Posts Tagged ‘Pricing’

How to Manage Obsolete Inventory

Friday, February 28th, 2014

question-markFor most retailers, poor buying decisions lead to poor cash flow. Obsolete inventory ties up cash. It requires close monitoring to maintain the appropriate level of stock. Spend time to review aging inventory and make adjustments to prices to sell slow-moving products and free up the cash to purchase more attractive merchandise. When possible automate reporting so that store and shelf inventory older than 60 or 90 days are flagged in your reports so that you can take abatement steps.

For all merchants, taking unplanned markdowns is difficult.  Build a small expense budget each month called “unplanned markdowns.”  Then, when stagnant inventory seizes your cash flow, use a planned markdown strategy on the most troubled products to induce customer sales. The markdown can be offset by the “unplanned markdown” expense line and not have as devastating effect on operations because the markdowns were already built into the budget.  Consider setting aside a specific percent of sales each month that is reasonable to cover unplanned markdowns. Begin with 1-2% and adjust as you gain more insight into this troubling issue. Over time you may need to set a fluctuating percentage as inventory from back to school, end of year and holidays may need to be aggressively marked down. Tracking and managing an unplanned markdown budget should also start to reveal patterns about your buying habits and your customer’s purchasing habits. Typical patterns to look for include  a local affinity for particular colors (Be smart about purchasing items in the local school colors in paper and other supplies.)

Savvy merchants create a markdown plan for stagnant inventory.  Product that is non-seasonal and simply is not selling may go on a 25%/50%/75% markdown plan where the price changes automatically every 30 days until all of the product is eliminated in 90 days.  Seasonal products typically need a more aggressive markdown plan that may be a 50%/75% markdown completed within 45 days.   Selecting a specific back end cap or other store location for the marked down goods also creates a good merchandising practice.  First, it removes poor sellers from the most valuable sales locations in the store. Second, it creates a destination for your bargain-minded shoppers who will regularly shop the discount areas. These bargain hunters can actually accelerate the cash flow and give your store a reputation for having great prices.

Retailers: Get Out of Showroom Denial

Tuesday, August 27th, 2013
Lego's front windows now hold a "Gallery"

Lego’s front windows now hold a “Gallery”

For every retailer, pricing is a critical (if not central) focus on dominating their competition.  But even in today’s mobile technology world, many retailers are in showrooming denial.  It is faster and easier than ever for your customers to compare prices in real time.  Recognize that shopping has changed: shoppers continue to peruse stores but purchase online for a number of reasons: better pricing, home delivery, wider selections of colors or sizes.  The sooner retailers accept this is happening, the sooner they can take steps to overcome this new business pressure. BEcause this new way of shopping isn’t going away.

First, the retailer itself needs to clearly understand how they compare to the competition.  That means looking at hard data to see an accurate comparison of prices, delivery policies and assortment.  Then, the retailer can decide if it will match the prices of online retailers on a year-round basis.

Second, retailers need to make it easy for customers to comparison shop as well.  It may make you quiver, but it works.  Consumers have a knack for finding deals – so they will appreciate it if you make it easy for them to do so.  If you will price match or you have the best deal you can give your shoppers confidence that they are getting the best price and make them feel good about their purchase.

Third, build a process and a system for making price comparisons a part of your standard operations.  Tools and services exist that can scour pricing data on Key Value Items and other critical products to make sure you are aware of price changes in the market as they happen.

Fourth, don’t make competitive pricing a race to the bottom.  Understand what else makes you great (service, selection, location, easy returns, etc) and make it a key part of every customer transaction.  Help your shoppers understand that there is more than prices that makes you great to keep them loyal.

5 Things Successful Retailers Do To Keep A Price Advantage

Tuesday, August 20th, 2013

Screen Shot 2013-07-30 at 8.48.43 AMRetailers who promote a price value advantage,  take these 5  steps to succeed:

1)   Diligently review competitive prices to ensure that you are not caught unaware of price reductions in the market.  Advertising a price match without realizing a deep discount can tank your store’s profitability.

