Price sensitivity is the core concept to consider in trying to understand how brick and mortar businesses lost market share to the internet. Price sensitivity is the way customers perceive a price and the ensuing demand the product has on a given market. Four questions can be asked by the manager regarding a product and how to effectively price the product to sell.
- Is a product’s retail price too high?
- Is a product’s retail price too low?
- How many substitutes exist for the product?
- How many complements exist for the product?
There is a “buyers psychology” in determining how to price products. In understanding subtle human behaviors, an observant manager can easily increase their sales per square foot.
In this article I will discuss some of the things I’ve considered in increasing foot traffic and sells. By driving foot traffic, you can further teach patrons about your core business.
Know and understand your mission
A business must have a mission. That mission must be at the core of all selling activity.
Know your mission, understand your staffs strengths and weaknesses, and leverage it to increase sells.
Know and understand your customer
Your core audience will desire the same core goods to be sold.
Make sure those goods are in stock consistently. Work hard to ensure that stock outs of these core items are prevented.
Price products to move
Pricing aggressively is easy to say but difficult to do.
Create pricing tiers with corresponding markup factors to ensure consistency in customer expectations of price.
For example you make a rule to price products that cost under a dollar by a markup factor of 2, and products between $2 and $5 have a markup factor of 1.5.
Whatever rules you put into place just make sure the rules remain consistent. Have a goal, understand your margins, and price to move!
Limit the selection of products offered
Limiting product selection can be a good move for both the small business and the customer.
Your business can’t be everything for everyone. If you sell fried chicken well is there a real need to add hamburgers to the menu?
By limiting inventory, the business saves money on inventory carrying costs. The consumer also learns to have an expectation of whats carried and not carried at your store.
Leverage the products sold to discuss core business
Ancillary sales of products drive home your core business. When you go to a bakery you will notice that the baker also sells candles, forks, plates, and a cake cutter.
Consider asking yourself… What products complement my core business?
Use substitutes and complement products to increase sells
Bread goes with milk and salami can be substituted with ham. Having a simple understanding of this core principle will allow you to leverage sells of multiple products on your shelf.
If it doesn’t sell drop the price and remove the product from the shelf
Retail space is precious. There are only so many products that can fit in a store. Thus always ensure your core products are placed on a shelf in a manner to sell.
For products that aren’t selling well, find a way for your customers to give the product a shot.
This can be done by positioning the item in a new area of the store, or by discounting the product in a manner that may make the consumer give the product a try. If the product doesn’t sell don’t be afraid to pull it from the shelf! Discount the product to a breakeven price and move on.