Proper price setup strategy pushes the maximum retail benefits
Price. This is a very important topic for the success of every retailer today. But how many retailers have a strategy in terms of prices clearly defined and provide consistent benefits for them?
While retailers understand that prices are the components needed to do business, many retailers are not entirely factor in product prices because they are related to shop branding, profitability and long-term success of their business.
When considering how the price of the product for your business, you need to think of aligning your pricing strategy with your overall business strategy. Selecting appropriate price setup strategies will insure your business, sales, and profit goals in harmony.
But there are many pricing strategies used by retailers; There are three which are usually used by independent retailers. While some methods are simpler to be applied than others, there may be unrealized costs related to using only one for your business.
Keystone price. This is the most common internal price setting method on the current retail. Keystone prices are only doubling wholesale fees from any item. (“Keystone”) wholesale ($ 5) retail ($ 10). Keystone price is the simplest method for pricing and which can be institutionalized by all and all staff staff easily based on the cost of invoices from any product in the store.
The challenge by hiring this as the only price setting method is that it does not take into account all other fees related to the sale of products in your store. (Commonly known as the cost of sales, general and administration – SG & A) can cause a low profit margin and ultimately to limit cash flow because all loads are not taken into account with this price setting methodology.
Profit margin prices. When using this method to determine the price of your product, the retailer sets a price based on helping your business to achieve the goal of a particular profit margin. This method ensures that your business will focus efforts to determine the price of the identified profit target that will help you meet your business goals.
While this type of price ensures that you cover all total costs (CGS and all SG & A fees) The argument against this type of price is that many retailers choose products for their stores widely distributed in various sales channels. With the price for any product available on the Internet today, retailers cannot randomly determine retail prices based on the profit target they want. Doing that can position your store not profitable in the eyes of the Almighty consumer. Customers are now more friendly than before about prices so you cannot exceed the price just to keep your profit margins high without risking their loss to other businesses nearby.
Discount price. This pricing method works best for high volume retailers or retailers that sell high volume on certain products in their stores. This pricing method uses price reduction (temporary or permanent) to stimulate sales activities including incentive determination such as special introduction, volume discounts, customer loyalty programs, sales affiliate programs.
Note: It is almost impossible to raise prices on items after you have set the daily price of the day. Customers will expect your prices low. This sets a lower profit margin for your store on these products that are very difficult to overcome. You also run the risk of positioning your store lower in quality versus most of your competitors (whether it’s true or not)
Remember, a good overall price strategy is a key component for your store success. Take the time to choose a strategy that harmonizes with your business goals, and then continues to monitor how the strategy works every month. This effort on your part will run far to build your brand as a unique and important store on the market, and one that makes your custom
Knowing your customers is important for setting your prices and portraying your brand. For help understanding your consumers and restoring the balance, please see the information below.
Infographic provided by Riveron – accounting advisory professionals