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How To Price For Profits

Thursday, June 30, 2011


Do shoppers in your area know you as the expensive place to shop? Is this driving shoppers to visit your competition instead of looking to you first? Tom Shay, longtime retailer and retailing strategy expert, spoke at the Dallas Market Center on ďPricing Strategies for Profits Plus.Ē He explained how items can be priced effectively to both increase your storeís overall profits and create the perception that people can find competitive prices on key items they seek. 

Q.   At your presentation, you mentioned that retailers should be aware of the price image of their store. What does this mean?

A.  In speaking to this audience of independent retailers from around the country, and having been in retail all my life, I know that independents sometimes get tagged as being expensive. People may say, ĎI realize I have to pay more to shop at a small, independent retailer.í Thatís a possible image you have to be aware of with your customer base.

Shoppers know that if they want a T-shirt with a local theme to it, they can pay less if they go to someplace like Walmart in the suburbs than if they buy it at Chicagoís Navy Pier. At discount stores, they know they can find a cheaper T-shirt because the retailer is not selling the experience. But there is a way to compete on these items. Iím trying to help retailers identify the reasons why shoppers have this perception and show easy ways around it. 

In any business there are a core number of items that people look at and know what the price should be in the marketplace. In the T-shirt example, if you are a store in Chicago selling shirts to tourists, you have to decide your pricing to fit into the market and still make a profit. Maybe you find a unique style of shirt with the Navy Pier logo on it that canít be purchased anywhere else. Maybe you price the item creatively or add other value.

Q. What are the simple steps to take to avoid being branded as expensive in your marketplace?

A. When you are selling something like Yankee Candles or Vera Bradley, discount stores will not be your competition. You have to take this into consideration as you choose your product mix and determine your pricing. Where you need to get creative with your pricing is in areas where other retailers are competing with you. 

If you are selling books, is there a store around you that is selling a title cheaper to get people in the door? Identify which items in your marketplace are unique and which ones are competitively priced elsewhere. Youíve got to go do your homework. Make a short list of items that are price-sensitive in your area. For these, you are going to have to do down-and-dirty pricing and match the competition. I donít care if you only make a nickel on these items; itís worth it to show you are competitive. These items are priced at what I call "everyday sale prices." 

People think stores like Walmart offer everything cheaper than the competition because the ad agencies are doing their job. But that is just not the case. They offer prices on certain items just to get shoppers in the door, but they are also making profits on something other than just selling in volume. You must find a way to apply the same philosophy to your store.

Q. How does offering everyday sale prices differ from offering items at a limited sale price or temporary discount?

A. Everyday sale prices arenít sales. People can consistently find them at this price in your store. To balance these items where you are competitive, you must also stock "blind-price items." These are products a customer has no idea what they should sell for in your marketplace. You look for blind-price items when you are shopping at market and plan to extend your margins on them. 

I see many retailers make the mistake of stopping in a vendorís booth, asking what an item costs, doing some quick mental gymnastics and determining a retail price based on what it costs. Instead, you should consider all the factors about an item. Is it trendy? Is it brand new to your audience? Will it fill a need that people want? You should pick up item like this at market and say instead, "What can I get for this item in my store?" 

No two towns are the same on pricing. If a chain store doesnít carry it, and itís not advertised anywhere in your market, this gives an item extra points in your mind that you can use to increase its value. Add all these factors up in your mind to determine its price.

Q. What common mistakes do you see retailers make with pricing in the current economic climate?

A. The No. 1 mistake I see retailers make is looking at the wholesale price to determine what the item should sell for in their store. Cost has nothing to do with what you can get for the item in your market. People will tell you when your price is too high. No one is going to tell you youíre selling it for too low. 

Also, using a formula is a mistake when determining pricing. Retailers will often take the cost and multiply it by the same number every time to get the retail price. This formula is useless. Many retailers donít even know why they started using it. They just heard this is what you are supposed to do in retailing. 

