Sales & Marketing Help for noob! :-)

Discussion in 'Internet Marketing' started by ricroma, Feb 21, 2012.

  1. ricroma

    ricroma
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    Hi all,

    this is my first post, sorry if this may not be the right forum, but since my questions are quite general and the "Sales & Marketing" forum seems oriented toward online shopping, I decided to post here.

    Anyway, a little introduction.
    Together with my wife I own a store in Perugia (Italy). We are not salesmen under any aspect and opening the store back in 2010 was mostly based on a bet than on a solid marketing project.
    So far we can say that the bet has won: given all the difficulties of the time, the store is doing good, and it really stands out in the business contest of our small city. We sell design products, and in general our prices are considered medium-high. Sometimes it's hard to sell, but (always generally speaking) people are aware of the fact that quality has to be paid a little more.

    Now the problem. In the last semester most of the producers raised their prices, forcing us to raise out prices too. The point it that one of our most selling producer raised the prices also of 20% over the last seasons, and I'm quite worried that we won't be able to sell their products like before. Now, my question is this:

    should we raise the our prices according to the producer or we should keep the prices lower?


    An example:

    Before: we used to buy product A for 14€ and sell it for 36€: we charged 2.5 over the original price (as suggested by the producer).

    Now: product A now costs 17€ and it should be sold at 40€.

    As stated before, we usually charge 2.4 / 2.5 over the price we buy at. My wife opinion on charging less than that is that we will actually loose money, I say instead that we would earn less from each sale, but we will eventually sell more. Since none of us is an expert, we cannot really figure this out: and we basically yell at each other! :)

    So, sorry for the long post, and sorry if it doesn't make any sense, but if someone can help us figure this out, I will really appreciate! Sorry also for not being really technical, and for the fact that I may have explain the fact in a lousy way. Beside the fact I'm not a real salesman, English is also not my language.

    Thanks a lot!

    Ricroma

    PS. On a side note, we also run a small online store. I also think that keeping the prices down on the online store can give us a little chance in comparison to the big guys selling the same products and that are raising the prices according to the new catalogs.
     
  2. Fergal

    Fergal
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    Welcome to Business Advice Forum Ricroma, thanks for joining and posting your business questions.

    You should charge the price that generates the maximum profit for your business, regardless of what your supplier is charging you. For example, if you can get the same level of sales by selling at €40, you should charge that, even if your supplier is only charging you a couple of Euro for the product.

    If I was in your shoes I would speak to the supplier and do my best to negotiate their price down and convince them not to raise their prices. Speak to them about the recession (assuming that it does affect your industry). Ask them why they are increasing their prices and about how they can justify the price increase.

    It might also be worth making some enquiries to see if you could find a lower cost supplier somewhere else.

    Good luck with it.
     
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  3. ThirdSEO

    ThirdSEO
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    This is a simple consumer demand problem. Like Fergal said, your goal should be to maximize your profit. A formula like 2.5x the original price usually is not the best pricing strategy.

    You need to find the price that generates the greatest amount of total profit.

    Before: You buy product A for 14€ and sell it for 36€

    Now: You buy product A for 17€

    Now you need to determine what your customers are willing to pay for product A.

    Code:
    [B]Example:[/B]
    
    If you continue to charge 2.5x the original price, the new price you will sell product A for will be 42.5€
    
    If your customers buy 1,000 of product A at price 42.5€ you make 25,500€ profit. ( 42.5(1000) - 17(1000) = 25,500 )
    
    Now, let's pretend you sell product A for 40€ next month.
    
    If your customers buy 1,500 of product A at price 40€ you make 34,500€ profit. ( 40(1500) - 17(1500) = 34,500 )
    
    You will want to sell product A for price 40€ because you make more profit (the price you sell product A for is [I]less[/I], but customers buy [I]more[/I] because the price is lower)
    
    If your customers only buy 1,100 of product A at price 40€ you only make 25,300€ profit. ( 40(1100) - 17(1100) = 25,300 )
    
    In this case, you will want to sell product A for 42.5€ because the profit from selling product A at 40€ is less than the profit from selling product A at 42.5€
    Please let me know if you need more help!
     
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  4. ricroma

    ricroma
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    Thanks for the answers!

    Well, the supplier in question seems to have a really strict policy regarding facilitations for their retailers. We tried asking for everything possible: delayed payments, discounts, etc. Nothing (or few) was achieved. I do understand that, they are a quite big company and they cannot negotiate prices with each single retailers. On top of this, let me say that in this case we are not even the small fish, we are the plankton.
    The price increase for the final products has been justified with the increasing of the price for the raw materials, so I guess is out of any negotiation.

    Ok, so this is pretty much what I've thought. It all has to do with "possible" sells more than with "actual" sales. We need to figure out the % of sell that we would lose or add in case of a price change. Well, since right now we don't have the means for a proper marketing investigation, I guess this estimation is up to the "feeling" we get from the costumers...

    About the 2.5 charge. This was the rate that our accountant suggested to charge on top of the price we buy at. In general, also the retail prices suggested by suppliers respect this ratio. I was told that this 2.4 / 2.5 come up like this:
    - 1: the price we pay for the stuff;
    - 1: the price we will pay for restocking the stuff sold;
    - 0.2: taxes;
    - 0.3 / 0.2: actual net profit

    So: 1 + 1 + 0.2 + 0.3 = 2.5

    Don't know if it makes any sense.