2)   Train all associates on how to efficiently conduct a reduced price transaction.  To keep customers happy, make sure that a reduced price transaction will be performed smoothly.  Waiting for a manager to press a price override key or teach a cashier how to conduct the transaction will be frustrating no matter how much money the shopper saves.

3)   Fully educate your store associates on your policy and how to effectively and politely communicate it to your customers.  Expect your associates to be as gracious to the shopper who requests a price match or a special discount as one paying full price.

4)   Repeat and reinforce your pricing messages to your customers to make it memorable. You may see the message and think it is obvious, but your customers may see it two times a year.

5)   Deliver your secondary message to your customers at every occasion.  Do not rely on low prices to build loyalty. Always connect your low prices with friendly service, same day delivery, in stock assortment or great selection to help customers remember why they should return to your store.

Should You Accept Competitor Coupons?

Tuesday, August 13th, 2013

We Accept Competitor Coupons:

Retailers who are pressed to compete with promotions from competitors may believe they need to accept competitor coupons to keep their loyal shoppers. If you see a spike in mail or digital couponing from a competitor, carefully track customer transactions to see if your customer counts are declining.

It is rare to gain new shoppers with this strategy – it is primarily defensive to deter current shoppers from shopping at a competitor.

If you have a competitor who regularly employs direct mail, email or other non-public offers to its best customers, it is possible to entice those customers to try your store. This can be especially effective if you have a more convenient location or better delivery service than the competitor.  Often, competitors stay in business for years and seem to do little to no advertising.  What you may not see is a targeted direct mail or email campaign that keeps customers engaged with limited offers.

Advertise that you will accept competitive coupons to lure your competition’s best customers to try your stores. The main risk is that you are opening yourself up to an unknown level of activity.  Many stores limit this offer by excluding e-commerce retailers or limiting the offer (“Limit one competitive coupon per customer.”)

Just remember that in employing this strategy, yyou give your competition control over your promotional discounts and you could see unpredicted profit erosion in your P&L.

Retail Challenges with Price Match Guarantees

Tuesday, August 6th, 2013

iStock_000006139533SmallPrice Match Guarantee: A common online and storefront policy is to match any advertised price by a competitor as long as it is offered on the same item and within the same market.  It offers customers peace of mind that your store will not gouge them and may keep customers loyal.  It relies on customers to be too lazy to research other prices while giving your store a “price halo.”  But of course, there is the danger that customers will find lower prices.  In fact, this policy invites them to look for better prices elsewhere.  And the interaction with a customer to reduce the price at the register or refund a recent full purchase price takes time for both your store associate and your customer.

These can be touchy negotiations, especially if your store associate is not gracious and the customer misinterprets the offer or the competition’s price.  It is common for customers to bring in a “like” item price – but not the same item – then demand that you reduce your price to match it.  So from a high-level this seems like a smart offering, but in the reality of daily operations; it can be a costly policy to uphold.

110% Price Match Guarantee: A variation of the price match guarantee is beating your competition by 10% should your customer find a lower price offered elsewhere.  Again, the same benefits and dangers apply as with the former price match guarantee.  But customers will be enticed to shop solely on price even more. This is not the behavior of a particularly loyal group!

Giving an extra 10% on an item is no more work on your store associate’s behalf (changing the sales transaction price) and probably goes much further to communicating to your customers that you will take care of them no matter what the competition does.  So in many ways, if you are planning on meeting competitive prices, going with an additional 10% probably doesn’t tremendously change the outcome.  You will still have customers who take advantage of this policy but your low price positioning cannot be questioned.

Another option is to promote the 110% price match policy only during a high demand period, such as back to school.  Offer this policy for a limited time during a highly promotional season to restrain your regular customers from being enticed by competitors who will increase their promotional pricing during the “high season.”

Is a Low Price Your Only Value Proposition?

