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.

This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 128, Dardanelle, AR. 72834. Phone 727-823-7205. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.