An Epicor® White Paper

The Balancing Act
Between Prices
and Profits—It’s
Within Your Control
Retail Best Practices Series
The Balancing Act Between Prices and Profits—It’s Within Your Control

Table of Contents
Developing the Right Price Image....
The Balancing Act Between Prices and Profits—It’s Within Your Control

Introduction
Pricing and profits used to be fairly ...
The Balancing Act Between Prices and Profits—It’s Within Your Control

Developing the Right Price Image
When a consumer th...
The Balancing Act Between Prices and Profits—It’s Within Your Control

Meanwhile, you’ll have the ability to make up for l...
The Balancing Act Between Prices and Profits—It’s Within Your Control

Fine-tuning Price Image (and Your
Customer’s Percep...
The Balancing Act Between Prices and Profits—It’s Within Your Control

Get Your Retail Prices in Shape with
Rounding Strat...
The Balancing Act Between Prices and Profits—It’s Within Your Control

Trade Secrets of Promotional Pricing
and Discounts
...
The Balancing Act Between Prices and Profits—It’s Within Your Control

Promotion’s Success. If you aren’t tracking and
33M...
The Balancing Act Between Prices and Profits—It’s Within Your Control

It’s Got to Be Done: Price
Maintenance Strategies
O...
The Balancing Act Between Prices and Profits—It’s Within Your Control

The Golden Rules for Changing Pricing

Epicor Eagle...
About Epicor
Epicor Software Corporation is a global leader delivering business software solutions
to the manufacturing, d...
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The Balancing Act Between Prices and Profits – It's Within Your Control

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Retail Best Practices Series: Strategies on establishing price image, fine-tuning price image, rounding or creating a familiar price shape, promotional prices, and price maintenance.

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The Balancing Act Between Prices and Profits – It's Within Your Control

