price yourself back into the market
Take a walk through the local shopping center, and the challenge is to find a retailer that is not having a sale. Sales and discounts in the past were special events in retailing, but they have become the main way of retailing for many businesses. A consistent discount offer results in the customer becoming bored and the retailer becoming less profitable.
Research conducted by Harvard Business School found that 70 percent of retailers they surveyed thought that a discount policy had no effect on the bottom line. This should scare any retailer. The discount cycle will result in fewer retailers and less choice for the consumer.
It is now time to price yourself back into the market, but to simply put prices back up will result in a customer revolt; therefore, a policy needs to be carefully developed to ensure customers return to your store and not go to your competitors’ stores. Here are a few strategies.
1. Identify what is price sensitive. Identify what are the real price-sensitive items, and maintain the price incentives on those lines as you alter the prices on less sensitive items. In Australia, supermarkets are doing this exceptionally well. A standard loaf of bread is being promoted for $1 as a means of getting customers in the door. The dollar loaf is the draw card, and other less sensitive items are retailed at full margin.
Every retailer needs to be aware of what are the “Know Value” items in store. These are the products that really drive consumers in on price. Plus, know what are the real nonprice-sensitive lines, where you have the opportunity to grow your margin.
2. Create a premium value range. Many stores have created a value range that is sold as a cheap product. At the same time, they have created a premium range where the quality is perceived to be better. Not every customer wants the cheapest product on the shelf, especially gift customers.
3. Identify your “flour and pancake mix” products. The idea of flour and pancakes comes from Jeff Stiely of Insight, a retail consultant in Perth, Australia. He gives an excellent presentation in which he gets retailers to look at what they are offering consumers. In his local grocery store, the price difference between the cheapest and most expensive flour is 20 percent. The price of the pancake mix in the same store, which also consists of flour, is 900 percent higher than the standard flour. His message is that you cannot survive with selling the basics; you need to look for the added-value products that will allow you to satisfy customers’ needs and allow you to make the margin.
4. Create some price excitement. Be bold, and be brave. Really promote pice when it is a real bargain, and really promote “New” and “Best Sellers” in key locations at the same time. Price sensitive and nonprice-sensitive lines need to be strategically placed around the store to maximize sales. Use your hot-spot selling spots to grow sales.
Is there any way you can create some excitement like Bob Lee at his Big Texan Steak Ranch in Amarillo? People for miles around know that he has a free 72-ounce steak on the menu. The challenge is that if you can eat all of the steak, in one hour, the meal is on the house. If you fail to eat the whole meal, you pay $72 for the privilege. Bob wins most of the time because most consumers cannot get through a 72-ounce steak in one sitting. This is a great marketing campaign and a profitable venture for Bob and his restaurant.
All retailers need to look at the prices they are offering and ask themselves if they have the correct pricing strategy to grow their business in the future.
John Stanley is an internationally acclaimed conference speaker and retail consultant. He is the author of several marketing and retail books including the best-sellers Just About Everything a Retail Manager Needs to Know and Think For Your Customer. For more information, visit www.johnstanley.com.au.
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