Ease Acceptance of Price Increases

BruceRIM 
Pricing reports from the floor of the Toy Industry Association’s Toy Fair constitute a formula for The Big Squeeze on retailers:

  • Especialneedsbugoutbob There was a substantial increase in the number and variety of miniature versions of toys and  games. In my opinion, this reflects the consumer’s attraction to the portability associated with mobile electronics devices. There’s widespread agreement the miniaturization also is an acknowledgement that shoppers continue to be highly price sensitive. They’ll buy the lower-priced miniature rather than the full-priced standard version.
  • Costs to the retailer have climbed. Merchandise and shipping prices were up dramatically from what’s been seen at past shows for equivalent items. Combined with the pressure for lower item prices at retail, this drives down profit margins.

The way out of the squeeze is to ease shopper acceptance of price increases.

  • Have your staff ready to answer questions about pricing. If a customer says, “Why is the price so high?,” the salesperson might say something like, “When our suppliers increase their prices to us, we need to pass those increases on to the customer so that we can stay in business and continue to both serve shoppers like you and employee the people like me.”
  • Consider warning customers of upcoming price increases on products and product lines customers count on you to have in stock. There’s certainly the risk they’ll then start looking for other sources for the toys and games they’ve been purchasing from you. But there’s also the opportunity for you to boost sales and book profits sooner if customers decide to stock up before the cost rises.
  • On new products and product lines, set prices to reflect a higher profit margin than on the items more familiar to your customers. The novelty of the items can justify a higher cost in the consumer’s mind. In addition, because the item is unfamiliar, the shopper doesn’t have a strong anchor as a price comparison point.

Over time, the closer you can come to setting prices item-by-item rather than using an overall formula, the better. A valuable template for price reviews is based on a set of four questions developed by Dutch behavioral economist Peter van Westendorp. Here’s my version of the four Van Westendorp questions, each beginning with “At what price would shoppers consider this toy or game to be…”

…inexpensive enough that they’d think hard before deciding not to purchase it?

…expensive enough that they’d think hard before deciding whether to purchase it?

…so inexpensive that they’d think there might very well be something wrong with the item?

…so expensive that they’d immediately reject the idea of buying the item?

Pricing consultants have developed techniques for getting this information from people with a minimum of bias. If your business is using the services of such a consultant, have them tell you how they do this. When doing your own analyses, answer the Van Westendorp questions not only by watching the sales results, but also by watching and listening to people shopping in your store and on your ecommerce sites. Also, to the degree you can, watch and listen to shoppers in other places that sell what you sell.

An analysis of answers to the Van Westendorp questions gives you ranges in which to set your prices for maximum profitability.

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