It’s All About the Prices

I don’t know about you, but if I want to see my kids roll their eyes, all I have to do is mention the way things used to be. Somehow, I don’t think they believe that I walked to school through waist-deep snow, year-round, five miles, uphill, both ways. We all want our kids’ lives to be better than ours were, and in most important ways, they probably are. But, you can’t blame us if we exaggerate just a little bit sometimes.

But, everything isn’t better in the twenty-first century. Some things are actually more difficult; maybe much more difficult, which brings me to the topic of setting prices. Many of you responded to a Tacony Corporation survey that this is a topic of great concern, as well it should be. The price you charge for your merchandise will make or break your business. If your prices are too low, you won’t be able to cover your expenses and you’ll go out of business. If your prices are too high, you won’t sell anything and you’ll go out of business. It’s critical that you get this part of your business right.

Setting prices is something that is much more difficult today than it was in the “good old days.” Consider great-great grandpa (and grandma) who ran the town general store. They were the original “mom and pop” business. They were the owners and the employees. If they had anyone else on the payroll, it might have been a kid who came in after school to sweep up and stock the shelves. Chances are that “employee” was your great grandpa.

There was no competition. If you wanted to buy a sack of flour, or a shovel, or a pair of overalls, you went to the general store. The price was what great-great grandpa said it was. Not that your worthy ancestor was out to gouge the public, after all, in those days, people navigated by a moral compass. But, he knew that he could charge a fair price, enough to pay the bills and provide a living for himself and the missus. The traveling salesmen who called on him kept him up-to-date on what merchants in other towns were charging.

As time went by, the general store got competition. Everyone got the Sears and Montgomery Ward catalogs, so they had a better idea of what a shovel should cost. People started traveling to Capital City to shop and they would brag to their neighbors about what a good deal they got. But, there was still a value for convenience and local stores continued to make a reasonable profit.

Slowly, but surely, the amount of competition has ratcheted up. Chains like J. C. Penney and Western Auto began to open in small towns. Kroger and A & P were just two of the national grocery chains that started showing up all over the country. Pricing, while still not rocket science, was getting harder.

As great grandpa and great grandma, then grandpa and grandma took over the family business, one of two things happened. Either the business grew and prospered or it shrank and eventually disappeared. Don’t forget that Sam and Helen Walton’s 5 & 10 cent store in Bentonville ,AR became the biggest retailer in the world. Sam had this strange idea that if you lowered prices, even in small towns, you would make more sales and more profits. It was (and still is) all about the prices.

Of course his idea was a success and Wal*Marts started sprouting up all over the south and Midwest, eventually going national and now even international. For the independent retailer, pricing became even more of a challenge.

This brings us to today. Wal*Mart is just one of many obstacles we face in remaining competitive. With the advent of the Internet, every consumer becomes an “expert.” Now, instead of a local market, we all operate in a world market. As a consumer, I can find the lowest price for an item, not just in my town, but in the entire world.

Type the phrase “digital camera” into Froogle (Google’s shopping service) and you get more than 1.3 million hits. “Sewing machine” returns more than 31,000 and “vacuum cleaner” returns almost 27,000. There’s no doubt, in the twenty-first century, the consumer has the power. If we’re going to compete, we’d better be on our toes.

Over the next few days, we’ll be discussing both the art and the science of retail pricing. How do we arrive at a price that’s fair for the consumer and that allows us to make a fair profit? We’ll look at questions like:

What is your retail strategy?

What is your pricing strategy?

Do they go together?

Stay tuned.

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