Protect your profits amidst price wars
How much discount can you give without hurting your profit margin? Retail stores owners explain their pricing strategy.
Dec 02, 2009 00:00 am
There is a great balancing act involved in making sure you post a profit margin for every sale, and at the same time, giving your customers the best value for their money through discounts. It's even more difficult to do these days as bargains are taking precedence in customers' minds.
However, you can maintain that balance if you set priorities and stand by them, no matter what. We interview the owners of two retail companies to share tips on giving discounts while safeguarding their bottom line.
Consider volume when offering discounts
Proud Mama Store manufactures and sells baby and toddler clothes through various retail outlets, a Multiply site, and through resellers in different parts of the world. Business partners Sheryll Ang-Tiong and Rianna Roces-Trinidad say, "our pricing strategy already takes into consideration commission schemes for resellers. Our trade partners help us achieve volumes we cannot achieve on our own so we try to work in a fair amount of profit sharing."
Aside from the resellers, the partners also lower prices for the end-buyers. Ang-Tiong says that they allow their customers to haggle, depending, again, on the volume they purchase. "We are very flexible with pricing and are willing to sacrifice some of our profit margins when the customer buys large volumes and pays upfront. We also encourage resellers who are starting out and have limited budgets by giving them a lower purchase requirement but with lesser discounts."
Mary Ann W. Cruz, Managing Director of Bluer than Blue Joint Ventures Inc.--which owns Regalong Pambahay, EGG, and Simplejoys stores--shares: "The company is very flexible in offering discounts. We definitely take into consideration the volume that will still enable our company to cover the costs and expenses of the items. We believe that providing discounts is a two-way business transaction; so we look at the market and price points of our wholesale customers, [and determine] at which level they will also be able to gain profits. We allow [them] to haggle ... [since] we look forward to [doing] long-term business with them."
Offer unique products or service
Both Bluer than Blue and Proud Mama avoid getting completely involved in price wars by offering items that are unique to them.
"We only make products that we would use ourselves, or those that we would use on our own children. Therefore, we do not sacrifice quality in order to fit into a specific price range," explains Tiong. "Our guiding principle is to price our items reasonably. Although there may be cheaper items in the market, the Proud Mama brands like Funkyfeet and Funkytubes give you great value for your money," she continues.
"Our brands are not price brands so we do not really play the price game. In addition to that, our items are mostly for babies and kids, and moms will always try to give their children the best that they can afford. We feel that for as long as our products fulfill the promise they make to our buyers, we will be able to build a loyal base of consumers," Tiong explains.
For her part, Cruz shares: "Our stores offer unique, quality items and a different customer service. The products might be similar to other stores", but they are not exactly the same. This means we are not price-sensitive." Cruz adds, "We directly deal with our market. We carefully evaluate and listen to the needs and demand of our client base as we aim to provide value-for-money products."
Other ways to keep customers happy
Aside from outright discounts, you can use other strategies to keep customers happy--without affecting your profits. "A customer usually responds favorably if you offer something of value--say free shipping, or a free item--especially if attaining it means an additional cash outlay of a couple hundred pesos only. Also, little conveniences like gift wrapping, gift tags or shipping gifts directly to the celebrant really do help a lot," Tiong opines. "Our promotions are usually designed to give rewards for a minimum spend."
With regards to wholesale customers, Cruz offers freebies as a token of appreciation for the business. "We also extend credit terms to them," Cruz adds.
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