Retail Consultant Advice: Raise your prices. Here’s how…
Wow, yesterday’s post “It’s Time To Raise Your Prices – Even Though Everyone Will Tell You Not To” got a lot of attention; just like when I first raised this issue during an interview. This is the follow-up to both…
In a recent New York Times article, JC Penney shared that they previously would mark up their goods 4 times cost and then relied on almost 600 promotions per year to sell it. Clearly that didn’t work (did it ever?)
No one knows the price you pay but you. When you selectively raise the price of your most popular items to add to your bottom line – you’ll be able to continue to be in business. When you don’t, you end up gone.
Many owners or managers have never taken a course on pricing, so they tend to mark up their products less than they should. I met a guy at a recent speech who sheepishly admitted he purchased an item at $20, and priced it at $25.
Your merchandise should be marked up enough extra to make your business profitable. That used to be double or keystone.
You also have to consider the value you provide to the customer and charge what you think the market could afford, not necessarily what you personally would pay because you know what the item cost you.
There is a hidden risk to increasing your prices and it doesn’t come from consumers…
It’s from your disgruntled staff. The polite ones who don’t say anything to your face but tell customers behind your back, “We just had to raise prices.” They might even inform customers where they can get it for cheaper. Or even worse, “I buy all my stuff from Amazon, it’s cheaper.”
Don’t think that could be your staff?
5 Steps to Increase Your Prices
1. Educate your employees on what costs make up your pricing structure. Point out their salaries and benefits. Point out shipping costs. Point out as much as you can to show costs are going up and why you have to raise prices. Reveal there’s no magic genie that makes up the difference. (It helps if you don’t drive the newest model BMW to work each day. Just sayin’…)
2. Do a category report. Look for the category leaders. They are most able to move your profitability.
3. Do an item report. Look for the faster moving items you can selectively raise your prices on. When I was with the coffee franchise, we increased bagels instead of the entire bakery department. Not because bagel costs alone had risen, but they were the best-sellers and could most help balance increased costs for the business, not the item.
4. Decide how much you want to raise your costs. You could raise items under $10 by a dollar and no one would probably notice. Once they cross from $9.99 over $10 though, people notice so be careful with that price point. Likewise the $19.99 crossing into $20 and all the $x9 ($29, $39, etc.) crossing into the next level. Psychologically customers “pause” if they really want to spend over $20, $50 or $100.
5. Monitor your sales. If you’ve done your selective price increases right, everything will continue moving upwards and your profitability will move up as well. Remember, you don’t want to spend more just because you made more.
Two Choices In Timing Your Price Increases
Aggressively raising prices
If you’ve ever worked in a larger retailer, price changes were almost a daily routine. You would physically remove the tags from the products and re-price them to the new retail. This was done because the retailer understood when they went back to the vendor they would have to pay more so they wanted to proactively price their existing merchandise to help pay for the new. This “float” between what they previously paid and what they would pay in the future, helped make them profitable.
Passively raising prices
If you’ve only owned your own shop, you may only change prices when you get a new order in. The thought being it is too much work to change them and it “wouldn’t be fair” as that wasn’t the price you purchased the items for previously. But managing your price increases is as important as managing your clearance items – you want to maximize profitability as easily and simply as possible. Being more aggressive with raising your prices – especially now that it is often simply updating a shelf tag and computer database – is being a smart retailer.
You might have one or two customers say something if they regularly purchase an item from you, for example coffee. If so, simply say in a sign or in person something to the effect, “Have you noticed the increase in gas? That has increased many of our costs and forced us to increase our prices. Thanks for shopping with us.”
Many retailers can discount their way to the poorhouse fairly easily. Discounting doesn’t take much thought…
To be a smart merchant, you have to know why you must raise your prices and selectively increase them to continue to provide your customers with choices.
What say you? Is your category of stores as a whole underpriced right now? Is it because they are afraid of the discounters or online sites? Would your employees support a price increase? Please enter your comments below.
About Bob Phibbs, the Retail Doctor
Companies from some of the very largest, to some of the smallest, from luxury brands to startups, from franchises to regional chains contact me as a retail consultant because they are looking for results to the hard challenges facing their business. An owner may have read one of my books, seen my videos, seen me on TV, heard me speak or read this blog to get a taste of my people-focused philosophy and my methods.
While every client and project is different, the ability to enlist me as a retail consultant who has a fresh set of eyes to look at the challenges you are facing results in a focused, effective and creative path to profitable sales. No matter what your size, let’s see how I can help you.