  1. 1. An Epicor® White Paper The Balancing Act Between Prices and Profits—It’s Within Your Control Retail Best Practices Series
  2. 2. The Balancing Act Between Prices and Profits—It’s Within Your Control Table of Contents Developing the Right Price Image...........................................................1 Fine-tuning Price Image (and Your Customer’s Perceptions) for Your Retail Business.................................................................................3 Get Your Retail Prices in Shape with Rounding Strategies.......................4 Trade Secrets of Promotional Pricing and Discounts................................5 It’s Got to Be Done: Price Maintenance Strategies.................................7
  3. 3. The Balancing Act Between Prices and Profits—It’s Within Your Control Introduction Pricing and profits used to be fairly easy. You could focus on product assortment without worry about over analyzing prices, and you could rely on loyal, relatively uninformed, customers and turn a decent profit. Well, that may not be the case in today’s highly competitive market. Big boxes and online retailers are thought to control the price wars, however…that’s not the complete picture. There is more to retail success than focusing on low price. How you differentiate yourself from the competition is key to your success. And how you balance prices and profits is essential too. If you’re like many other independent retailers we speak to, you may be losing money by missing opportunities for improving margins. Learn how you, as an independent business, can walk the fine line and set prices the market will bear while maintaining, or even gaining, higher profits. Take control with strategies on: • Establishing Price Image • Fine-tuning Price Image • Rounding (Creating a familiar price shape) • Promotional Prices • Price Maintenance Tap into some simple steps leading retailers rely on, and you too can discover the balance between prices and profits.* * This document contains our ideas regarding certain best practices that have evolved and developed over time based on our customer experiences. Each customer has unique circumstances and your results will vary. Please see the note at the end of this document for important information.
  4. 4. The Balancing Act Between Prices and Profits—It’s Within Your Control Developing the Right Price Image When a consumer thinks of an independent retailer, they often think of two things: Great service and higher prices. We know you’ll deliver the former, but how do you change the perception on the latter without sacrificing profits and margins? Here is our first lesson on balancing price and profit: The key is to create the right price image for your retail business. Decide on the Price Image Strategy that best fits your business. 1. Everyday low pricing 2. Full price with heavy promotional activity 3. Full price with promotional activity AND everyday low prices (The Combo) See the table below to get the quick breakdown of each strategy. Everyday Low Pricing GOAL OF PRICE IMAGE STRATEGY Strive to create the image of having merchandise discounted all the time. Everyday is a good time to shop. COMPANIES USING THIS STRATEGY Wal-Mart or Home Depot Full Price and Heavy Promotions GOAL OF PRICE IMAGE STRATEGY Quality brand name and private labels are marked up but then promoted and discounted to create a must-buy-now response from customers. COMPANIES USING THIS STRATEGY Department Stores like Macy’s or Kohl’s The Combo GOAL OF PRICE IMAGE STRATEGY Everyday low prices on some items create the perception of low prices and promotions create a must-buy-now response. Back to the Basics Quiz Q. What are the most price-sensitive items in your store? A. Fast-moving categories are most price-sensitive Why are Fast-Moving Categories More Price-Sensitive? • Consumers buy fast-moving categories often and from different retailers. They know the price of these types of items (think light bulb) and have set expectations • Conversely, consumers are less familiar with prices on slowermoving categories (e.g. a shower head or adhesive), and don’t have the same strong price opinions COMPANIES USING THIS STRATEGY Independent Retailers like You Go for the Combo! That’s right. Full price with regular promotional activity AND everyday low prices on highly visible, price-sensitive items has great potential. Here’s how THE COMBO can work for your store! What happens when your customers see low prices on those highly visible price-sensitive items? In other words, what happens when they walk by an end cap set up with commonly purchased items that are priced lower than your competitors? They have the perception that your store has good prices…on all items even though that’s not necessarily the case. 1
  5. 5. The Balancing Act Between Prices and Profits—It’s Within Your Control Meanwhile, you’ll have the ability to make up for low prices on fast-movers in the following ways: Epicor Eagle Does That! • Sales volume should increase with low-price promotions because you’re creating that must-buy-now perception Use the Eagle® system to • If you can accurately select which fast-movers will fly off the shelves, you will be able to further increase sales volume (See how Epicor can help you determine these items below) designate both common and hard to find products, so that you can assign the best markup for each category. • And you’ll also have the ability to make up for those low-priced items by aggressively marking up slower-moving items, the type of item that your customers don’t mind paying extra for because it’s convenient or it’s a rare item. This is the time to identify items that only you sell. These items are price-indifferent and will sell in spite of more aggressive markups It’s Time to Find Out What’s Popular, and What’s Not Who has time to fiddle with reports when they have to run a business? There are many advantages (i.e. profits) to putting in a little time every day to better understand the popularity of your inventory and price items accordingly. You need a few tools to make this happen: 1) a system that categorizes items by department, class, and fine line 2) a method to rank an item’s “popularity.” ERP systems have algorithms ranking products by popularity from fast-moving highmargin to slow-moving low-margin and dead items. ! If you’re not abiding by an ERP system’s order points and suggested orders, when you rank your items, you might discover that 65% or more of your inventory is tied up in the bottom 15% of sales movement. Once you identify your fast-moving items, you can set competitive prices and design end caps featuring their strikingly low prices, while you aggressively mark up your slower-moving items, thus establishing the right price image for an independent retailer like yourself. One Last Price Imaging Suggestion: Step Out of the Suggested Retail Box Co-ops do a great job of researching the market, analyzing cost and prices, but they don’t take into account the exact location of your retail store. Why not leap out of your comfort zone and try new prices that better reflect your specific location? For example, if you are the only one with plumbing supplies in your area, you can assign a higher markup to those items, and stay competitive on items commonly sold locally. 2
