I am currently working on finding suppliers for my online clothing and accessories store. During this process, I always check my competition to see if we will be carrying the same items, what they are charging, etc. Anyways, the other day I found a pair of shoes on a competitors selling for $105. I checked with the wholesaler since I have an account with them as well and the suggested retail price is indeed $105. Here's the question...since this is a relatively successful company why wouldn't they mark down the price a little? Is it because they are successful therefore don't feel they need to mark the price down? How should I price this item?

Rebecca

Rebecca,

You're getting to experience the marketplace at work. The $105 SRP is obviously just that...suggested. Now, the balls in your court.

You have the option of starting the whoring process on these shoes. From the consumer standpoint, I hope you will...then the competition will go lower than you, and you'll comeback lower than them and I'm getting a heck of a deal.

Now lets look at what happens to the seller. For sake of simplicity and my inability to keep up with customary margins in every industry I might have to confront an question from, I'm going to assume that your industry keystones to arrive at the selling price. That would mean you're paying 52.50 for the shoes.

If you discount the price 10% you'd sell it for 94.50. You're selling it at a 10% discount but your giving up roughly 20% of your G.P. meaning you'll have to sell x-% more product to make the same gross profit your competitor is. And that's only a part of it. If your competitor reacts and goes down 15%...and it just keeps going down, then neither of you win.

The key to the whole game is to be able to drop your price and sell a few more units without your competitor jumping into the fray. Obviously you can't call them up and discuss pricing. What I have done in the past to avoid a price war while getting rid of extra inventory or generating cash is to let my sales rep know what I'm going to do before I do it...that way they get the word out. If you're going to be doing it in an ad, spell out in bold print that it's for a fixed period of time that the price will be in effect. This way when your competitor sees it, he/she knows it's for a limited time and usually won't react.

You're trying to relate your competitors success to their pricing motives. First you have to define what success is. For example, is it selling thousands of pairs of shoes with large gross dollar sales or selling fewer pairs but making the same net dollars. I've known people with huge egos and huge sales volumes that have gone out of business while feeding those egos. At the end of the day, it's not the sales volume that makes you a success, it's the profit you get to keep to build your new house with or purchase a boat with.

Pricing your product is a very inexact science. You'll have to find the place your comfortable with based on your overheads, desired net profits, and business tenets.
I hope this helps a bit.
Take care...

Denny