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Profitable Times Newsletter

10 Tips to Better Pricing — How to Maximize Revenue and Increase Profit

Retail pricing is a combination of financial goals, math and intuitive input based on knowing your visitor/customer. Well-documented personal experience, financial statements and POS-generated reports form the knowledge base that can be used to maximize profitability.

Every line item below Net Sales is an expense. The only place retail management can create the pool of money required to cover expenses and generate a profit is at the top of the Income Statement, and that relates directly to retail pricing.

Some tips to better pricing include:

  1. The goal of your pricing policies is to maximize revenue. That doesn't mean every product should be priced to the maximum the customer can bear, but that collectively your retail pricing structure brings in customers (or at least doesn't scare them away), enhances the brand and reputation of the store and museum, provides value, and — in cultural commerce unlike commercial retail — has something for every visitor's budget. Value is the worth of something compared to the price paid and is not necessarily synonymous with lowest price.

  2. The retail price needs to take the Cost of Goods (including costs associated with the development of proprietary product), Freight-in, the recovery of Operating Expenses, allowance for price reductions, discounts and shrinkage, and profit goals into consideration. Since museum stores are rarely charged for rent, the largest operating expense is usually salary and benefits with a wide difference between those museums with a paid staff with benefits and those with volunteer staffing.

  3. To allow for the full impact of intuitive retail pricing and to maximize margin, I recommend you (at least figuratively) determine the probable retail price of a product that is not pre-priced before learning the cost. In other words, evaluate a potential product, determine the probable retail price for your retail environment and then ask the cost. If your gut feeling about the retail price isn't sufficiently above the cost to fit your margin and pricing policies, look for another product that meets your criterion.

  4. To keep the pricing process as simple as possible, establish a core pricing strategy by department then adjust, if necessary, for individual products. For example, for a department you may initially multiply cost times 2.3-2.5, and then mostly keep the final retail price in that range. However, if perceived value and competition allow, you should increase the retail price to what the market will bear. On the other hand, if perceived value and competition require, you can lower the retail price to a more attractive level. Pricing below your core pricing strategy should be a very rare occurrence. To further simplify the pricing process, the initial markup can include the recovery of standard Freight-in (rather than calculating the distribution of freight costs among all items on an order). A further increase in price may be necessary for extraordinary freight circumstances. This approach balances long-term margin requirements with short-term pricing flexibility.

  5. Prestige pricing is appropriate for select products in many museum stores. Prestige pricing is the application of an enhanced margin, which may result in comparatively higher prices because of uniqueness, high quality, limited supply or other factors that justify higher prices. Proprietary products, such as one-of-a-kind handcrafted jewelry, can qualify for prestige pricing. The style of packaging, and merchandising the products in an ambiance that enhances the perceived value, helps to support this pricing.

  6. Multiple pricing is the selling of multiple products for one price. For example, like the Ohio Statehouse Museum Shop located in Columbus, Ohio, many stores in capitols already sell gift baskets for legislator gift-giving, and the store at the Oklahoma City National Memorial & Museum has had good success packaging a t-shirt and sweatshirt with the same graphic, together. This is more than a strategy for markdowns or sales events, because anecdotal evidence shows that consumers perceive this as value pricing and will spend more.

  7. Visitors will often follow suggestions of quantity to be bought at a good price. If you suggest how many you want your customers to buy and give them an attractive price, they will often do what you tell them. Five postcards for $4.50 or 10 25¢ rocks are examples.

  8. Take pricing input from many (staff, suppliers, volunteers, competition), but only one person should set the pricing strategy and specific prices.

  9. Constantly and consistently measuring various margin-related calculations is an important tool. This includes evaluating the impact of price changes on demand and the resulting revenue and profit. Maintaining a clear record of when pricing changes are made and running customized POS reports to detail the impact will produce definitive analysis of your pricing policies and price changes.

  10. I am a strong advocate of incrementally pushing up the price of higherpriced unique, proprietary and attractive products until the evidence shows that you have reached the maximum acceptable to your visitors within the retail environment of your museum. This limit may be different today than it was three years ago or will be next year, so it's a moving target, but well worth pursuing because of the enhanced profits. It is my experience that most museums are surprised by how far they can push the price for attractively merchandised products like these.

 
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