Tuesday, July 30th, 2013

iStock_000006139533SmallIn our competitive market, Pricing is a common focus for both  retailers and for customers.  Most shops proudly state that their products offer the same quality for a lower price than the competition.  While this may be true, a pure price focus is a dangerous marketing position for any retailer. Truth is: a shop that focuses on price can ALWAYS be beaten.  It just takes a competitor who has deeper pockets and the fortitude to suffer losses long enough to put its competition out of business.

Savvy retailers combine a low price value proposition with another key strategic point of differentiation: a wide (or focused) range of products, expert service, same day delivery, knowledgeable assistance, environmentally sustainable recycling, etc. Retailers commonly either (1) focus entirely on price and barrage their customers with a lowest price message to their own detriment or (2) attempt to claim every position listed above – and more.  A good marketing rule to differentiate and create a CLEAR position in your customer’s mind, is to focus on two strategic value propositions: price and assortment OR service OR delivery OR inventory, etc.

But certainly most customers state that given a preference, they would choose to shop with a retailer who offers their desired goods at the lowest price.  Which raises the question: how to communicate your low prices effectively?  Let’s Look at Every Day Low Price as a strategy:

Everyday Low Price (EDLP): This strategy sells product at the lowest possible price without sale pricing or other “gimmicks.”  An advantage is that EDLP retailers often have a lowered cost of advertising. It is particularly effective when selling to other businesses who can rely on re-ordering with you at the best price at any time.  It also prevents issues when customers pay full price one week to see their purchase advertised for a lower price the next.  The danger of this strategy is that it can be difficult to entice new customers without a glitzy promotion to try your location.

Additionally, it takes a disciplined manager to not be tempted to meet loss leader pricing from competition when they advertise a low price on an item knowing they can make up the profit margin on other full-priced purchases in their stores.  Finally, to be truly effective using this strategy, you must have a significantly reduced operating model to sustain your low prices.  Wal-Mart,for example, achieve its low prices with an extraordinarily efficient supply chain. If you have an owned store (no rent cost), volunteer assistance (low labor costs) or an energy efficient building that allows you to operate with extremely low utility costs- you may be able to keep and hold this position in the market.

 

Merchandising Issues: Customer Decision Points

Wednesday, June 12th, 2013

Screen Shot 2013-03-10 at 6.51.18 PMGood merchandisers highlight their range of assortment in a way that customers can easily see the trade offs among their choices. An efficient merchant will select the best assortment to properly give customers enough – but not too many – choices. There is a customer decision point you should be well aware of.  That is the point where a customer will abandon your store due to a lack of acceptable choices.

Here are examples:

 

    1. A customer with $1500 to spend on an engagement ring walks into an upscale jewelry store.  The lowest priced ring is $4900.  The customer will abandon the store.
    2. A customer wants a mid-range calculator with limited scientific functions.  The store offers several student calculators under $10 and old-school desk calculators with paper rolls for over $75.  The customer will abandon the store.
    3. A customer is not sure which vacuum cleaner she wants.  It must be lightweight, under $120 and have upholstery attachments.  The only models in stock are either lightweight and under $80 without upholstery attachments or commercial-grade with easy attachment choices but priced at $199.  This is the most common scenario where a retailer offers only an opening price point and a high–end choice (Good/–/Best.)  While many retailers (and their vendors) like to speculate that the customer can be sold up to the high-end model, there are studies that indicate abandoning the store is common without a relevant middle selection.  Many valuable customers who could afford to purchase the high-end model will opt to shop elsewhere where they perceive that they have more choices. (And may still buy the $199 model!!)

In fact, the best way to move transaction (total $ per purchase) up in an assortment range of $9, $19 and $39 is to move the middle selection.  Opening price point shoppers who select the $9 choice may not be able to move up to a $15 choice.  Most shoppers self-identify as moderates, meaning the middle choice will almost always be most attractive.  So a move to $9, $25 and $39 will be more effective than moving either the upper price point product or the lowest price point product.