When do you change your retail prices?

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Bob Carter

Bob Carter

SPFG, Supreme Picture Framing God
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Since we are having fun with the philosophical perspective of "seasonal" pricing, let's see what we would do with the following situation

You bought 10 widgets on Sept 1 for cost of $1.00 each. You establish a retail of $2.00 each.

Today you have 3 left and need to order more. The cost has risen to $1.50 each

What do you set the "new" retail at and what do you do with the three remaining widgets?

I have written down my predictions on the probable responses; let's see where this goes
 
The quick answer Bob, IMO would be sell them all for $3.00, even the 3 instock because your replacement cost is now $1.50. But only keystoning this item is hardly worth it IMO as you have to pay shipping/handling , stock it, dust it, etc. I would go to $3.99 but if I did that, why not $4.00, right? ;)

Of course if WallyWorld is selling them for $1.49 I'm up the creek with a broken paddle.
 
Don't make it difficult by adding variables. Let's say that these are net landed costs

Sorry about the switch JP. I thought it ought to be a separate thread
 
If I was able to sell 7 widgets in 45 days, and the new keystone is only $1 more than the old keystone, I'd probably boost my markup to 2.2 or 2.3 times, especially if I knew widgets were likely to be in demand for Christmas. :popc:

Oh, and the remaining three widgets definitely get marked up to the new price, since that is what they would now cost me.
 
You're forgetting the cost or value of time on the shelf.
If they sell quickly at $2.00, but slow to nothing at $3.00, you make have "marked" them the keystone, but you didn't get the keystone.

But if you know that "Wiggie" is THE hot new item for Christmas, mark then up to $2.25 and watch them fly..... and sell them all.

The sweet taste of selling a few at keystone, is always soured by the nasty site of the remaining stock getting dusty around June.

Selling 100 at .75 mark-up, is better than buying 100, selling 20 at keystone, and sitting on 80 for a year.

Which reminds me, I have a friend who is sitting on about 12,000 Beannie Babies..... anyone interested?
 
Assuming we're talking concepts here, not really piddly $2 items ...

(A) I'd call the supplier and ask him why the heck his price has gone up 50% in less than 60 days!!!!!!. If he is unresponsive to my request for a lower price I'd call his competitors.

(B) Assuming this is part of my core business, and a generally available consumer product that I still want to carry, I'd do a quick check of my competitors' retail prices. I'd use that information along with renegotiated costs as a guide to setting/revising my retail. Any change in my retail price applies to on-hand inventory as well as to new supplies.

(C) If it's not part of my ongoing core business, but just an opportunistic item, I'd give thought to whether it's worth reordering something with such a volatile cost curve ... my decision would take into account imagined demand, negotiated replacement cost, and prevailing market.
 
Re-tag the remaining to $4.99, and price the new ones the same. If they've gone up that much, they must be selling well...If they don't in a couple months, reduce them to $4.29.
 
Now, this is a very interesting thread in my view, although I am not a retailer (or exactly for that reason I am so excited). ;) I am all eyes and ears.
 
If the widgets were $1 each landed, then we would sell for $1.99. The old perception of $1.99 items costing $1 was brought back to me yesterday. Guy comes up with an eraser stick. I do't remember the price right off hand, so I ask him if he remembers how much it is. He says "around a dollar" so I go check (and don't EVEN get me started on why there is something sitting on my shelf without a price tag). and the price is $1.89. "around a dollar"...

So, to answer the original question, the priced items would stay at $1.99. and the new ones would go to $2.99. When asked why the difference, I tell the customer that they found a bargain today, and wasn't that lucky? Or (said with a grin) I could charge you the new price on all of them...

It doesn't seem right to raise a price based on replacement cost instead of acquisition cost. I know we are totally out of the mainstream on this sort of thinking, but there you go....
 
How much they cost should only matter if you can't make your desired margins based on what you've determined they're worth. I think CAframers' response is the best one yet.
 
I'd do the same as Ellen. "These last 3 are $1.99, but the new ones will be $2.99. Aren't you glad you came today?!"

I don't ask why the price went up. That only puts the supplier on the defensive. He, of course, has to justify his pricing - after all, he already told you that the price is higher. You think he's going to lower it now?

However, I would look around for the lower price somewhere else, but would remain nice to my original supplier so that when he has to lower the price to get rid of his overstock, I'm the first person he calls (and I will know by that time if it is really such a good seller.)

Retailing is such a fun game, isn't it?
 
