salesBy John Stanley

Consumers want the cheapest price possible; forget the rest. If you believed the media, that is the story you would retain. Over these past twelve months, we indeed have seen the stakes get higher on the price war and, sooner or later, the game rules will have to change if many retailers are to stay in business. Have you got a price strategy or are you playing the game without understanding the rules?

Many retailers believe that to be successful they have to offer the lowest price, whilst some of the most successful retailers focus on providing goods at a higher price. There must be some ground rules that some retailers are applying whilst others are ignoring them. So is it the value or is it the price?

There have been a number of books and papers on pricing strategy, and one of my favorites is Priceless by William Poundstone. He puts a different slant on the price game and looks at price as consumers perceive it.

Value is based on the consumer’s perception of a product and how much they are prepared to pay for it, whilst pricing is often based on how much it costs to produce. If a product is to be successful, the value perception is higher than the production-based price figure. A well-priced product will be one that is higher than the cost-plus calculation, but lower than the customer’s value perception.

Successful pricing occurs when there is a large gap between price and value, and the product can be priced towards the closer end of the value perception yet still below it to ensure that the product looks like value for money. Retailers are often afraid to ask customers what they think the value of a product is, and they’re just as reticent to believe them.

I recently came across a retailer who did ask the customers the dreaded value question, decided they were too high and went back to a cost-plus structure, and the result was a slower-moving product line than what it should have been. Customers are normally right on value.

Are You Selling the Specials or Recommending High-Margin Products?

Many retailers use specials to draw customers into their stores. The attending staff ’s role in this case (besides assisting customers) is to recommend high-margin alternatives when and where appropriate. To do this, the team member must know the extra benefits of those items and have the confidence to recommend them. A salesperson that sells the specials may be doing the company and the customers a disservice. The skill is to engage customers, listen to their needs and wants, and then offer the best solution. Depending on the product being sold, the available after-sales services might just be the extra value that consumers are seeking.

Setting the Price Based on Stock Turn

The money is not in the bank until an item is sold, and the relationship between pricing and stock turn is critically important. The price selected must be the one that maximizes stock turn and gives the best financial result for the business. This may mean altering and monitoring pricing until you reach the correct formula. All your attending staff should be aware of this and how price points works. A retailer, for example, could put the price of a product up and make it perceived to be cheaper by using price points strategically.

As price continues to be a major driver in the marketplace, retailers are going to have to be a lot more astute in pricing to meet the needs and wants of consumers. That’s how they’ll need to play the game in 2015.

John Stanley is a Conference Speaker and Consultant. In 2012 he was awarded the WA Small Business exporter of the Year. He works in 35 countries and is one of the world’s sought-after retail and small business presenters. His new conference presentation looks at the new consumer and how that affects your business. Follow John Stanley on Facebook or contact him at john@johnstanley.com.au.


Jan.
2015