|
Price
Setting
|
|
|
Your
Experience |
Your
Solution |
The buyer rejects your product stating either the price is too high or the new lower price did not increase your sales. |
Consumers have psychologically priced a product with a certain amount that they are willing to pay (price points). If you exceed their psychological value, you risk failing in retail. Price in-between the price points and you can easily take the higher price that consumers are willing to pay. You will see how to increase your profit margin by means of 60%. |
Price points
There are two
worlds for price points, the first being the “On-line” world,
which is much more into cents and odd prices and the second is
the “Off-line” world which focuses more on the psychological
price points. This chapter focuses on the “Off-line” world,
where 80% of your sales are anyway. If your first calculation gave a street price at 89.99, you can easily increase the price to 99.99 without a measurable difference in your sale. This could increase your profit margin by means of 50%. For example:
Some of the natural psychological price points are: 0.99 - 4.99 - 9.99 – 14.99 - 19.99 - 29.99 - 49.99 - 99.99 – 149.99 - 199 - 299 - 499 - 999 - 1499 - 4,999 - 9,999. When a buyer sits in a meeting with you while discussing the price you want, he starts calculating the price range that he thinks a product belongs to. Normally you will be rejected if the buyer does not agree with the price point the product ends in. With any luck, the buyer will tell you the reason you were rejected so you can make some new calculations. If you do not get any feedback as to why you were rejected you should call the buyer and ask him which price point he would recommend. You might still be rejected, but now you have something to work with. From time to time, a buyer will accept a vendor suggested street price that does not match with the right price point. Yet, my experience is that almost every time I accepted that street price we only sold a percentage of the products that could have been sold if the price was optimized from the beginning. There is a substantial difference in success with a street price of $99.99 or $108.99. |
Let me assure you that retail does not care what your costs are. You are talking to deaf ears if you think retail will accept that some products have higher prices just so they can pay for the lost leaders, products with very low prices. Every single one of your products competes with the other products in their category. You might either have a very high profit on each of your products, which retail likes an assortment of or every single product delivers you a low profit margin to keep competitors away. The buyer knows that by selling the product for too high a price, the consumers would just buy a competing product somewhere else for a cheaper price. Retail looks at their street price points, so you must hit the right price from the beginning. Most important product feature Alternatively, you start out with a price that is actually too high, but in the marketing plan, you will later announce a price reduction. Price reductions (savings for consumers) is the single most important ‘feature’ a product can have when you go for the mass market. This is also, why most retailers juggle the prices on the same products up and down. High prices (resulting in ‘no’ sale) one month and low prices and big savings the next (resulting in customer awareness). Depending which country or state you go to, there are different law requirements to take into consideration. Every time you lower a price, make a big deal out of it. Consumers love that. In addition, the consumers’ memory is very low, so you have to tell them what they will save. How retail calculate a mark-up You have to ask how retail calculates the mark-up. It seems to be that most on-line stores calculate from the purchase price, whereas off-line stores calculate from the street price. This is extremely important for you to understand. This means that a product sold to retail for $100 and resold for $200 has an off-line store mark-up of 50% and on-line mark-up of 100%. So if you just say that their mark-up will only be 50%, you might get burned. Help retail by using their calculation method. Show Retail what their margin is in percentage. Retail has a strong tendency to focus on their percentage margin instead of their dollar margin. Once you get a feel for the retail sales price, you start investigating which price points fits your product the best. Place your price point where either it gives a higher profit or it increases the sales!
Jens Welling |
The author of this article Jens Welling has worked with retail purchase, retail sales and retail marketing over the last 15+ years. Jens Welling has written a number of articles as a good source for any new and established company who want success with retail sales. Below are short descriptions and links to other articles. |
|
Why You Have To Do Your Homework Choosing Sales And Distribution Channels Category Management Unique Selling Points (USP) Price Strategy What The Buyer Wants To Know Exit Strategy Price Setting |
Negotiation Tactics Rejection From Buyer Marketing Strategy Education Management Warranties Building A Brand Logistics Keeping Your Store Sales Alive Product Development |
