The Price Is Right

Sep 01, 2005 9:30 PM  By

I recently had a yard sale, the first I’d ever held on my own. Most of the items were priced from 25 cents to $10. I was enjoying particularly lively traffic when a woman asked me the cost of a silver pin given to me some 20 years ago by a friend commemorating a milestone event in my life. That it had surfaced at all brought back far and amusing memories of that period, so I was somewhat sentimental about my little treasure. When I told her it was $3, she frowned, put it down and walked away.

I’ve thought about this exchange several times since then. Was the woman looking for a bargain and she’d made a pact with herself not to spend more than a certain amount? Or did she believe this little handcrafted sterling-silver bauble was far too overpriced? Even though it may not have been her style, surely she acknowledged it was worth a scrawny $3. On the other hand, had I underpriced it? Perhaps my lost customer thought the paltry sum indicated that this trinket was simply not valuable enough.

Merchants who fall in love with products often lose track of their target audience and what they will pay. We can become blinded to the reality surrounding our favorite items and ignore history to convince ourselves that an item will work. And because we merchants can get just about anything wholesale, sometimes we lose sight of the worth of our own products.

Setting prices is always somewhat of a balancing act. You want to price goods to sell, but you also want to make a decent profit. It’s all about the product margin — one of the most critical aspects of merchandising. If it’s too small, the business simply won’t grow. If it’s unrealistically large, potential customers will be turned off, and sales will stagnate. As elementary as it is, knowing our customer base and understanding its purchasing needs is key to successful merchandising and successful pricing. Today catalogers compete not only with other mailers and Websites but also with discounters, mass retailers, and strip malls — and they’re all vying for the same consumer dollars.

When customers see products they suspect are too expensive for the offering — and this happens frequently in a mix — they may question the value of the catalog in general. If the perceived value of the total mix is too high, there’s a chance the target audience will be put off by it and resist buying anything. It’s one thing to overprice the occasional item, but if it’s done regularly, there’s the possibility of losing not only a sale but also the customer. At every economic level, customers today tend to be more bargain-conscious than ever, and merchants have only one or two chances to get their point across.

Realistic prices

The first step in pricing is confirming that the cost of goods is realistic. How many times have you found the perfect item, but when you discovered the price, you were either disappointed or shocked? If an unbranded item is produced domestically or in Europe, there’s a strong possibility the price is distorted, and if it’s mass-produced in Asia, it’s likely to be devoid of exclusivity.

If you have confidence in an item, don’t be afraid to ask for a better price — vendors often say they don’t give discounts unless requested. It’s also acceptable to ask that a product be modified to bring the price down. There are many opportunities for negotiating, but no matter what, if inventory is to be delivered C.O.D. or must be prepaid, demand a discount or drop the item. Why should the supplier have free use of your money before the goods are even shipped unless you are getting a great deal?

Once the products have been assembled and it’s time to merchandise your channels, you must determine prices and establish an average retail price. This is a time-consuming but essential element in the merchandising process. It’s way too easy to assign retail prices to individual items based on the wholesale cost or the supplier’s suggestions. A flat 45%-50% markup isn’t necessarily the way to go, yet too often, because of time constraints or lack of confidence, merchants take this painless way out.

A simple exercise is to ask the merchandising committee to individually assign a retail price to each item. I like to give the merchandisers sticky pads of different colors and have them place a piece of paper with their perceived value on each item in question. If possible, do this without looking at the wholesale cost. In the event that there is a large discrepancy among the designated retail prices, there’s opportunity for discussion and debate. There will no doubt be casualties, but the overall perceived value will be much tighter.

When merchandising catalogs and Websites, always consider strategic placement. Whether you are featuring new or exclusive product, higher-priced items or “special purchases,” the actual design positioning can be instrumental in monetarily making or breaking an item. As you no doubt know by now, the corners of the catalog spreads are more profitable than other spots, and the upper corners are better than the lower. These “hot spots” let customers know psychologically that the items featured there are special or unique. Likewise, items placed in the front or back of the book and around the order form are usually perceived as unique in some respect.

Creative treatment can make the difference between an item believed to be overpriced and one that is considered a terrific buy. Silhouetted photos, definitely an economical way to display goods, can diminish the value of certain items. Rarely do they realistically depict scale and size, elements that may be necessary to raise the perceived value of a product. Higher-priced products may benefit from lifestyle settings to enhance their value or provide depth and dimension.

