What do underpants, bungy jumping and First Aid supplies have to do with retailing? They have one key thing in common, writes Mal Scrymgeour.
Elastic. It’s not something you think about a lot. It’s just something that just exists. Normally elastic only gets your attention when it doesn’t work.
But imagine a world without it. There would be terrible trouble in the world of undergarments, to start with. Everything would be much more rigid and uncomfortable.
Those pants with the elastic around the top to allow for people with changing tummy sizes wouldn’t exist either. It would cause chaos with First Aid suppliers who would see the entire elastic band category vaporise. Socks would either be always down or we’d need garters.
Lifestyle activities such bungy jumping would suddenly lose their appeal if they had an inelastic bungy jump cord. An inelastic bungy cord would be painful, fatal or a potentially invigorating mix of both.
All this just shows you how just how important elastic has become in our modern lives.
And yet we don’t normally give it a moments’ thought. It just is. But elastic is simply brilliant because it allows for things to move and change.
And that’s a good thing, because almost everything has a habit of moving and changing.
Having experienced the silent and efficient magnificence of elastic, to suddenly not have it is almost unthinkable. In fact, having no elastic is a bit like painting a moustache on the Mona Lisa—it quickly becomes a very ugly image.
Elastic is a good thing because it makes the world more shapely and altogether much more comfortable.
It’s not a big stretch (every pun intended) to see the impact of elasticity on prices. It’s the funny thing about prices, because they are generally elastic too.
A lot of people in the industry seem to think that you need to match or be at the lowest price in order to attract customers. The last time someone was that wrong was when a certain Mr Neville Chamberlain stepped off an aeroplane waving a piece of paper saying there would be no war with Germany.
Saying you need to be at or match the lowest price may be something that seems right at the time, but history will judge it to be incorrect. Just as Chamberlain was.
To try to help you along here are my Ten Commandments on price – with 10% extra free (which makes 11 for the price of 10):
- Accept that your purchase (cost) price has nothing to do with the retail price. Consumers only care about the retail price.
- On that basis, as a general rule do not price by mark up on cost alone.
- Price to increase GP$. Not GP%. Not Mark Up %. This means you need to take prices up as well as down. That’s price elasticity right there folks.
- You should be aware of price sensitivity by SKU. If you are not, how do you know you have the right price?
- After Known Value Items, intra-store pricing becomes critical.
- Know what your competitors are selling KVI’s at. Check them every week.
- Know your costs. Having said consumers don’t care about costs, you do. Make sure you are pricing intelligently to not only cover costs, but to ensure you make the required profit. It might seem a contradiction to you, it’s not. It is simply a conundrum that is part of managing margin.
- Do not depend on the marketplace for your pricing. By resorting to “marketplace pricing,” you are accepting the opposite of differentiating your product or service. You don’t know the markets costs or which customers they are targeting. Be aware, but don’t feel you have to copy.
- Do not use the same formula for pricing all of your product categories. All product lines within the same category are not equal. You need different strategies.
- Be aware of Newton’s third principle of physics: For every action, there is an equal and opposite reaction. When it comes to pricing on elastic products, anticipate your competitors’ reactions, potential problems, and don’t get sucked into a price war.
- Do not short-change the pricing process. Pricing is not simplistic nor should it be a last-minute decision. Pricing right takes an appropriate amount of time and research, as well as sound pricing strategy and the determination to do things right. Pricing is both an art and a science.
A lot of this is easier said than done. Pricing is dynamic and time consuming. I wish it could be easy. But it’s not.
In fact, some of you will be aware we’ve created a website to address pricing for each individual pharmacy.
We did this thinking it was easy. But we were completely wrong. It was very complex in the extreme and has taken us over two years. We haven’t even launched but our trials are proving successful with a 4% GP but a 16% GP$ improvement.
All this proves a point. The trick with good underwear and with pricing is that they both rely on being elastic.
Mal Scrymgeour is the founder of retail consultancy Zumo Retail Ltd.