Pricing
for Profit
Developing
a pricing strategy
The
title of this article is more than just that. It is also the name
of a book written by Bob Aiken, an authority on pricing strategies
for retailers. In his book, Aiken discusses a method of determining
prices for products that is known as the "Putney system".
Designed for items retailing for less than $2, the Putney System demonstrates
how you can achieve extra profits by rounding the prices of items.
After all, if a person will pay 39 cents for an item, won't they pay
59 cents? And over the course of a year, how many of the items that
you sell, or include as a part of a repair, are priced for less than
$2? With this additional margin, you will probably add several thousands
of dollars to your bottom line.
Aiken's book extends the idea of rounding prices to include all items
and services that your business sells. The book also contains many
ideas about merchandising, signage, and profitability. In the limited
space of this article, it is impossible to provide many details of
this book.
The book sells for $35, and it is safe to say that it is well worth
it. After all, if you are doing $750,000 in annual sales, Aiken explains
how you can add $25,000 in profits by using his pricing methods. While
this book can become an integral part of your pricing strategy, we
will discuss three other pricing strategies within the confines of
this article that tie into Aiken's methods. These pricing tips will
allow retailers to expand their overall margin for business, and improve
the competitive price perception their stores display to customers.
The first of the pricing strategies is to recognize the items that
maintain a level of customer awareness in terms of their prices. For
example, you and your customers will probably know the prices of about
one hundred items that you sell. Often they are referred to as being
commodity items as they are advertised by most all of your competitors.
With these popular items, you will have to be price competitive. Your
job will be to determine this list of 100 items for your store by
shopping the competition and watching their ads. We refer to this
group of items as being the "everyday sale price" items.
The second step is to determine which items you want to include in
your advertising. Instead of deciding from week to week what you are
going to advertise, purchase items from your vendors which you will
include in your advertising. If you are going to advertise a certain
product several times over the next quarter, consider writing orders
for multiple delivery dates instead of having all of the inventory
arrive on one date. This will allow you the opportunity of making
changes as you monitor the results of your advertising.
The third strategy involves the majority of products and services
that you sell. Give consideration to expansion of the product selection
in your most profitable departments and finelines. Often you can increase
your margins by several points when your selection is very thorough.
With a thorough selection of products, you are decreasing the chances
of your customer shopping somewhere else. What would your financial
statement look like if you added those couple of points to the entire
store?
Implement these three strategies, throw in Aiken's pricing system,
and your financial statement will take on an entirely new look. The
part of this entire program that makes it saleable to your customers
is how you present it. Here are several pricing tips that will make
your customers believe that you are the pricing leader.
1. Display signs prominently in front of price sensitive items and
announce the price with signs indicating this is your everyday low
price. A study by Brigham Young University found a 51 percent sales
increase just because a sign was present.
2. Watch the advertising of your competitors. You will probably find
occasions where their advertised prices are the same as your everyday
prices. You should first look to see if you can raise your everyday
prices. If your competitor's sale price is a dollar higher than your
regular price, then this is probably a dollar or two that you can
regain by raising your price.
3. When that happens, tell your customers. One idea that works is
to create a sign that promotes your pricing. Cut out the competitor's
ad, and put it on a sign next to your product. You can add a notation
such as "Their sale price, our everyday price." And as you
gather your competitors' ads, make sure that you cover all types of
competitors: garden centers, hardware stores, discount stores, and
anyone who advertises a product that you sell.
As you gain confidence in your pricing strategy and begin to see the
results on your financial sheet, you can also offer to match the price
of any product at any store. You can win the battle because you have
done your homework, and you know the strategy of pricing for profit.
* Develop a pricing strategy for your business
* Variable pricing will pay for itself
* Promote your pricing
