You Need Wiggle Room In Your Pricing Structure – Here’s Why…
As good entrepreneurs, we’re constantly walking that fine line between wanting to offer our customers the absolute best value (for our knock-their-socks-off products) but also provide healthy profit margins so we can turn this passion of ours into a money-making proposition. It’s important however, to give yourself a little extra padding in your margins so that you can employ promotions without losing your shirt. Without a doubt, people are suckers for a sale. Sales, be they in the form a certain dollar amount off, a percentage off, a buy-one-get-one, free shipping, and hundreds of other promotional connotations, help give people a reason to buy NOW rather than waiting because by buying now they’ll save money. I’m sure you’ve all been on the spending end of this before – walking out of a store with something in hand that you didn’t necessarily need but at the sale price you could justify it, or purchasing something online because the free shipping made it easier than running out to the store yourself, or stocking up on an item because at the reduced price it makes sense to keep more on hand (which is part of the business model stores like Costco are built on!). We are suckers for a sale – and, as a food entrepreneur, you want to use that psychology to your advantage.
The Wiggle-Room Allows You To Do Promotions
If, however, you have priced your products so tightly that you don’t have any room between your product costs and your price to give away margin without losing money, that takes the promotion option out of your sales toolkit. This not only goes for the margin between your costs and your retail price, but also when you start working with distributors, food brokers, and retail store buyers. All of them at some point may want to use a promotion to drive sales of your product and, in many cases, that promotion will be partially or fully covered on your end. For example, when a supermarket promotes buy-one-get-one, it’s usually the manufacturer who is paying for that promotion, not the store itself.
So as you develop your pricing structure for all the channel tiers you intend on selling into, make sure that you’re leaving yourself some room to do promotions.
Don’t Discount Too Frequently or To The Point It Diminishes Your Brand
One word of warning about promotions and discounts…even if you have the room in your pricing to do them, they are a tool you want to use strategically. Done too frequently and your customers/buyers/brokers/etc. will soon tune you out. “Another sale,” they’ll say, “what’s to get excited about that?” The example my husband and I joke about is Banana Republic. I don’t think there’s been a time in the 24-months when we haven’t walked past the store when they weren’t doing a 30% – or more – off promotion! Why should I hurry into Banana Republic to do any shopping when I know that next week and the week after their products will still be marked down?
The other thing to consider when it comes to promotions and discounts is that you never want to offer something that might make customers question the quality of your products or that it diminishes how customers see your brand. If you’ve created a company that prides itself on using only the finest ingredients and then all of a sudden you mark your products down 50%, I might start wondering if I’m getting stuff that you’ve had sitting in inventory for 4 months and just want to move out of your kitchen.
All that being said, having the wiggle-room in your pricing to do discounting and running those promotions strategically, can be an excellent way to increase sales and reward customers for their loyalty.
Are there any promotions you’ve done that have been highly effective? Or have you seen examples of companies that have fallen flat on their face when it comes to discounting?