Drive traffic to your store with a clear-cut pricing strategy

Getting feet across the threshold is the first step to making the sale. Accomplishing that in a business where we do not sell commodities (things people need like bread or toothpaste) can be a challenge, especially when the economy is shrinking disposable income. 

Last month, we reminded you of the importance of keeping your occupancy costs below 10% of your sales so that you have the funds you need to market to your customer and drive traffic. This month we’ll focus on creating a value proposition that will create demand in the heart of your customers and form the basis for why they will want to visit your store. 

Investopedia defines value proposition as “a business or marketing statement that summarizes why a consumer should buy a product or use a service.” Your value proposition is in large part what you are known for and, therefore, is an integral part of your brand. 

Most value propositions consist of some combination of selection, service and price. Often businesses select one or two of these as pillars. Walmart has chosen price first, selection second and, for the most part, ignores service. Conversely, Starbucks has chosen to focus on service first, then selection and, for the most part, ignores price.

Allow me to suggest a model that will work for most Christian retailers. Assuming you have the omnichannel presence up and running, selection is the least important of the three attributes since everything is available to your customers. That leaves service and price. The reality is that price will drive traffic, but service will keep customers coming back to your store.

There are three main types of pricing strategies:

1. High. Think Tiffany’s. Not much is ever on sale. Perceived premium products are sold at a premium price.
2. High/Low. This is where most of the chains in the Christian market live. They aggressively sale-price a limited number of items each month and have the majority of items on sale at full MSRP.
3. Low. Think Walmart with its everyday-low-price mentality. Few independents can afford to live here.

A High/Low pricing strategy is best for our industry. To be successful here, the retailer must focus on a blended margin and have a strategy in place. Blended margin is the sum of the margin dollars and the margin percentage you make on the customer’s entire transaction. It is easier to sell an item at 50% off when your customer is also buying two or three other items in the same transaction on which you make much richer margins. To accomplish this, use the following:

• ?Cross-merchandising. This is the discipline of visually displaying items the customer can be enticed to buy when they come in for a sale-priced item. One example is sale-pricing the first title in a series and displaying later books alongside.
• ?Up-selling. This is the practice of interacting with your customer on the sales floor and suggesting other items that can complement their purchase, perhaps a daily devotional to a customer who is buying a Bible.
• ?Plus-selling. This is the art of adding on one final item at the point of sale. The easiest example is a gift bag. More aggressive retailers see strong success when they offer the customer a tremendous deal at or below $5.

Some creative ways to shout value to your customers and complement a High/Low pricing strategy are:

• Gift cards/bonus bucks.Gift cards or the use of “bonus bucks” (i.e., a coupon that looks like cash but has no cash value) are used by many successful retailers. The most common application is rewarding customers when they spend more. Take this example: Earn $10 back for every $50 you spend. To the customer, this feels like a 20% bonus. However, since your only expense here is the cost of goods, your “cost” is closer to 10%-12% or less since many of the coupons given out are never redeemed (commonly referred to as slippage). This is best used when you place an expiration date on the “bonus buck” that requires the customer to return to the store by a certain date. This helps drive traffic for the first visit and encourages a second visit.
• Rebates.This is a very effective way to give a discount since rebates have a high slippage rate (percent of rebates never applied for). However, rebates come with process costs whether you do this in-house or hire a processor.
• Loyalty programs. Most loyalty programs provide the customer with a financial reward, generally some percentage or dollar amount off of the customer’s next purchase after achieving a pre-determined plateau such as 10 visits or some dollar level of spending. Giving the customer bonus day or bonus item opportunities to accelerate the reward for buying certain items or shopping on certain days can help stimulate a purchase and reinforce your loyalty program.

In summary, developing your value proposition—and brand—with a strong pricing strategy can help you stand out among the competition and create in the heart of your customer the desire to visit your store. Before you say, “I don’t know how to afford to offer price incentives,” consider tapping into the skills of one of your staff or peers or even an outside company that can help you develop the right strategy and help you better negotiate with vendors to be able to afford it. 

NEXT ISSUE: Learn more about customer service and selling strategies to round out your value proposition.

Bill Nielsen is a 25-year Christian retail veteran having served in C-level positions with Family Christian Stores, LifeWay Christian Stores and Berean Christian Stores. Nielsen is now president of The Equation Team, a consulting firm that specializes in retail and publishing.

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