Sample Do You Know What You Don’t Know? Newsletter

Is Your Pricing Structure Costing You Sales and Profits?

Did you ever pay close attention to the prices at Walmart? Rack toppers proclaimed everyday low prices like $2.86, $10.94, or $15.68. Walk into a Walmart store today, and you’ll see even numbered prices such as $3, $11, or $16. The change in pricing occurred because the company was leaving gross margin dollars and profits “on the table.” Walmart’s Core and Must-Have customers’ rules demand that products be priced within their budgets. However, in most cases, an additional few cents on an item won’t deter customers from purchasing the items they want.

Most companies don’t do the best job at maximizing their pricing structure. And this means that they are negatively affecting their opportunity for sustained, profitable growth. Have you looked at your pricing structure lately to determine if you are also leaving money on the table?

For instance, if you are in the retail business, are you adhering to the old adage that prices should end in 97, 98, or 99 cents? The conventional wisdom is that a price such as $3.99 is more apt to appeal to a customer than $4.00. The conventional wisdom is wrong. Based on data from our annual National Shopping Behavior Study, customers are more interested in having the selection of products they want, than saving a extra few cents.

If you are in a service industry, are you charging $18 an hour for your time instead of $20? I can tell you from my own experiences that when a sink or toilet at my house is backed up and needs the attention of a plumber, I’ll gladly pay the extra $2 an hour to get prompt service.

The concept of increasing prices, is what we at The Gordman Group call “Raise the Ring.” We’ve used this concept for the past four years with one of our clients, a national retailer that has annual sales of $5 billion. We’ve helped them look at their pricing structure as well as their product mix. By stocking the products that their Core and Must-Have customers want at a fair price, they have been able to significantly increase their sales and dramatically improve their profits.

Don’t let the rocky economy stop you from looking at your price structure and making subtle changes. Most customers won’t even notice that you’ve raised the ring.

Bob Gordman, President
The Gordman Group

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