad, and ask us to match their sale price. We are pleased to be
able to show them that our promotion price is already the lower
price. We think this brings our customer back.
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