In my years as an independent specialty retailer, I really got pricing down to a science. I didn’t know at the time that it actually IS a science. But since then I’ve learned so much about behavioral economics and the study of psychology of retail shoppers – and it is fascinating!
What a person will pay is all based on their perception of the value of the item. I learned in my store that adding a couple of dollars here and there didn’t change the customer’s perception of the value.
An item that is $8 can be sold for $10. Now look at an item that is $11 – It should just be $12. It just looks better, doesn’t it? And you would still buy it, right?
Adding that dollar or two has a HUGE impact on your profit.
So to significantly increase your profit, apply these two strategies to your pricing process:
#1: Raise Your Initial Markup
It is imperative to strive for a minimum of a 55% initial markup (IMU) for most stores (I recommend aiming for 60% wherever possible).
You will find it easier than you think. Many of my new clients fight me tooth and nail about this and then see how easy it is to mark up SOME items a little more. They become eager to do it as they see that impact is profound.
For a store doing $500,000, increasing your IMU from 50% to 55% can give you an additional $25,000 in possible cash flow!
#2: Compare to the Pricing Chart
Once you’ve applied the higher IMU, compare the new price to the Profit Pricing Chart. Round the price to the suggested price in the chart to fully maximize the power of consumer psychology. The prices in this chart are the only prices that you should use in your store.
So go ahead and download your free guide and chart here to start implementing these two strategies now!
The value of ‘free’
There is a groundbreaking book called Predictably Irrational by Dan Ariely. He devotes a whole chapter to how consumers are “predictably irrational” when it comes to prices and how they overvalue ‘free’.
At clearance sale time, I always liked to have some things in a basket marked ‘free’. They would be items that had already been marked down to the lowest price and I would mark them out of stock to just give away.
It was so fun to see the reactions of customers. More than once, they would try to give me money! Most of all it was just fun to bless some kids with a treat!
Now go and price your merchandise for more profit!