Instead, look at the quality of the product, the services you offer ó including wrapping or delivery ó and take into consideration its unique qualities. Shoppers are willing to let the price be higher if you can make sure there is value there. You can use a combination of pricing strategies to generate the right mix for your store.

Q.  How can a combination of pricing strategies help raise overall profits?

A. You can have a combination of pricing strategies in your store by offering everyday sale items, blind-priced items and also by using rounding strategies to make better margins on a variety of merchandise. People often have in mind what they want to spend. If you mark something at $199 and a shopper had $250 in mind to spend, youíve lost a large margin. 

Letís say you go to buy a car and you plan to spend $25,000 it. You see one for $24,500 and decide thatís the car you want. The salesperson is then going to ask you what kind of radio would you like and what other options you want. When you are in this price range, a few hundred dollars doesnít mean a lot to get what you want.  Youíll take home the car for $27,000 and feel you got what you needed. This same principle also applies to low-dollar items.

If I am pricing an item that should cost $10.29 by typical standards, why not mark it $10.99. The customer is not going to know the difference. Youíve picked up $0.70 in the process. Choose a number to round your prices to like $0.99 or $0.95 or $0.98. It doesnít matter what you choose, just be consistent. When you are in a range of $20-$50, you might have an item that is $35.39. I have found that if I market this item at $36.99 it will still sell.

Q. Is there a way to stay competitively priced in the eyes of your customers and still increase overall profits? 

A. Work with your vendors to offer special pricing. Go to market with your store events in mind and plan to offer a few items for each event at a special price. Tell your vendors what you have in mind and see if they can work with you. Tell them you plan to advertise this item and move cases of it out the door. They may have a product to offer at a special price, especially if you have a good relationship. 

For example, if you are planning an anniversary sale, donít wait until the last minute to see whatís left in your stock and offer a discount. Think ahead and have several items in mind that will still make a profit and still be offered at a great deal as part of the celebration.

Q. How do you suggest a retailer handle an item thatís not selling, even when very competitively priced?

A. Knock it down and get it out of there. Think about an item in your store that you are ordering every month. If you can get anything for this product thatís not selling, do it and turn it so you can buy something that moves faster. What often happens to us as retailers is that we frequently fall in love with the items weíve purchased. But other people have to love it in order for it to sell. Donít take it as an insult if itís not moving. Itís not a personal issue. Get rid of it and move on.

Q. If you were longtime retailer in a community, how would you go about transitioning your store into a new price image?

A. I would start by looking at the items Iíve been nailed for in the past as being too high. I donít make any announcement about changes. Just lower the prices here and there. People will adapt to the individual prices and take notice. The same applies with rounding up the prices of merchandise. Just start. 

Thereís not a not a one-size-fits-every-store strategy for this. You have to pay attention to your marketplace and your customers. You can take pieces of what I say and add it to what youíre doing. My advice is like a buffet ó just take some of this and that. 

If you are looking to extend margins, go to the show and tell vendors what you need. Ask them what they can do for you. Make sure you have a buying plan for the next 12 months. If your town is having a fall festival, find a vendor for fall candles and see what they have. Do they have something you can carry next to your Yankee candles and offer at a competitive price? Let them know you are going to promote the items at the festival and see if they want the chance to compete against other candle brands you offer.

Q. Do you have any other words of advice for retailers who want to rethink their pricing strategies?

A. Remember that everything sells on something other than price. While pricing strategies are important, there also has to be an element to your store that is unique in order to make people come to you for the shopping experience. You need to look at other retailers. Take ideas of things they do well and translate them to your store. 

It reminds me of an old trivia question. Who was the largest seller of classical music in the late í70s and early í80s? It was Victoriaís Secret. They sold the cassettes along with the experience of buying lingerie and the ambience they created in the their stores. The music was playing in the background and people wanted to buy it to take home the total experience. How can you take lessons like this and apply them to your store?

Note: Tom Shay is a fourth-generation retailer, as well as a speaker, coach and author on best retailing practices. He heads Florida-based Profits+Plus. For more information on his services, visit You can reach Shay at

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