Tuesday, July 28, 2009

Drill Down to Do Item-Level Pricing

Are you setting prices on store merchandise by looking at overall product classes? If so, retailer Art Freedman knows a better way. He wants you to instead do what we call variable pricing or smart pricing. Here's what he has to say about this in Making Money Is Not Illegal, Immoral or Fattening:
"We drill down into a classification of merchandise. We dissect it down to every single item in the class. Some items will carry a low margin, while other items will carry a high margin. That is how we maximize the profitability in our business.
"If you are still setting margins by overall product class, I’m going to think that you are not hurting enough for money. You are making too much money, and you’re taking the easy way out by setting class margins. I would never set a class margin in all my life because that’s not the way to maximize profitability. You go into the class and dissect the class. You look at it item by item, and you set margins based on what the market will bear. Some items within a class may be at 50-60% margin, while some items within that same product class are at 20-30%....
"I’m a retailer and I know retailers, so I’m aware why we set class margins instead of drilling down towards the level of item pricing. We do it because it is quick and easy, and we’re all pushed for time. But if I’d set margins by product classes, I would have been out of business a long time ago….
"Smart retail pricing is knowing where in your assortment of products you need to go to make the money you need to be successful…."
Want to know more about this? Start out at page 60 in the book.

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