  6. 6. The Balancing Act Between Prices and Profits—It’s Within Your Control Fine-tuning Price Image (and Your Customer’s Perceptions) for Your Retail Business You’ve started to set more informed prices. How do you continue to fine-tune your prices and align them with your business goals? Here is the second lesson on balancing price and profit: The key is to fine-tune your price image for your retail business. Fine-tuning Pricing: Best Practices Checklist Are you doing everything in your power to price accurately? Follow the checklist below to see how you’re doing: relationship 33View price as more than markup from cost; it has a directas a tool for to your business goals. It’s a crucial strategic variable—use it marketing and for profit. your business. Are you considered 33Discover howoryour customers perceive a destination store or a convenience a price leader a service leader? Are you store? As you begin price imaging, it’s important to understand how your customers perceive you. You’ll have an opportunity through price imaging to either reinforce their opinions or change them. what your customers need to 33Price by category: discount onlyHere’s an example: you can give agive the a impression of being a price leader. painter trade discount that applies to paint and paint supplies while leaving the rest of your merchandise at regular price. Epicor Eagle Does That! Have you used Eagle Pricing Planner? You can easily identify your price-sensitive items, and then delve deeper into analysis. Conduct “what-if” analyses on proposed price changes before implementing them, saving you on costly trial-and-error pricing methods. You can also use the Eagle system to set up a pricing the Matrix: This is more complex variation 33Tailor Pricing Further—Useyou tailor pricing andagive discounts based on of pricing by category. Here, different items and customers. This works best for retailers who have many customers on account. buy out of convenience impulse and price 33Identify what customershelp customers with impulseorbuys, provide them with those products higher. To suggestions for complimentary items and plenty of opportunities to purchase last-minute items at the checkout counter. with Higher 33Experimentyou looking forMarkups without the Fear of Impacting Margins. For those of that extra edge, use technology that measures item elasticity which predicts the demand of an item when a price change is made. In other words, it identifies the most price-sensitive items—which is exactly what you need for easy price imaging. Not only does it identify price-sensitive items, when you propose price changes, you can analyze the impact the proposed price changes may have on sales and margin dollars, and make adjustments before your price changes go live. matrix to offer various levels of pricing to your customers. 3
  7. 7. The Balancing Act Between Prices and Profits—It’s Within Your Control Get Your Retail Prices in Shape with Rounding Strategies Here is our third lesson on balancing price and profit: The key is to create the right price shape for your retail business. Marking up from cost yields odd price points: $5.77 or $6.53. But consumers are accustomed to seeing a 9 at the end of a price. Rounding, in its simplest form, is changing the number up to the nearest 9. From our odd price points, we would change the price to $5.79 or $6.59. This provides your customers a familiar price shape while adding cents to your bottom line. But there’s more to it than rounding to the nearest 9. Learn how to really get your prices in shape. ! For every $1 million in revenue, approximately 200,000 items are sold. If you added just 3 cents to the price per item, you would see $6,000 added to the bottom line. Now that’s not bad! Before you begin, make sure your costs are accurate. Since you’re base rounding (and pricing) on cost, it’s best to get that in line first. Getting Your Prices Into Much Better Shape with Some Rounding Heavy Lifting don’t have to large 33Start Small. With rounding, youand soon you’llmakedollars adjustments to the price. A cent here, a cent there, see added to the bottom line. Epicor Eagle Does That! The Price Rounding Table in the Epicor Eagle system allows you to enter a group of items by department, class vendor, or location. The system will automatically recalculate a new retail price after it runs through the pricing table. Add to that the additional features of Pricing Planner and you’ll be able to round to the right and rounding to the 33Now Think Big. For lower priced items,be rounding morenearest 9 makes sense. But for higher priced items, you should aggressively. Why? It’s all about what the market will bear. Higher priced items will weather aggressive rounding better than lower priced items. Remember, sometimes 100% markup or even 300% markup will be fine. Tailor your rounding to 33Don’t get stuck at what is convenient. rounding strategy for itemsreap additional profits. If you have the same between $5 and $10, it’s time to reconsider. Use your ERP system to generate tailored rounding using rounding tables. There you can assign a rounding scheme of .29, .49, .69, .79, .99 for items between $4-4.99 only. Create a new level for $5$5.99 which will round to .49, .79, or .99 only. For $6-7.99 set it to round to .49 and .99 only, and for $8 and up round to .99. The more tailored and aggressive the rounding, the more profit. decimal 33Round up to the right and the LEFT of thethat none if the product is blind or non-comparable. For products you stock of your competitors have or for items that a customer rarely purchases more than once (think wax toilet ring or toilet flapper), you have an opportunity to assign more aggressive rounding. For example, do your customers know enough about a toilet flapper to balk at a price of $11.99 versus $6.99? This is your opportunity to create custom rounding—including rounding up dollars and not just cents. the left of the decimal! 4
