by John Stanley
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 a special event in retailing, but since the G.F.C. they have become the main way of retailing for many businesses. A perpetual discount offer results in the customer becoming bored and the retailer becoming less profitable.
Research carried out by Harvard Business School found that 70 percent of retailers surveyed thought that a discount policy had no affect 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 just put prices back up will result in a customer revolt; therefore, a policy needs to be carefully developed to ensure the customer continues to return to your store and not the competitor’s store.
There are a number of strategies that can be developed.
1. Identify Price-Sensitive Items
Identify the real price-sensitive items and maintain the price incentive on those lines as you alter the price on the less sensitive items. In Australia, the supermarkets are doing this exceptionally well. A standard loaf of bread is being promoted for a dollar as a means of getting the customer 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 the “Know Value” items are in the store. These are the products that really drive the consumer in on price. They also need to know the real non price-sensitive lines where you have the opportunity to grow your margin.
2. Create a Premium and Value Range
I have discussed this in previous articles. Again, we can use the supermarket as an example. 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. Many retailers are using industry celebrities to market their premium range. The consumer often is more likely to believe the celebrity than the retailers themselves.
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 where he gets retailers to look at what they are offering the consumer. In his local store, the price difference between the cheapest and most expensive flour is 20 percent. The pancake mix in the same store, which also consists of flour, is sold with an increase in price of 900 percent compared with standard flour. His message is you cannot survive with selling the basics; you need to look for the added value products that will allow you to satisfy the customer’s needs and allow you to make the margin.
4. Create Some Price Excitement
Be bold and be brave and really promote price when it is a real bargain and really promote “New” and “Best Sellers” in key locations at the same time. Price-sensitive and non price-sensitive lines need to be strategically placed around the store to maximise sales. Use your hot spot selling spots to grow sales.
Is there any way you can create some excitement like Bob Lee at his Steak House in Texas? People for miles around know he has a free 72 ounce Steak on the menu.
The challenge is that if you can eat all of the steak, the meal is on the house. If you fail to eat the whole meal then you pay $72 for the privilege. Bob wins most of the time as most consumers cannot get through a 72 ounce steak at one sitting. This is a great marketing campaign and a profitable venture for Bob and his restaurant.
All retailers need to relook at the prices they are offering and ask themselves if the have the correct pricing strategy to grow their business in the future.
John Stanley (CSP) is one of the top 10 percent of speakers in the world today, an acclaimed retail consultant and WA Entrepreneur of the Year 2009. The author of several marketing, customer service and retail books, including the best seller, “Just About Everything a Retail Manager Needs to Know,” Stanley’s company is a WA Small Business Champion 2009 – Educational Services. www.johnstanley.com.au