April 14, 2011 – Pick up a local newspaper, switch on the TV or radio and there is a retailer promoting a special on something. It's part of a pricing game to lure people in – are you playing the game?
April 14, 2011 – Pick up a local newspaper, switch on the TV or radio and there is a retailer promoting a special on something. In Australia supermarkets have been promoting cheap liquor and a thumbs down promotional sign on specific "loss leader "items. Then we cross the world to the UK and "everyday low price" signs are scattered around a leading supermarket. Everyone seems to be playing the price game at present. One reason for this is to stimulate the consumer to spend.
Since the start of the year consumers have held on tightly to their purse strings. They have been only buying what they perceive as a necessity.
The reasons for this are complex, but a major reason is what is happening in the world. Forget specific economies for a minute. The global natural disasters in Australia, Japan, New Zealand and other places at the start of 2011 are a major concern for people and have shaken people's confidence. As I write this article there is a news flash concerning an earthquake that shook Blackpool in the UK. Blackpool is a town that is nowhere near a fault line. All these events are causing uncertainty in the retail world.
Where are you in the game?
The challenge is as a retailer where do you fit into the game rules. It is very clear that there are only two places to be in the marketplace if you have a future. Firstly, you can position yourself as a price leader and play the "everyday low price" game. It is working, and the leaders in the game are announcing healthy profit results. To do this you need maximum market penetration. For example, Tesco in the UK owns 30 per cent of the grocery market and take 80,000 pounds a minute in other good and services as well. This is a real challenge to compete with in a price game. If you decide on this approach you will need very understanding suppliers as they will be asked to share the burden of reduced margins which will be passed onto the consumer.
At the other extreme are the true niche specialists who provides a wide and deep range within a specific category, have qualified, knowledgeable team members serving the customer and can create a trust relationship with the consumer. Alas, there are a lot of retailers who have positioned themselves in the middle in the consumers mind. Those retailers are really suffering and finding this a difficult business to be in at present.
What can you do to play the game?
There are ways you can play the game to ensure that you can develop your business. These include:
1. Genuine Loyalty Schemes
I mention loyalty schemes and many retailers instantly think of the Tesco Club Card. This was launched in 1995 and there are over 12 million members in the UK alone, 35 million around the world. This is the world’s largest database with each member buying around 20 products a week and giving Tesco 12 billion pieces of data a year to manage their business. Although I admire the Tesco scheme, in my mind they are offering a small discount to the customer to obtain an amazing amount of research which they can then use to develop their offer to the consumer. It is an excellent research tool, but not the type of situation that should be applied by small retailers.
I believe you should create a genuine loyalty card. Remember in most retail business 80 per cent of the profit comes from the top 20 per cent of your customers. They are not looking for a discount and why would you want to reduce your profit margin with them. Take these loyal customers and offer them genuine loyalty. This means that you do not discount your core product. You will provide incentives, but they will be away from the core product. This may include networking with other retailers. I am a great believer in the 'Thank You Card' concept where another retailer gets involved in offering a thank you present to your loyal customers.
2. Play the price game
If you do not understand the psychology of pricing then get a copy of "Priceless" by William Poundstone, Scibe Publication. This is an excellent read and will make you seriously look at how you can play the pricing game in 2011 and beyond. In this article I will only mention a few ideas from his book that can help you develop your pricing strategy to grow sales.
"Bundling" – We have all come across this in the food industry. It is where several products are grouped together to provide an incentive to the consumer to spend more money. The normal practice includes three items, the third item being the only one that is discounted and the aim is that the overall profit goes up as the average sale per customer is increased.
"Bracketing" – This is where expensive items are offered in two sizes. By doing this the smaller item is made to look more attractive to the consumer and sales go up on this item. Often the retailer does not care if the larger more expensive item does not sell. Their aim is to sell the smaller item.
"Remove the $, € or £ sign " – It works. The restaurant industry has already proved it. A product with the financial symbol in front of it will sell less quickly that a product with no financial symbol in front of it. I cannot explain the logic, but it can increase sales.
"Provide Three Options in a Range" – When looking at ranging, provide the customer with three options to do a specific job. The aim is to sell the middle of the range. To help you understand this concept, think about selling wine. You have a cheap one, a middle of the road and an expensive wine. In today's prudent economy most people will not select the expensive one, they will think the cheaper one is inferior and will select the middle of the range. The price is relatively irrelevant. It is the positioning in price of the three products that is important. You could sell a more expensive item just by getting the price points correct on the three that you have selected to sell.
There are other ways to place the price game. You could join our Members Club (www.johnstanley.com.au) and network with other niche retailers around the world to share ideas and discuss solutions. The rules of the game is it is no longer a matter of just adding your margin. It is about understanding how the consumer thinks and then pricing accordingly. An interesting game is unfolding and you need to be a player.
John Stanley is a retail business coach, speaker and author. He has authored several successful marketing and retail books, produces a monthly internet TV program Retail Globe Report on retail trends as well as monthly e-training for his Club Members on his website. As a CSP John is considered one of the top ten percent of speakers in the world. John Stanley helps retailers: Increase sales per square metre, increase the average sale per customer, better manage stock, merchandise and display to maximize potential, market more effectively to convert lookers into buyers. Visit www.johnstanley.com.au to join his Members Club or for information on how he can help you grow your business or email linda@johnstanley.com.au
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