As a small retailer, you may think that the only way to compete with big box retailers is to match their prices. But this may not be feasible or profitable for you, as you have lower volumes and higher costs. So, how can you attract and retain customers without sacrificing your margins?
The answer is to manage your margins effectively by setting optimal prices that balance customer satisfaction, revenue growth, and profit retention. In this blog post, we will show you how to do that using Epicor Retail Management Systems, powerful software solutions that can help you with every aspect of your retail business.
Why Margins Matter
Margins are the difference between the price you charge for your products or services and the cost of providing them. They are a key indicator of your profitability and efficiency. By optimizing your margins, you can:
- Grow your revenues by increasing the value of each sale
- Maintain your profits by reducing your expenses
- Keep loyal customers by offering them competitive prices and great service
How to Change Customers’ Price Perception
One of the challenges that small retailers face is that customers may perceive them as having higher prices than big box retailers. This can affect their buying decisions and loyalty. To overcome this challenge, you need to change their price perception and show them that you offer more than just low prices.
You can do this by choosing from two types of perceived pricing scenarios:
- Everyday low pricing: This is where you offer consistent and competitive prices on all or most of your products or services. Customers think they can rely on you for getting the best deals without waiting for sales or discounts.
- Full price plus heavy promotions: This is where you offer higher prices on quality brands and products or services, but also run frequent and generous promotions and discounts to create a sense of urgency and value.
How to Combine Pricing Strategies
You don’t have to stick to one pricing scenario for all your products or services. You can enjoy the best of both worlds by combining them strategically. The trick is to choose the right products or services for each approach.
- You can use everyday low pricing for fast-moving items, which are those that customers buy frequently and repeatedly. These are usually low-cost and low-margin items that generate high volume sales. You can keep these prices visible on end caps and at the point of sale (POS), where they will get plenty of attention.
- You can use full price plus heavy promotions for slow-moving items, which are those that customers buy less often or only once. These are usually high-cost and high-margin items that generate low volume sales but high profit margins. You can set these prices higher than usual and offer discounts occasionally to entice customers.
- You should also take the time to identify the items that only your business sells. These are prime candidates for a more aggressive mark-up, as customers will have no other choice but to buy from you.
How to Use Your POS Reports
To take the guesswork out of your pricing strategy, you need to use your POS retail management system, which will provide you with valuable insights into how well your pricing strategy is working with your customers. Your POS system can help you:
- Categorize items by department, class, and fine line
- Designate items as commonly available or hard to find
- Rank items by popularity
- Use algorithms to rank items by profitability
You should get in the habit of checking your POS reports regularly to monitor sales trends and watch for specific patterns:
- Fast-moving, high-margin items: These undercut your pricing image, as customers may think you are overcharging them. You should lower these prices or move them to a less visible location.
- Slow-moving, low-margin items: These shrink your profits, as you are not making enough money from them. You should raise these prices or eliminate them from your inventory.
- Dead items: These tie up your capital and will likely sell at a loss. You should clear them out as soon as possible or donate them to charity.
- Everything else: The faster an item moves, the more competitively you will have to price it, and the more you will want to merchandise it prominently.
You should also take your local market into account and adjust your prices accordingly, to evaluate what prices your market will bear.
How to Fine-Tune for Optimal Pricing
Once you have set your prices, you should fine-tune them continuously to ensure they are aligned with your goals and your customers’ expectations. You can use your retail management system and develop a pricing matrix model that includes granular pricing categories. This will help you with several key initiatives:
- Discount only where necessary to help customers see you as a price leader
- Raise margins on impulse purchases and display while promoting complementary products
- Test item elasticity using technology that measures how demand reacts to price adjustments
- Take advantage of price modeling to see how price changes impact sales and margins before making a change
You can also use your retail management system to help you set up price rounding schemes so you don’t have to do it manually.
How to Use Discounts and Promotions
Discounts and promotions are powerful tools to keep your business and brand in front of customers, while driving store traffic and sales. However, these events must be executed carefully to keep things streamlined and effective. Here are some tips for using discounts and promotions:
- Focus on the entire “market basket” customers buy when you run promotions, not just the discounted items. This will help you increase the average order value and offset the loss of margin from the discounts.
- Use different types of discounts and promotions for different purposes, such as percentage off, dollar off, buy one get one free, free shipping, free gift, loyalty rewards, etc. This will help you appeal to different customer segments and preferences.
- Use time-limited or quantity-limited discounts and promotions to create a sense of urgency and scarcity, such as flash sales, limited-time offers, countdown timers, etc. This will help you boost conversions and sales.
- Use social proof or testimonials to show how others have benefited from your discounts and promotions, such as customer reviews, ratings, referrals, etc. This will help you build trust and credibility with your customers.
Contact Us Today
We hope this blog post has helped you understand how to optimize your margins and grow your retail business using Epicor Retail Management Systems. We’re ready to help you discover how our software solutions can help you unlock your potential and achieve your goals.
