MARKET WATCH by: DARRELL WISBEY www. darrellwisbey-retailadviser. com |
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Darrel Wisbey is a chief mentor and retail adviser who has 30 years of retail experience and has built a reputation for being a leader who interprets the market accurately, define strategic direction and deliver success by motivating, developing and inspiring teams to achieve continual improvement |
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PRICE- |
the Power |
or Peril |
in Retail
( PART 1)
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Observation:“ In 40 years of involvement in the retail industry I believe the single most critical discipline contributing to retail success is in managing retail price for both regular shelf-price and for promotional price to stimulate and drive sales.”
Retailers, no matter the format in which they operate, have to manage setting the retail price for their product to optimise sales and profit and most importantly to grow the retailer’ s market-share. Initially setting the regular retail price is not difficult as the retail price has little room for variation because there is almost always a market acceptable price-point. Given same format retailers are in competition with each other,( i. e. supermarkets compete with supermarkets and department stores compete with department stores), to win and keep the customer, the retail price is one of, if not the absolute, key reason that determines if the customer will make their purchase in your store.
Note: it is important to understand the meaning of“ competing in the same retail format”. The exact same item can be sold in different retail formats at different retail prices without any negative customer impact e. g. a convenience store can and does sell the same items that are sold in a supermarket and do so at a higher retail price. This is possible because the convenience store is exactly that … you pay a little more for the convenience element of the retail format.
PRICE POWER # 1: having“ the right everyday retail price”
In setting the regular price the retailer knows and understands the competitive forces within which they must operate. Within the same retail format, where the brand and item are the same,( and indeed even if the brand is different but the product market position is the same), then the retail price must be seen as competitive. Nowadays, more so than ever before, because the customer is more retail intelligent they are also more demanding in getting“ the right price”.
All retailers understand that if two supermarkets are within close proximity and they are not price competitive,( presuming that all other retail elements are comparable), the shopper will quickly move their business to the competitor. Buyers and Merchandisers must constantly be aware of market prices and continually ensure the adopted price structure maintains a competitive position.
It is not always a high value price variance that can cause the uncompetitive retail image as this determination is a factor of the product and the format. A large price variance on a higher ticket item is dangerous and can cause the customer to move between retailers to find the best price,( deal), on a single purchase but so too a small price variance has the same impact in the supermarket format as the shopping behaviour is to buy many items in the one visit and therefore the sum of a little savings across a big basket mix will result in a total savings motivation.
PRICE PERIL # 1: setting retail price to achieve retail margin
Buyers should not and cannot afford to calculate the retail price based on the agreed negotiated cost price. In simple terms this means if the required margin,( percent of selling price), is 50 % and the cost price is P200 then the retail price will need to be P400 … easy to calculate so what is the peril? The problem is if the competitive market price is P350 then setting the shelf price at P400 is clearly uncompetitive and will quickly spread the image your business is out of touch with the market and this results in the customer buying the product from your competitor.
The consequence of uncompetitive regular retail price: a. Once your retail price is considered too expensive you will lose your customer to your competitor.
b. Lost customers result in lost sales,( market-share) and lost available profit,( decreased bottom line).
c. Falling market-share,( once started), is hard to reverse and is both costly and time consuming to achieve.
The retail price discipline:
1. In setting retail price always know the correct price within the related market for your retail format
2. Never trade off price,( becoming retail uncompetitive), as a means to achieve the required margin
3. In negotiating cost it is a matter of market competitive price minus wanted margin equals required cost
There is one element of the retail mix that over my 40 years’ experience has remained a constant as the most commonly reached for tool when sales need to be accelerated and that is reducing the price either as a regular shelf price or for a promotion. The answer to the question why is this done is easy – customers always respond to savings.
Another observation over the 4 decades of retail observation is that retailers more and more rely upon promotions to drive sales. This is particularly so when a retailer is under sales pressure. Promotions and sales have become so commonplace it seems nowadays that many retailers are in a constant“ price off” mode. Given this position it is easy to understand the importance of managing promotional price successfully.( To be continued next issue …)
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