Yeah, the important questions are:

1) Do these widgets sell?
2) What is the perceived value to the customer?
3) What is the local competition selling them for?

Sale price needs to be determined based upon perceived value and competitor's prices. But, you have to make sure your margin is "what you need to utilize the space."

Other factors might be ... Is it an advertised "pull 'em in" thingy, or is it an "add-on oh yeah, while I'm here thingy?"

If it's something like my desktop easels that are "add-ons" I probably mark them all to the "new price" based on my generic markup. (the markup I use based on cost when I haven't figured out what the customer thinks it's worth yet.)

If it's my "low cost" poster frames, that I understand the price ceiling on, I follow the general route that CAFramer outlined.
 
As a general principle I reprice all my stock every time I order. If moulding goes up the new price applies to all existing stock as well otherwise it just gets too confusing.

As to widgets, if they only cost $1 and retail for $2 I would definitelty not lose too much sleep over my pricing - Up they all go to the new price and I will have a wild drinking orgy on the extra .50c I make on the old stock.:popc:
 
Taking all variables away so as not to confuse the issue, I'd sell all the widgets for the new retail price. It costs you $ 1.50 to replace your inventory.

Does it make sense that when you go to replace your inventory you pay a penalty to replace it?

If you sold the 3 existing inventory items at the old price and re-order, you have effectively reduced your gross profit margin to only 50 cents (25% GPM) on the units you sold.

When I was in the heavily inventory intensive business of selling artist materials there was a period of time in the inflationary 80's when we experienced five price increases a year from manufacturers. Many of the items were slow moving and if I had not raised the prices on stocked items there were some that would cost me more to replace than what I would have sold them for.
 
Turn rate of 4+ orders a year (70% sold in 2 months @ $2.00)...
...I can't remember the formula at the moment, but I might be looking for a more profitable widget.
 
This all reminds me of my initial training in retail from Kmart ......... way back in the late 60's early 70's...


If you have a widget with a profit margin of $.50($1.00 retail in this example) and sell that item 4 times during the year (4 turns) you have a profit of $2.00 on you initial investment of $.50 for the yearly use of that inventory

If you have a widget with a profit margin of $.40($1.00 retail in this example) and sell that item 8 times during the year (8 turns) you have a profit of $3.20 on you initial investment of $.60 for the yearly use of that inventory.

Therefore, the number of times you turn you inventory is more important that a higher markup.


And in the case of Kmart at that time........... their payment process was 120 days with a corp average turnover of 8x!
 
Dave said:
Taking all variables away so as not to confuse the issue, I'd sell all the widgets for the new retail price. It costs you $ 1.50 to replace your inventory.

Does it make sense that when you go to replace your inventory you pay a penalty to replace it?

If you sold the 3 existing inventory items at the old price and re-order, you have effectively reduced your gross profit margin to only 50 cents (25% GPM) on the units you sold.
.
Click to expand...

I'm gonna play dumb here....

I don;t understand how this is a penalty to you when you replace. Didn't you pay the lower price for the initial widget and if you make the original margine on it, how are you penalized?

I don't mean to be argumentative, I just don't see it.

When you buy the replacements at the higher price and sell for the higher price you maintain your margine% right? What am I missing? Your cost on the older inventory has not changed. Your cost on future inventory has.
 
As far as replacing your inventory at the higher price (a penalty as some have said) When the price of gasoline goes up, do any of us imagine that the underground tanks were first depleted of all of the gas purchased/sold at the old price. Of course not, they sell at the new prevailing price.
 
The penalty to replace will be very visible when a customer comes in and wants 150 widgets (he's a widget freak!) and you have a few old ones left. The new ones cost more....

You can't sell the old and the new ones at the old price.

Well, you could, but it is not a smart idea.
 
The reverse is also true ...what do you think happen to the dealers selling the iPhones when Apple dropped the price $ 200.00? Did they tell consumers they had to pay the old price until their existing inventories were gone?

Baer ...how did you know I have thousands of Beanie Babies left? Of course when I was selling them I only had to buy one shipment. Those rascals frolicked in the evenings after the shop was closed in a mass orgy propagating themselves into oblivion. Reminds me of that one Star Trek episode ...

:party:
 
When the price of gas goes up, they don't sell the bottom half of the storage tank for less than the top half. (did that make any sense at all?). The new price affects everything in stock.
 
I agree with Maryann.

Gas is sold at 'replacement cost' price. We should do the same unless you are 'closing out' an item and never going to replace the stock.

I got burnt one time on a volume job. I quoted the price based on what I had paid for the moulding previously. When I needed more, the price had increased substantially. Since then, I have always bid based on my current cost.
 
