Retail Pricing, Sales and Markdowns

 Price, in some industries, has a great deal of impact on sales volume. Once customers are familiar with a product and know what they want, they often tend to buy for price. When this is the case, it is necessary to run sales frequently and to advertise them, so that customers know your store is a good place to frequent if they want to save money. In this environment, all prices have to be watched carefully with those of competitors. In other businesses, pricing is less sensitive and normal markup can be figured on most products.

It is often possible to attract more customers to your store and sell more merchandise if your prices on some items are somewhat lower than those of your competitors. For other merchandise, especially that which is less competitive and more unique to your store, you may have to set a higher selling price, since you may not get the volume of sales you need in order to make a good profit. In trying to decide on a price, it is useful to experiment first with different prices.

For example, if you are selling 75 units per week at $1.60 gross profit per unit, your total weekly profit is $120. This is the equivalent of selling 100 units at $1.20 each.

In this example then, a retailer may offer a product for sale at a $0.40 savings to the consumer but still earn the same weekly gross profit if he or she is able to sell only 25 more units at the lower price.

On The Job Activity

In your own business, select one or two products and post a "sale" price in the window or on the item. Reduce your profit by about 1/4 and keep that lower price for at least one month. Then check whether your total profit was higher than previously at the old price for the same time period.

If possible, discuss your thoughts with a person knowledgeable in the area of merchandise management; determine other experiments in pricing which may be worthwhile in your particular situation.

Sales and Markdowns

Basically, there are three occasions for holding sales:

  • Start of season sales may be run to introduce the consumer to new merchandise. Often, it is useful to run pre-season sales to get a jump on competitors. Such sales before the season tend to take sales away from competitors.
  • Holiday sales are always effective due to the large number of people available for shopping and in the market for gifts.
  • Sales to clean out merchandise are perhaps least frequently held but should be held more often. Marking down least desirable merchandise along with end of season merchandise will not only remove slow moving products from your inventory, but will also provide you with cash-on-hand necessary to replenish inventory with new and more profitable merchandise.

Additionally, frequent sales get you into the eye of the consumer more often. Sales attract greater numbers of people into stores and, more often than not, such people will also come in to buy regular merchandise too. Even selling merchandise at cost usually entails no loss, since you will be able to replace empty store space with better moving merchandise, thereby attracting more people into the store.