    Thanks again,

    Ricroma
     
  5. Mark T

    Mark T
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    Have you tried and brainstormed on offering packages on products? Like for example, a combination of product A and B for a price that suits both? If say for example, both has a price of 17€ and you are going to sell it at 40€ .. Probably you can compete with others by selling packages of your products like A and B product package for about 50€ or 55€ .. A price that best suits the package combination.

    Most buyers look for products with certain package offers at all cause they seem to save quite some money on it.

    Also, start studying other same product competitors that you have in your area .. Check their prices too and research on how do they make deals on their prices to get their business continuously alive in the market.
     
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  6. cesspadilla

    cesspadilla
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    I'm not really good at math although I think you should go with the increase. If you can't make negotiations with the supplier, try to research on how to make it more appealing to customers. The problem in here are the loyal customers you have because they will know that you did increase some of the stuff you sell. I think you can do a little business talk on them so they can still buy in your store.

    Anyway, Chinese are good businessman if you did notice that most of them are owners of big companies all over the world. I realize that some of them specially small businesses are selling cheap prices to make it more attractive to their customers. Although it can be because they might be the one's making the stuff that's why they're selling it cheap or they are getting good deals with their suppliers.
     
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  7. Krisz Rokk

    Krisz Rokk
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    I would work on both ends:
    1. Supplier
    The price increase justified due to price increases for raw materials is a 'standard' one. Big corporations increase prices once a year or every two years. And price increases are 'always' negotiable, even if you're a small fish or plankton as you put it. For example Ferrero uses a great model: they work with quantities. If a retailer sells 100 chocolate bars they get 5%, if they sell 200 bars they get 7.2% etc. It's something you could discuss with your supplier as well. If you're from Italy you might even be familiar with this technique. Ferrero uses it worldwide.

    2. Consumer
    I agree with ThirdSEO. You need to find out what your customers are willing to pay for your product (price elasticity). You might even charge 42€ and the customers would be glad to pay for the quality+value you provide. The best way to do it: simply ask customers how much they would be willing to pay. Market research companies do this day in day out.
    I'd work with Cross Promotions as well. Find out what other products your customers buy besides buying product A. Come up with a great cross selling. Price becomes secondary and suddenly your product A sells for whatever price you want it to sell for. (example: pizza + cola)

    And number 3: Competitors. What are they doing? What works? Model what works and thus strengthen your market share :)
     
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  8. ThirdSEO

    ThirdSEO
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    You couldn't have given a better answer ricroma! Often the best approach a change in pricing is to go with your personal feelings. Shop owners are usually very aware of how their customers will react to changes in price. Try the price increase for a couple weeks, if the sales aren't good enough you can slowly start reducing the price to the point where you are satisfied.

    One of the easiest ways to approach this is to ask your customers how they feel about it. Tell them your story about the producers raising the costs on you and ask them for their opinions. This will do two things at one time: it will give you a better idea of what your pricing should be AND build better relationships with your customers by showing them you care about what they think.

    Keep it up ricroma! It's hard running a traditional business and it sounds like you're very successful at it. Let me know if you have any more questions and I'll do anything I can to help you.
     
  9. ThirdSEO

    ThirdSEO
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    Alexander P. makes a great point. Bundling packages is a great way to increase profit because you'll make more money if you bundle items and price them correctly. Bundling is a great strategy that is often talked about in economics courses at universities. A lot of businesses bundle products, like for instance lots of computer companies bundle their computers with software or other products like printers.
     
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  10. kateherbert

    kateherbert
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    Take the items that you have in stock already (the ones that you got for 14€) and drop the price of them. and keep the ones that you got for 17€ at the higher price. Call it a sale and people will come in and buy the old (less expensive product) and just because of human nature they are likely to buy some of the more expensive product. And your foot traffic will increase.
    hope this helps

    Kate :)
     
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  11. ricroma

    ricroma
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    Thanks again for all the answers.

    From all the suggestions, I get that there is not a fixed answer to my answer... and that's fine, this is what business is. I guess we will try to offer bundles and "discounts" on the old items we got from less.

    About the negotiation of price with the supplier.
    Yes, some of our suppliers offer this possibility. The problem with this is basically that, even with the bigger discounts, we cannot afford to buy a bigger quantity of products. We are a family store and we do sell quite expensive items (even for us, not only for the consumers), and especially this times we are trying to avoid to make big orders that we will have problems to sell in a reasonable time.

    Thanks a lot to everyone again!

    Ricroma
     
  12. CamillaReberg

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    Patience and perseverance are the two pillars of IM and I suggest you get a right mentor to show you the right technique or else it would be trial and error method.
     
    #12 CamillaReberg, Feb 25, 2012
    Last edited by a moderator: Feb 25, 2012
  13. Matt Damon

    Matt Damon
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    I'm not really excellent at numbers although I think you should go with the improve. If you can't create discussions with the provider, try to analysis on how to create it more attractive to clients. The issue in here are the devoted clients you have because they will know that you did improve some of the products you offer. I think you can do a little business discuss on them so they can still buy in your shop.
     
  14. ilovedesign

    ilovedesign
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    I like Kate’s advice of dropping the price of the old, calling it a sale. Then selling the new ones at the typical price. Everyone likes a good sale.
     

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