This Episode: Retail Pricing 101- 3 Easy Ways To Boost Profits
When you learn how to strategically price your merchandise, big things happen! Even minor adjustments can have a significant impact on your overall profitability. In this episode of Real Retail TV, you’ll discover the three timeless rules for profitable retail pricing that we teach in the Assortment Planning module of the Retail Mastery System.
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Hi. I’m Bob Negen, and in this episode of Real Retail TV, you are going to learn how to pick the low hanging fruit of retail. What I’m talking about is the three rules of profitable retail pricing.
As I mentioned in the introduction, pricing is the low hanging fruit. And when you understand how to strategically price your goods so that your people don’t care that you’re paying a little more, but you’re getting a little more?
Good things start to happen because pennies turn into dollars and dollars turn into tens of thousands of dollars and tens of thousands of dollars turn into hundreds of thousands of dollars.
I learned this the hard way. You’re going to hear the story in just a moment, but I have dozens and dozens and dozens of stories from retailers large and small just like you who have taken what is in this video from the retail mastery system and turned it into significant money.
So here is the three rules of profitable retail pricing from the Assortment Planning module of the Retail Mastery System.
In this video, I’m gonna share with you one of the most often overlooked sources of sales increases in higher profits.
I’m talking about pricing.
As you plan your assortment, pick your products, you’re gonna have to decide how to price them. I’ve discovered that there are three timeless rules of profitable retail pricing that can help you make these decisions.
So here they are. Profitable pricing rule number one is price based on value, not on cost. Let me tell you a quick story.
So my first couple of years in retail were tough. Really tough. I was just twenty three, three years old, and I had opened a kite store in Northern Michigan. A seasonal kite store in an area where short summer seasons were my reality.
Sales were abysmal, and because I had no money, I had no social life, and as a young single guy, this made me sad.
Then one day, I found our first really hot seller. It was this silly toy. A whistling balloon helicopter.
They sold like crazy.
In the early nineteen eighties, when I started my business, a common pricing formula was buy for one, sell for two. In other words, the price I charged was double what I bought the item for. Keystone pricing is what it was called. And that’s how I priced my whistling balloon helicopters. We bought them for sixty five cents and sold them for a dollar twenty nine. Keystone.
Now, it didn’t sell too many of those whistling balloon helicopters to get the few extra dollars needed to go out on the town and have a couple of cheap draft beers.
That made life good.
After a couple of weeks, of selling whistling balloon helicopters at a dollar twenty nine, my brother Steve, who was also my business partner, said to me, Bob, I think we can get a dollar forty nine for these things.
Well, this created a real dilemma We weren’t sure if it was okay to charge more than Keystone.
So we discussed it all at length one night over a couple of cheap draft beers, of course, and then we decided to try it. In the next day, we peeled off all the old price stickers and took out the trusty monarch marking gun and went twenty nine thirty nine forty nine bam bam bam.
And you know what? They still sold like hotcakes. No one even even badder than I. And then all of a sudden, we had enough money to get a burger with our draft beers. So a few days later, Steve came to me again and said, you know what, Bob? I think we might be able to get a dollar seventy nine for those whistling balloon helicopters.
So how comes the marking gun? A dollar forty nine, dollar fifty nine, sixty nine, seventy nine. Bam, bam, bam, bam, bam. About a week after that, we raised the price to a dollar ninety nine.
And still, no one batted an eye, stay a sales stayed the same. Think about that. That’s a that’s an extra seventy cents on every unit we sold, and we sold hundreds. Now, we sold thousands of those things.
Now, we’re drinking Heinekens. There’s bacon on our cheeseburgers.
And life is really, really good. Why?
Because we finally figured out that we should be pricing based on the value of the item to the customer, not what it costs for us to buy it. The important lesson we learned was that price is one component in the value of an item, but not the only one.
If the perceived value to your customer, What they think an item is worth is higher than what you’re charging. There’s a value gap, and you have room to raise your price.
Now, I’m certain that you have items in your store right now where you could increase the price, and it wouldn’t affect your sales on that item at all. In fact, sometimes increasing your price can actually increase your sales. But that’s in profitable retail pricing rule number three, and we’ll get to that a little later.
So take a look at your merchandise and think about where you might have a value gap. What are your whistling balloon helicopters?
Where are you underpricing your products?
One thing I used to do when a new item would come into my store was I would go out and I would ask my staff what they thought that item was worth before they knew the costs or what I was considering for a price or anything like that. I asked them what their perceived value of the product.
What I found was the perceived value of my staff was often higher than my standard pricing formula.
A standard pricing formula is a great place to start, but don’t default there simply because it’s your policy or because it’s just easier. If you do that, you’re missing out on tons of extra profit.
Of course, there’s some items might be highly competitive in your industry, or that most customers know the going price for. You need to stay competitive on those items.
But for most items, keep in mind pro profitable retail pricing rule number one.
The price you charge for an item should not be based solely on what the item cost. It should also be based on what the item is perceived to be worth by your customer.
So here’s profitable pricing rule number two. End your prices with ninety nine cents.
This pricing tactic has been around for at least a century, and no one knows where it first started, but we definitely know it works.
Ending a price in ninety nine, is based on the theory that because we read from left to right, the first digit of the price is what sticks with us the most.
Our brains tend to ignore the stuff to the right of the decimal point in order to make things easier.
That’s why shoppers are four far more likely to buy a product for four ninety nine than an identical one for five dollars. Yes. Everyone knows logically.
