Pet Product News Editorial Blog:
Thursday, August 20, 2009
The Price is Right
By Sherri Collins
Editor, Pet Product News International
Unless you’re one of the few to whom money is no object, you probably check out or ask an item’s price before deciding whether to purchase it or not. Is it a competitive price? Is it a good value? Is it expensive but worth it? Or is it an item where price doesn’t matter? (As when I bought my most recent iMac…well, price did matter a little bit, as I didn’t choose the top-of-the-line model, but my decision was anchored on quality, reputation and a “love” of all things Apple.) These types of questions also arise from the other end of the spectrum: setting prices for retail sales. How do you decide how much to charge for particular items? Is it simply what the market will bear or do you need to calculate in a host of factors before setting a final price?
According to marketing textbooks, price is one of the four Ps in a marketing mix, the other three, all cost centers, are product, promotion and place. Pricing allows you to turn a profit. However, your pricing strategy may not be living up to its maximum potential.
Jeff Haefner, the author of The Point of Sale Software Buyers Guide, The POS Software Comparison Chart and Retail Technology Newsletter, says there are several retail-pricing mistakes to avoid. The most common for specialty retailers is discounting to match mass merchants’ pricing. Haefner points out that when you reduce an item’s price by 10-percent, you’ll need to sell 33-percent more of the item just to get back to the original price/cost margin. Many customers do not shop by price when patronizing specialty pet stores.
They’re there for the exclusive product lines, the marketplace expertise and the more intimate nature of the shopping experience—they’re not bargain buster hunting. Trying to match or better mass market prices can be a losing proposition. Instead, Haefner recommends actually raising prices for maximum profit. Click here for more of Haefner’s helpful retail tips.
There are several other common pricing mistakes that you should avoid at (pardon the pun) all costs. According to Atenga, a strategic price-consulting firm, these mistakes include:
- Basing prices on costs and not on customers’ perception of value (case in point: my iMac purchase). Pricing based solely on costs can lead to prices that are either too high or too low.
- Setting the same profit margin across different product lines. A product’s price should always reflect what a customer is willing to pay.
- Holding products at a set price for too long, which ignores changes in costs, the fluidity of the competitive arena and customers’ shifting preferences. A retail establishment should acclimate their customers to frequent price changes.
- Viewing all customers as part of the same marketplace segment. Customers purchase items for different reasons—value, price, benefits, prestige, etc.—and pricing strategies should reflect those differences. One group of customers may be willing to pay more than others for certain items, based on their demographic characteristics and purchasing goals.
Atenga has a wealth of additional pricing data and tips in their Pricing Education section on its website.
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