The design approach of the Touchstone gifts and home goods catalog, for instance, is lush and inviting. Almost every item, no matter what the price, is presented in an environment that gives it added cache and monetary importance. Home decor cataloger/retailer Crate and Barrel, which has established the grid layout of its print catalog as part of its identity, whimsically and tastefully incorporates into its creative format silhouettes of items that are also featured in the lifestyle shots. This treatment not only gives the singled-out merchandise added worth, but it also helps to sell supplementary product.

Copy is an important element of perceived value. Although space is always an issue, the more information you can provide, the higher the chance that the reader will make a purchase. In the case of Crate and Barrel, the individual item copy describes the product mechanisms as well as gives provenance and ideas for use. The book also periodically uses spread lead-ins, sidebars, and headlines to further outline individual product characteristics. Likewise, toys cataloger Sensational Beginnings uses callouts with arrows to indicate special product benefits. Pointing out multiple uses for products that have them will only help to improve the desirability of the items.

Testimonials and endorsements can give individual items and entire product categories added value. In addition to the single and collective value, they assist in giving the cataloger authority. Canine accessories and gifts cataloger In the Company of Dogs features a “Best in Show” icon to indicate items that are superior in the pet market; toys cataloger Young Explorer uses an “Award Winner” icon to symbolize products that have won such accolades as the Parents’ Choice Award and the Family Fun Magazine Award. Sometimes quotes from customers and experts enhance the entire product mix.

Pump up the value

To keep prices down, more and more items are being manufactured in Asia. Customers who shop the mass merchants and the midpriced gifts catalogs such as Casual Living, Paragon, and Current aren’t so concerned about that. These are brands, after all, whose inexpensive mix is part of their individuality.

But if the target customer is well traveled and well educated and patronizes the better department stores and higher-end catalogs such as Garnet Hill, Pottery Barn, and Horchow, he or she may be resistant to buying goods manufactured in Asia. Some customers may think that “made in China” or imported in general means poor quality, and without a reason to buy (such as price, exclusivity, uniqueness, or convenience) they may not go further with their shopping when they see such a label. Domestically made items are almost always higher-priced than those produced offshore. If these are part of your merchandise mix, make sure they are unique and that there aren’t less expensive models of the same or similar designs on the market.

Developing proprietary items creates an opportunity to take a higher markup. These products are usually based on merchandise trends, history, demand, and uniqueness, and as there’s no competition for them, pricing is blind. Many manufacturers will give exclusives with a small initial commitment, so buyers should always ask.

Bundling two or more items together or giving price breaks for multiple purchases can be an effective way to enhance value. Gifts merchants Potpourri and Lillian Vernon, for instance, sprinkle their mixes with “sets of two” and price breaks for “two or more sets” along with myriad exclusives. Home decor mailer Ballard Designs offers individually priced items such as towels, prints, and furniture, while often including a cost savings for sets or groupings. Most of the products in toys catalog Constructive Playthings have many components; the number of pieces included in the set appears right alongside the catalog number and price.

Including personalized items in the merchandise mix adds specialty to individual products. Lillian Vernon offers free personalization on just about everything from luggage to jewelry to housewares. Exposures, with its narrow niche of photo-related merchandise, adds an element of exclusivity, variety, and value to many of its photo albums and frames by including personalization. Not only are customers more amenable to paying extra for the personal touch, but they also have a treasure that is unique to them.

While overpricing is clearly a challenge in many cases, underpriced merchandise can create a dilemma as well. It’s a given that if an item is priced too low, the cataloger is losing a tremendous opportunity to improve the overall margin and the bottom line. While underpricing is not as common as overpricing, there are nonetheless items that can and should support a higher retail price. Perhaps they are of a better quality, or there’s no competition, or the vendors are inexperienced in their own pricing. Because a catalog or online customer can’t touch it or evaluate the product in person, there’s a possibility a lower price will indicate poor or inferior quality and consequently crush a potential sale.

One thing should go without saying: The product needs to live up to its expectations when received by the customer. For that reason, don’t make the mistake of putting pricing last in the merchandising process. You run the risk of irritating or, worse, losing a customer and at the same time missing out on valuable margin points. Whether buying a discarded flea market trifle, an exclusive piece of furniture, or a unique sweater, everyone is looking for a deal. If customers perceive your goods as treasures and your prices as bargains, you’re sure to land the sale.


Leila Griffith is a merchandising consultant based in Jacksonville, FL.