Skilled margin management means keeping prices on certain items high enough to drive business success. But it also means pricing other items quite competitively. How do you determine which items fall into this second category? In Making Money Is Not Illegal, Immoral or Fattening, Art Freedman gives examples of Sensitive and Competitive items, using his experiences from his family's store, American River Ace Hardware in Folsom, California:
"Project starters. I'll drop our margins slightly on our gallons of paint, and then we sell all the sundries, and that's where we're making our money. We must be close with the competition on pipe. If we're not, we're going to lose the entire project sale. If you can lead the market, fine, do it, but if not, just stay within 5% to 15% of the market leader on price.
"Commodities. These are items you buy and sell by the truckload. For us, it's topsoil, potting soil, bark, steer manure, wood pellets, firewood. Our margins track down a little bit, and one of the reasons they track down a little bit is those are also items that we are advertising.
"Items usually bought in multiples. For us, a good example is cabinet hardware. When a customer is going to buy 10, 20, or 30 of the item at the same time, they are looking closely at price. Now whenever possible, I don't carry the same brand as Home Depot or Lowe's carries, and then I don't need to be so competitive on price. But I still am careful on cabinet latches and the cheap silver polish door pulls."
In your store, what are the project starters, commodities, and items usually bought in multiples?
For a much fuller description of how to identify your Sensitive and Competitive items, see page 74 of the book.
No comments:
Post a Comment