  8. 8. The Balancing Act Between Prices and Profits—It’s Within Your Control Trade Secrets of Promotional Pricing and Discounts Promotional pricing strategies aren’t trade secrets. But retailers often underestimate the power of promotions and how they function. Here is our fourth lesson on balancing price and profit: The key is to create the right price promotions for your retail business. Promotions are time-based offerings that discount merchandise from its regular retail price for a specified period of time. They are a great way to keep your retail business top-of-mind and drive store traffic and sales. They add color and fun to the shopping—and retailing—experience. If promotions are not executed flawlessly, however, they can confuse the customer, slow down point of sale, and cost you loyalty and profits. To help ensure that you run streamlined promotions, use these best practices below to guide you: Promotional Pricing Secrets to Success the entire market basket of goods customers buy, not 33Keep an eye onitems. The trick is to select the right products to discount in just promotional the right seasons AND select the right complimentary non-discounted items to merchandise alongside promotional items. This combination, along with increased sales volume from the promotion, will offset the lowered price and drive up the transaction total. One way to select the right product mix of promotional and regularly priced items is to rely on an ERP system. Did You Know? Promotions do not always involve price discounts. You can advertise your product offerings without discounting price. Consumers will assume your prices are good because of the effort you’ve gone through to put those prices in front of them, when in fact, you are simply building brand BOGO (buy one/get one free, half off, etc.). BOGO 33Don’t underestimate thefor any promotional strategy. They support your price promotions are important imaging strategy of discounting price-sensitive items, and foster impulse buys and an exciting customer experience. Coupons—It’ll be Worth It. The that 33Offerattract two very different audiences:interesting fact about coupons isyour they both first-time customers AND regulars. You’ll be appealing to first-time customers with low-priced items and feature tantalizing sales that make them eager to try your store. At the same time, you are training your customers to read the ads and look for great deals. Coupons become a vehicle for developing customer loyalty as well as attracting potential new customers. 33Don’t forget the discount. MoreIfthan anything, the straight discount willyour help you steer customer behavior. you’d like customers to buy in bulk at store, consider offering volume discounts, or if you’re hoping to improve days outstanding, offer prompt-payment discounts. Or you can provide discounts on certain days for a certain class of customer, perhaps senior citizens or your VIP customers, to further encourage sales AND customer loyalty. and awareness. 5
  9. 9. The Balancing Act Between Prices and Profits—It’s Within Your Control Promotion’s Success. If you aren’t tracking and 33Measure aeach promotion, you’re missing out on a key step measuring the success of in mastering the Epicor Eagle Does That! You can use the Eagle system’s Dynamic Promotions module to art (and science) of promotions. Not only is it important to run promotions effectively, but it’s also important to track them so that you can better understand how well these items performed—so that you can offer even better promotions the next time (and gain additional revenue). Measure the performance of sales items and the transactions they drive. No matter what items you put on sale, or the prices you decide to charge, you need to measure what happens with your promotions. For example: run time-sensitive “start {{ Did the number of transactions increase? and end” promotions in {{ Did your average transaction size increase? advance. The system will {{ Did sales of related items increase? preprint signage, shelf {{ Were you able to remove overstocked or short-dated items from your inventory? labels, and prepare POS to charge the sales price for the merchandise. Advanced features allow you to run BOGO and coupon promotions, along with set You should expect to see increased sales volume offsetting the discounts and higher overall transaction levels (and sizes). If an item performs poorly on promotion, do not use that item for the next promotion. returns. items being sold at 33After the sale, close the loop withretail price?Areso, you’re giving money away, promotional pricing but returned at If and fixing the gap is imperative. Close that loop by relying on an ERP system’s promotional software to accurately provide the right dollar amount to return at the POS. special prices for a certain type of customer. The system enables you to easily track the results of your promotions, too. 6