This thread, liike so many, has taken more turns than a driver on Lombard St

It's really more philosophical than actual practice, but we have looked way too deeply for answers of questions not asked

But, great fun, nonetheless

Now, let's move the decimal over one spot to a base of $10.00 intial cost, $20.00 initial retail

Do the dynamics change?
 
No, not at all. It's all relative.

Why not pose the question "What would you do if the price dropped?".
 
Initially I would say that they "shouldn't", but there is an emotional point that starts to come into the equation... especially when you move that decimal one more point.

I think it still rests on "the value of money spent, times the value of time (turn over) and the value of profit margin."

If you raise the number to match the same profit % of the lower price, but in so doing you incur a higher market resistance, you may end up paying a higher rent on the floor space, thus decreasing the true net profit.
 
So, if the cost goes to $15.00; the retail goes to $30.00-including existing inventory purchased at $10.00?

Is that still true for an item that has an initial cost of $100.00; initial retail of $200.00 and goes to $150.00 cost?
 
Of course. Why wouldn't it?
 
I would look at...

When pricing for the gallery when I had it, I looked at the following:

1) cost
2) "perception" of the value of the item (I had 1.79 frames I could sell at 9.99 with no resistance)
3) what do I "think" it could sell for
4) Is the item available anywhere near me for sale
5) shipping costs
6) how many do I think I will sell and how fast
7) I always start high so that I can guage customers reaction and then mark down if necessary.
8) appeal of the widget versus functionality - is it a "have to have" item
9) what is my cost of the square footage that it takes up - is it worth it to stock

We always change our old stock to meet the new stock prices. If I restock it, and the price has gone up, I've already lost some of my margin on my original purchase.

I like these questions Bob - they get the stale brain moving!

my 2 cents,

Elaine
 
I don't even have to look at this hypotheticaly. Every time I update my POS it raises prices on prducts that I carry in stock. Every time I get a new materials price list from LJ I raise my prices on things I carry in stock. I imagine that anyone with a POS or not does without even thinking about the fact they are charging their clients more for something than they usualy would.

In your hypothetical situation Bob, if you don't raise the price of the 3 remaining you wouldn't be able to put the new stock out untill the old is gone or you would have to explain to the customers why one widget is $2 while the other is $3. Also if there's only one left on the shelf but someone needs 2 then you will either have to undersell the second or again have to explain why one costs more than the other.

I like this game. Give me another scenario that I can disect.
 
EllenAtHowards said:
...It doesn't seem right to raise a price based on replacement cost instead of acquisition cost. I know we are totally out of the mainstream on this sort of thinking, but there you go....
Click to expand...

Some might argue that the last 3 are costing you more than the first 7 because of tying up your money and space (to say nothing of any emotional costs or risk)

Being that I am retail challenged compared to many on this site, I would simply ask myself what I think the customers would be willing to pay soon enough to get rid of it all. If I think I can't raise it enough to be reasonably profitable, I'd not re-order. And yes the 3 would be priced the same as the incoming product.

I only use 2x or 3.13556x (or whatever) markup formula only when I don't have enough time to give it some thought & research the competitors.
 
May I assume that most would adjust prices up to match whatever the prevailing, current market price is? And, that regardless of cost, the prevailing percentage of margin will be maintained?
 
Bob Carter said:
May I assume that most would adjust prices up to match whatever the prevailing, current market price is? And, that regardless of cost, the prevailing percentage of margin will be maintained?
Click to expand...

Firstly, market may not necessarily be up, it might be down!

Secondly, I daresay your assumption may apply to many, but in reality it all depends on the specifics of the item. This is ever the problem with hypotheticals...

In a changing world one cannot expect margins for the same product (or even category) to stay level overtime. Think for example about the case of Razor scooters. When they first came out they were a hot commodity. They commanded high prices, big margins. These days there is a glut of copycat scooters. Prices, and margins, have collapsed from their original high. Hence the need for retailers to constantly present a fresh product and/or "experience"!

When I was with a major consumer products company we always required a certain percentage of new products in our mix to maintain (or improve) our fleet average margin. New products came in at a high price and decayed over time as demand diminished. 'tis ever the way!

Thinking about your hypothetical makes me wonder what percentage of custom frame shops actually think of themselves as retailers (versus craftsmen, artisans, manufacturers, or the like). Sometime that would be an interesting discussion in its own right!
 
Hey CA-You may understand this exercise better than anyone; probably, even me
 
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