Developing a Pricing Strategy

May 31, 2010
Written by Brian Minter
In the new world of openness and transparency created by the Internet, the price of virtually any product can be found in seconds from many different sources. The phenomenon of online buying, not only with generation X and Y, is staggering. I know young couples who buy virtually everything online and price out the things they buy retail before they purchase.

The recent world recession has also created downward pressures on the pricing of most products. From cars to electronics, pricing has never been so comparatively low. Wal-mart has thrived in this environment, connecting lower costs of goods to a better lifestyle – their logo is “Save Money. Live Better.”

The “buy direct” industry has taken hold in this new environment.  From insurance and household goods to branded equipment, and yes, even plants, it’s all about attacking the alleged higher costs of the retail industry. Many large growers are selling direct, while at the same time supplying their local retailers.

It’s easy to think that traditional garden centre customers (whoever they are) are not in the above consumer groups, but that’s not true. They’re acutely aware of where prices should be and are willing to pay more if they can stay within their price comfort range.

With this framing of the new pricing realities, should our own pricing philosophy change? There is no such thing as “business as usual” anymore, and there hasn’t been for some time. Buyers have always been key players in our industry, and not always appreciated for what they do. They are now the heart and soul of any pricing strategy. Professional buyers, and I’ve seen some of the very best at work in China, are the make-and-break factor in finding the right product, purchasing the right numbers and staying competitive while maintaining or growing margins.

Most of us think we know this game, but it’s far beyond what we may think. It’s as much about knowing trends, building relationships, anticipating consumer buying habits and understanding the competitive marketplace as it is about negotiating and purchasing. This is where many pricing strategies originate.

Even if we’re a fairly large garden store, in reality we are tiny grains of sand in the buying market. We need to be part of a buying group that matches our business philosophy to get any type of competitive purchasing power and dated billings. In hard goods or green goods, we need to find a competitive edge on purchasing. As much as we depend on our local growers and wholesalers, the game has moved to the larger mass manufacturers and producers, and we need to be a part of that shift to remain competitive. That doesn’t mean you abandon your local growers who may give you many advantages and unique plants, but you need to be a part of the most known and promoted product game.

Given the changing retail environment, our future lies in both creating an amazing shopping experience and differentiation. The one key fact I took away from the 2008 International Garden Centre Congress in Vancouver was the “retail sameness” of so many stores. From a pricing perspective, there was little differentiation in products because in a relatively small marketplace, with few retailers having larger suppliers, it is harder to present a differentiated product.

The big boxes have been differentiating pot sizes for years, trying to get smaller pot sizes to match more competitive pricing. Our industry needs to move in the opposite direction in larger pot sizes with higher quality plants. Carrying larger pack and pot sizes with colour is one of two keys for encouraging impulse buying and commanding higher price points. Large colourful labels are pretty much standard today. The real value-add is plants in bloom. As retail growers, we are forcing more and more plants into bloom weeks earlier than usual for higher appeal and a 25 to 30 per cent pricing premium. Bailey’s Nursery in Minnesota and Oregon has wonderful forcing programs with roses and hydrangeas for Mother’s Day sales. They have been highly successful for us.

Individually, we’re fairly small to brand our products, but group purchasing or arranging with suppliers to carry more exclusive brand products works very well. There are many great growers, like Valleybrook (B.C. and Ontario) with their ‘Rock Stars’ and ‘Jeeper Creepers’, who differentiate their products nicely, adding a pricing advantage. Many garden stores are reluctant to go deep into the better-known brands because some of these companies deal with chain stores and now sell direct. Personally, I find the power of their brand trumps many of these issues and our consumers expect to find a wide selection in our stores.

The other key factor in pricing has to involve inventory turns and control. After 60 days, the cost of inventory begins an upward climb. Weather and seasonality are also critical pricing issues, and there is a continual need to reduce prices and clear out dated stock, which has a bearing on the original pricing, as well as margins.

I think that selling garden centre branded products through larger buying groups is the only way to market a competitive product with the margins you need to grow. Pricing is just one part of the strategy in running a successful business. Margins need to be maintained to be successful and volume needs to be on a continuous upward trend. In other words, create a great differentiated shopping experience and pricing is a less relevant part of that experience.

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