Price and markdowns optimisation
We are often asked a question how to optimize prices.
There are two elements to consider here: your pricing policy and its implementation. Systems can be of some help in shaping the retailer's pricing, promotional and markdown policy (by providing data to support decision making), but they are definitely essential in implementing the policy.
Let's deal with the policy first. The key here is to avoid situations where the retailer becomes completely dependent on promotions in order to get sales. In the policy area we usually recommend the following to retailers:
- Make prices area-specific and if necessary, store-specific. Each store operates in a different environment and good retailers take advantage of this.
- Create promotional offers that make simple price comparisons difficult - for example: get 20% off every conditioner when you buy a shampoo, and spend more than $40 in the transaction, and you are a member of the VIP Club at Gold or Platinum level.
- Use psychological pricing i.e. price points. They don't make a huge difference, but can be helpful.
- Know your GP accurately, so you can sharpen the prices when necessary.
- Avoid promotions that rely on store staff making the calculation of customer entitlements. They will invariably make mistakes, causing loss of margin and good will.
- Avoid markdowns through better initial allocations, sell-through analysis and end-of-season stock redistribution.
- Integrate your promotions with Customer Relationship Management to target your offers and follow up with targeted communications - for example: offer one-off discount on oil paints to customers who bought brushes and canvas from you but never bought any paints.
As far as policy implementation is concerned, the systems in the retail enterprise must then be able to handle your pricing policies. For example, the Retail Directions' system allows retailers to manage prices by region and by store, it supports complex promotional offers, it allows the retailer to use price points, provides accurate costing information, automatically calculates promotions at POS, provides tools for markdown minimisation and fully integrates promotions with Customer Relationship Management functionality.
For example, a chain of department stores in Australia (40 stores) reported that 3% of turnover was added to their bottom line (as profit!) simply by automating their promotions at POS (using our software).
© Retail Directions 2009
- RD Consulting Team (19 May 2009)