  10. 10. The Balancing Act Between Prices and Profits—It’s Within Your Control It’s Got to Be Done: Price Maintenance Strategies Once you have your pricing strategies in place, it’s important to protect those strategies long-term. To do so, you must ensure cost fluctuations are reflected in the price…in both the system and out on the sales floor. Here is our fifth lesson on balancing price and profit: The key is to create the right price maintenance strategies for your retail business. If you can maintain your prices (and make sure your system prices match shelf prices), you’ll be creating a guard against lost profits (and penalties). Price Maintenance at its Best the Store. Periodically, you visual inventory of your 33Walk Check it out. Are the prices need to take aconsistent with the prices on store. in the system the shelves? for you 33Watch haveprice change exceptions at POS. Areat theprotecting your prices only to employees giving away your margins checkout counter? Set up alerts—most ERP systems will have them—to see when clerks are making price exceptions. This can help you maintain your prices. Did You Know? Employees making price exceptions at POS can account for an approximate 2% loss in gross profit. 2% adds up. If you earn a gross profit of $1 million, 2% is $20,000 lost at the POS counter. Did You Know? In some states, the retailer can be penalized for charging at point of sale a price greater than the lowest price posted on the shelves. In these states, it becomes doubly important to make sure that system pricing matches shelf pricing to keep updates to cost: There is enough great technology out there 33Give up manual up manual cost adjustments. It’s time to automate. Leverage to warrant giving your ERP system to change costs throughout the system. For example when your vendor informs you of a 5% price increase, don’t sweat it. Update your replacement cost by running a simple report. You can then program the system to take the new costs and update your retail prices and print new labels. Now that you have pricing 33Multi-store synchronization.locations. Maintain the samestrategies for one location, expand it to multiple price for some items and create store-specific prices for other items—your ERP system can help you determine which items merit which prices. Did You Know? Lowe’s used to have four zones of pricing, now they have 200 zones across the country; individual SKUs vary in price by as much as 14% across zones. customers happy and to avoid penalties. For more information on the pricing laws by state go to http://www.nist.gov/pml/ wmd/metric/retail-pricing.cfm 7
  11. 11. The Balancing Act Between Prices and Profits—It’s Within Your Control The Golden Rules for Changing Pricing Epicor Eagle Does That The Eagle system can automatically change prices based on the Price Maintenance strategies. To assist you in verifying prices on the shelves versus the Do you have a difficult time determining the right moment to change prices when new costs come in? Try the golden rules below to guide you: cost is merchandise 33If newup pricehigher than theimmediately. already in stock, you will want to mark to reflect cost cost is lower but higher-cost 33If newpoint should hold steady until merchandise is still in your possession, the price the higher-cost merchandise is sold. is lower and there is not 33If new costprices should be reduced. much higher-cost merchandise left in inventory, Let Epicor inspire your next business breakthrough. Call us today at 888.463.4700. system, you can download price files by location to your mobile device (or scanner). You can walk the aisle, scan the labels, and verify that the price in the system is the price on the shelves. Also, the Price Change Screen allows you to update your replacement cost very quickly and accurately. 8
  12. 12. About Epicor Epicor Software Corporation is a global leader delivering business software solutions to the manufacturing, distribution, retail, and service industries. With more than 40 years of experience, Epicor has more than 20,000 customers in over 150 countries. Epicor solutions enable companies to drive increased efficiency and improve profitability. With a history of innovation, industry expertise, and passion for excellence, Epicor inspires customers to build lasting competitive advantage. Epicor provides the single point of accountability that local, regional, and global businesses demand. For more information, visit www.epicor.com. Contact us for more information on Epicor Products and Services  +1.888.463.4700  Worldwide Headquarters San Francisco Bay Area 4120 Dublin Boulevard, Suite 300 Dublin, CA 94568 USA Toll Free: +1.888.448.2636 Direct: +1.925.361.9900 Fax: +1.925.361.9999 Latin America and Caribbean Blvd. Antonio L. Rodriguez #1882 Int. 104 Plaza Central, Col. Santa Maria Monterrey, Nuevo Leon, CP 64650 Mexico Phone: +52.81.1551.7100 Fax: +52.81.1551.7117  eagle@epicor.com  Europe, Middle East and Africa No. 1 The Arena Downshire Way Bracknell, Berkshire RG12 1PU United Kingdom Phone: +44.1344.468468 Fax: +44.1344.468010  www.epicor.com/eagle Asia 238A Thomson Road #23-06 Novena Square Tower A Singapore 307684 Singapore Phone: +65.6333.8121 Fax: +65.6333.8131 Australia and New Zealand Level 34 101 Miller Street North Sydney NSW 2060 Australia Phone: +61.2.9927.6200 Fax: +61.2.9927.6298 This document is for informational purposes only and is subject to change without notice. This document and its contents, including the viewpoints, dates and functional content expressed herein are believed to be accurate as of its date of publication, July 2013. However, Epicor Software Corporation makes no guarantee, representations or warranties with regard to the enclosed information and specifically disclaims any applicable implied warranties, such as for fitness for a particular purpose, merchantability, satisfactory quality, and reasonable skill and care. As each user of Epicor software is likely to be unique in their requirements in the use of such software and their business processes, users of this document are always advised to discuss the content of this document with their Epicor account manager. All information contained herein is subject to change without notice and changes to this document since printing and other important information about the software product are made or published in release notes, and you are urged to obtain the current release notes for the software product. We welcome user comments and reserve the right to revise this publication and/or make improvements or changes to the products or programs described in this publication at any time, without notice. The usage of any Epicor Software shall be pursuant to an Epicor end user license agreement and the performance of any consulting services by Epicor personnel shall be pursuant to the standard services terms and conditions of Epicor Software Corporation. Epicor, Business Inspired, the Epicor logo and Epicor Eagle are trademarks or registered trademarks of Epicor Software Corporation or its affiliated companies registered in the United States and certain other countries. All other trademarks mentioned are the property of their respective owners. Copyright © 2013 Epicor Software Corporation. All rights reserved.

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