February 14, 2019
Crafting A Pricing Strategy
(What Is The Right Price – Non-Sale)
As discussed last month, the positioning of a category has a great deal to do with its pricing structure. Not every item in the store can be used as a traffic builder or the retailer will find that they have a lot of traffic and not a lot of profit.
We suggest that c-store retailers start determining their pricing strategy by establishing how customers use their store. To a great extent, that can be uncovered by analyzing the sales of the categories within the store. However, it should be remembered that category sales only reflect what people bought in your location — not what they would have purchased if you had other items available.
For example, if customers are using your store as a fill-in grocery store (reflected by strong “grocery” sales), then they are going to be more sensitive to the price of the center store than a situation in which the store functions as more of a snack shop. This will typically mean that they are also more sensitive to the price of milk and take-home sizes of carbonated soft drinks and other home consumption based items. Conversely, if they are using it primarily as a snack shop then price sensitively is greater for immediate consumable sizes, such as 20 oz. soft drinks.
Next we suggest that retailers group their categories by their overall strategic purpose. There are a variety of classifications utilized by retailers within our industry. b2b Solutions has used one or more of the following groupings with its clients depending how they wish their store to be positioned in the marketplace: destination driver, traffic builder, profit generator, image enhancer, fill-in, staple, routine, and niche. How each category is classified provides the bases to its overall pricing strategy. For example, a category that is regarded as a profit generator will generally carry more margin than a traffic builder.
It should be remembered that competitive pricing does not mean that you have to match prices with every competitor. However, you should be aware of their pricing for “known value items” because your customers are. These items are relatively few in number, and while they may vary by customer, they generally include items such as cigarettes, carbonated soft drinks, beer, milk, fountain drinks, candy, and coffee.
b2b Solutions often finds that retailers have no formal competitive shopping process. We recommend that you determine the items that are important to you (and your customers) and check your competitors no less than once a month. Below is an example of what a typical price check sheet might look like.
Price Checks – Key Items Cigarettes
Pack Multiple Pack Carton Beer
Case 12 Pack Six Pack Single Soda / POP
Water Candy Small Bar Large Bar Coffee 12 oz/ 16 oz/ 20 oz/ 24 oz/ Refill/ Fountain 21oz/ 32 oz/ 44 oz/ Other/ Refill/