Price policy. What is the margin in trading?

How do retailers set prices for their products? What is Margin and Margin ? These issues are of concern to both consumers and start-ups.

Clearly understand what a margin in trading is required by everyone who is going to open their retail store. The concepts of margins and margins differ, although there is an obvious link between them. The margin shows how much each dollar invested in the purchase of the product brings. And the margin, the formula of which is the markup / (100 + mark-up), shows how much profit each dollar brings in turnover. So what to be guided by setting this or that margin on the goods, except for the notorious "money is needed"?

Competition and pricing strategy

If the competition in the market is very high, then, of course, the consumer chooses the store with the lowest prices, therefore, with the help of regular monitoring of competitors, approximately the same prices for goods are established.

In those markets where the image, status or service is important, the value of the goods can be significantly different. This is, for example, branded clothing stores, restaurants, household appliances and electronics stores, etc. Successful experience is cleverly copied by competing enterprises, so retailers, striving to somehow detach themselves from competitors, have to constantly improve in terms of service, provide additional services and goods, then There is a constant "explain" to the buyer why he should pay more and what makes the customer of this particular store or the guest of this particular restaurant special. And quite not enough vague slogan "we work in the premium segment."

Cost-based pricing method

One of the options for the pricing policy of an enterprise is pricing based on the cost of production. The price under this approach should cover all costs and include a rate of return. This approach is quite acceptable if there is no competition in this segment of the market, if the product is not a commodity of daily demand and the buyer does not notice the price increase if the goal is to quickly and without damages get rid of surplus goods. To calculate prices under this approach, you need to understand very well what the margin is in trade, which is the cost of production, what the enterprise has costs associated with the marketing and promotion of goods on the market.

Value-based pricing

This approach uses the interpretation of prices from the point of view of marketing. The goods cost so much for how much they are ready to buy. This strategy is used in markets with inelastic demand. This establishes a margin in the retail trade for jewelry, art, designer clothes, status accessories and so on. Either it can be goods for low-income segments of the population. In this segment, the demand is also inelastic, since the pensioner will not pay more, even if the quality of the product or service at the outlet is improved. With the right definition of the target audience, its needs and moods, this strategy can be very effective. The buyer does not think what the margin is in the trade and what it should be if the seller has found the right levers to influence his client.

Lack of pricing policy

If the prices in the store change too often, then the buyer suspects a dishonest game and may not return. The system of bonuses, discounts should be absolutely clear to the client and the store staff, otherwise it will be like an attempt to confuse and deceive.

Do not abuse discounts. Ultimately, this can lead to the fact that there is not enough money to purchase the goods. This mistake is often made by newcomers who do not quite understand what the margin is in trading. A situation is possible when, with a fairly decent turnover, the enterprise hardly pays for itself (well, if it pays for itself).

Neither the commodity manager nor the accountant can set prices. The first does not know anything about the cost price, the second - about the positioning and portrait of the buyer.

Too often buyers' questions about why it is so expensive - this is a signal about the failure of marketers and category managers. The price is not set "for good luck," it must be justified. The seller should be able to convey to the buyer why this particular loaf is special and why it costs more than around the corner. If there is no such justification, then the price will have to be reduced. A high-end marketer is a talented manipulator by the consciousness of consumers.

Optimal approach to pricing

The correct approach to pricing is possible with a clear understanding of what is included in the cost of goods, what price can be the minimum possible, and what the buyer is willing to pay (not any, but a specific representative of the target audience). Continuing analysis of the competitive environment, determine the margin in retail trade for similar products.