That it’s just a penny more, but subconsciously and demotionally, the item that starts with a four just seems like a better deal than the one that starts with five. Make sure that every item in your store is priced with a ninety nine cent ending. If you have merchandise priced at twenty nine forty nine or ninety five cents, raise it up to ninety nine cents. Yes. Even if feels if it feels gimmicky or fake to you, No one is going to not buy that item because of a few extra cents. There’s essentially no impact on their wallet.
But for you, the impact can be significant.
Even if you’ve only changed your prices from ninety five cents, ending to ninety nine cent ending, you end up making four cents a unit, and that can really add up.
For example, If you sell just twenty five items a day on average, that adds up to nearly five hundred dollars a year, year in, year out. Pretty soon you’ve made thousands of extra dollars just by moving your prices from ninety five to ninety nine. That’s a lot of bacon cheeseburgers.
But it’s not just the sense endings to the price, that can make a big difference in your customer’s buying behaviors and in your profit.
It’s also the whole dollar amount.
So here is profitable retail pricing rule number three.
Price dollar amounts ending with two for seven or nine.
Two four seven and nine are the best numbers to have right before the decimal point with four and nine being the very best. Let’s take a look at the psychology of it. Four and nine are the best numbers because they weekend right under actual dollar bill denominations.
Four ninety nine is less than a five dollar bill. Nine ninety nine is less than a ten dollar bill. Nineteen ninety nine is less than a twenty dollar bill. Forty nine ninety nine is less than a fifty dollar bill. You get the idea. Two’s and seven’s are good, but not great. They fit between zero and four and four and nine, and people are used to them.
People are used to seeing items at two ninety nine, seven ninety nine, twelve ninety nine, and seventeen ninety nine. And there are times when you need to use twos and seven to keep your kite prices competitive on popular items.
In general, I only like to use twos and sevens for merchandise under twenty dollars. Over twenty dollars, I like to try to use fours and nines. Twenty four ninety nine and twenty nine ninety nine. Thirty four ninety nine and thirty nine ninety nine.
Forty four ninety nine and forty nine ninety nine. And so on and so on. Think about it. If someone is willing to pay twenty two ninety nine, Is twenty four ninety nine going to dissuade them?
Probably not. The psychology of numbers is such that people will buy for twenty four ninety nine, what they will buy for twenty two ninety nine. Same thing goes with thirty two ninety nine and thirty four ninety nine. So why wouldn’t you get the extra two box?
And whenever possible, I recommend that you skip the four and go straight to the nine, even though you’d expect to sell fewer of an item if you raise the price. Ending your prices in nine can actually increase the number of items that you sell.
About five years ago, a couple of professors from the MIT business school and the Northwestern business school teamed up to do a study and what they found was fascinating.
They asked a national catalog company to do a test and offer the same dress at thirty four and thirty nine.
The thirty nine dollar dress sold about thirty percent more than the same dress at thirty four. They also try to test with thirty four and forty four. And found no difference in the number of dresses sold at both price points.
It’s the power of that nine ending that really works in your customers’ brains.
So take these three rules of profitable retail pricing altogether and you’ve got a surefire action plan to put more money in your bank account.
First, make sure that all your prices end in ninety nine cents. Move them up from twenty nine or forty nine or ninety five cents. Move them to ninety nine. This simple step alone could be worth thousands of dollars a year.
Second, look at your pricing and make sure the whole dollar amounts end in two, four, seven, and nine. Stick to the four and nine whenever you can, and you the Magic Nine whenever possible. So, for example, if you got something priced at thirty six ninety nine, move it to thirty seven ninety nine, or even better, move it to thirty nine ninety nine.
Third, After you’ve done steps one and two, check your value gap. And are there items that have greater perceived value than what you’re charging?
Close the value gap by bumping up those prices. If you all three of these steps, my guess is that you can increase sales and profitability by tens of thousands of dollars every year, even hundreds of thousands of dollars depending on the size of your store.
And the cost to get those sales increases, pretty much nothing. All that money goes straight to your bottom line. And the impact on your customers, also pretty much nothing. Because you’re spreading the increases out over all of your products, in over all of your customer, and because you’re taking advantage of the brain psychology of numbers, they will generally feel the difference in their pocketbooks at all.
Like I said in the beginning of this video, This three part pricing strategy is one of the most overlooked sources of revenues and profits.
I hope you use these techniques and make more money.
There you go. Your action items. Should you choose to accept them? And I hope that you’re choosing to accept them is to just the first thing I want you to do is to walk around your store.
And look where the opportunities are. Look for your forty nines in the ninety sevens, in the twenty nines. Look where it’s easy to do. Just get a feel for the potential and the opportunity.
The second thing to do is to print out your, you know, in a print out a list of all of your merchandise and then just go through. Mark it up with a pen, and you know, apply what you’ve just learned to your list. Then you can do it one of two You can either change all your prices at once in one fell swoop, sit down, chase, change the prices in your point of sale system, or you can change the prices as new orders come in. But there is too much money in what you just learned for you not to take advantage of this pricing strategy.
If you don’t have the Retail Mastery System yet. The Retail Mastery System that this video came from, I would encourage you to go to retailmasterysystem.com. The Retail Mastery System, it’s awesome. It is the best resource for independent retailers anywhere, eleven modules, eleven critical skills in-depth.
Twenty four hours of high quality, money making information that’s gonna help you take your business to the next level. So again, if you don’t have it yet, invest now. Go to www.retailmasterysystem.com