In a multipart series throughout 2014, our team is examining key product attributes and marketing tactics from two different perspectives: the retail buyer and the consumer/shopper. This objective picture of the two viewpoints should contribute to a product’s success at retail. In this column we explore the ways a product’s price impacts buyer and shopper behavior.
What is important in terms of price to buyers and shoppers?
Buyer Vantage Point: Retail buyers have a number of considerations when they review the suggested retail price of an item. One factor is margin, or the profit they can expect from adding the product to their mix. Another is how the price point fits in with the other items they stock in the category: Will it be in line with similar products and, if not, does the low price or premium price fit the store’s overall pricing strategy and meet the target demographics’ expectations?
Of course, before buyers think about margin or category they must consider their customers’ preferences when deciding whether the product is a good fit not just for their stores but, more importantly, for their customers. Part of this consideration is what they feel their target consumers will pay for the product and the perceived value the item will have. Among other factors, retail chains have the flexibility to adjust the price based on store locations and property values to make sure items are priced appropriately for their local market and remain profitable.
Shopper Vantage Point: Many consumers become excited when they get a “deal.” Consider the much-talked-about pricing revolution and swift reverse when J.C. Penney decided to stop offering coupons and instead have sale events to offer its shoppers everyday-low prices. It didn’t work. The mentality of the consumers is, The greater the value, the more attractive the purchase.
Bottom line: Buyers have to balance margins and how the price point fits within the category in addition to considering what the customer may be willing to pay. Regardless of the price, customers want to believe they are getting a great value.
How can value be determined?
Buyer: From the buyer’s perspective, value is the combination of margin, inventory turns, new customers that might be drawn into the store because of the product, any lift to the category or adjacent categories the product may generate, and whether a new or established shopper is converted to a lifetime customer.
Shopper: Value is a measure of what the shopper sees as benefits minus the cost. Benefits could include the perks from a store’s loyalty program, customer service, the quality of the product, and functional and emotional satisfaction gained from use. Cost not only includes price but also encompasses time and convenience — the time to get to the store, ease of finding the item in the store and how long it takes to check out, for instance.
Bottom line: While buyers measure the value of a product by the sales dollars it generates and influences, price is only part of the perceived value shoppers think about when making their decision about which outlet to shop.
Buyers: A buyer is tasked with meeting a margin objective across an entire category. The price negotiated with the supplier becomes the base price from which the retailer sets the selling price. To satisfy the business goals of both and meet mutual expectations, the negotiation between the supplier and buyer needs to be collaborative with open lines of communication.
Shoppers: Customers want a satisfying shopping experience, and price and value are factors in that outcome. Consumers’ expectation for prices is established from their experience in the store and with the retailer’s website and advertising.
Bottom line: The pricing strategies a store employs should match the expectations it has established for its shoppers. If the retailer is all about low price and value, showcasing premium-price items is incongruent. The same would apply for premium- or moderate-price retailers suddenly focusing on bargain-price goods.
A product’s selling price is not the driving factor in the value equation and an item’s success at retail. Products have to be competitively priced, not necessarily the lowest priced. Value is shifting, with more emphasis on increasing the benefits of the overall shopping experience. Consumers have to believe the benefits associated with their purchase are higher than the price they actually pay — this defines “perceived value.”
Finding this delicate balance is the sweet spot that buyers strive to achieve.
MEGAN MOYER is an industry researcher and writer with Hamacher Resource Group Inc., a research, marketing and category management firm specializing in consumer health care at retail.