Retailer Web Services Digital Advisor Fall 2017 - Page 13

Think about your cost last. Many retailers begin thinking about their pricing strategy by looking at their cost and marking it up from there. While this exercise is interesting and important to you as a business owner, it’s not interesting or important to your customers. They don’t care how much you paid for that washing machine. They only care how much you are charging for it, and what value they will get in return for spending their hard- earned money. 2 So instead, start with considering how the market is pricing each product. Track your competitors’ online prices. Know the vendors’ Online Pricing Policies to understand what variation in the market is allowed. Consider what unique value you can provide within, or separate from, each product’s price like delivery services, exclusive rebates, satisfaction guarantees, warranties and installation. After all of that is done, then you can consider your cost. If you can’t confidently ask for a price that brings you an acceptable margin, don’t sell it. Or, go ahead and mark it up blindly above your cost—you won’t sell it either way. Price by brand, not by category. Think about your online pricing strategy brand by brand. There is no one formula that will work equally well for every brand you carry. Each brand has its own Online Pricing Policies that can differ significantly. Sometimes you can discount 10 percent from the minimum advertised price (MAP). Sometimes you can’t deviate from MAP by even one cent. Some brands will be unique to you in your marketplace; others will be found at every single competitor. These variations should be reflected in the strategy you choose for each. 3 If this sounds overwhelming, start by making a list of your top five brands ordered by importance to your business. Think about only one at a time and move down the list as you complete each. You will likely be able to re-use your work and set the same formula for more than one brand, but you’ll make significantly faster progress than trying to devise one formula that will work for everything at once. Reference more than one type of guide price. Just like there is no one silver bullet strategy that will work for every brand you sell, there often isn’t just one guide price—like MAP or what a competitor is advertising online—that works best for all items in an individual brand. Seek out opportunities to use more than one pricing guide whenever possible. Layering multiple sources of pricing information together results in more products displaying prices—and more intelligent prices to boot. Here’s an example of how layering formulas that reference more than one type of guide price can take your digital pricing strategy to a whole new level: 4 Let’s say you want to price a certain brand of appliance at 10 percent below MAP. But, not every model number in that brand has a MAP at every moment in time. So, layer on another condition: If there’s no MAP, display something based off a different guide price, perhaps the lowest online price from your three biggest competitors. Now every model in this brand with a MAP displays a smart price. And so do the models without a MAP. Make a conscience decision about how you display rebates. If you sell appliances, you deal with mail-in rebates. They can be excellent tools to help close sales, differentiate your store from competitors, and drive up ticket sizes. But they can also be quite complex and difficult to understand. How your website displays rebates along with each product’s price will have a major impact on both your competitiveness and your profit margin. 5 Clearly identify products that qualify for mail-in rebates and make it easy for consumers to navigate by brand, category and specific rebate program. If you’re going to show a price after mail-in rebate on your site, make sure deducting that amount doesn’t violate the manufacturer’s Online Pricing Policies or local laws. Whenever modifying a price for a mail-in rebate, make sure your website passes the price before rebate through to the shopping cart. And while this can sound circular, it’s often best to add a rebate amount to your online price before you then subtract it. For example: Let’s say you would normally sell a range for $899. Simply subtract the rebate amount from the price you’ve set. This is a very common strategy: $899 (You pay) -$50 (Mail-in rebate: ) = $849 Or you could make a subtle change that significantly affects your bottom line by adding the mail-in rebate amount to the price you have set, and subtracting it to show a price after rebate. You Pay: $949 Rebate: -$50 After Rebate: $899 With the second example, your store still looks competitive (your price of $899 after rebate matches the price of $899 your competitor is advertising), but you’re not giving away the $50 rebate. Instead, that rebate goes straight to your bottom line. No matter what pricing strategy you develop, make sure you have great tools that can help you automate it. Appliance pricing is volatile; promotional periods can last just a few days and your online competitors could be adjusting their prices many times throughout the day. There is no way to keep up by hand, but great software can keep your store one step ahead even while you’re sleeping. When it comes to crafting a smart online pricing strategy, the options are only outnumbered by the opportunities. 13