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How To Compete Against Big-Box Retailers
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Article 2: Price Smart, Not Cheap
The big-box stores offer low prices. Smart independents compete by offering more: Personalized service, professional assistance and product selection responsive to community needs.
So this means you can forget about offering low prices, right? Wrong!
Never forget that the big-box stores have made the price issue a top of mind one for shoppers.
“You can’t be exorbitant in your pricing,” cautions Tom Shay, a St. Petersburg, Fla., retail consultant who helps independents compete with mass merchandisers. “You have to be in the game.”
Sounds like a puzzle. On the one hand, you have to offer low prices to your shoppers. On the other hand, you can’t buy your goods as cheaply as the big-box competitor. What’s the solution?
Shay suggests this two-step approach to a pricing strategy that battles the big-box stores:
- Step 1: Match the big-box pricing on top of mind items.
Shop the big boxes. Watch their ads. Then create a list of items that are top of mind for your customers. These are the items that the big-box retailers are constantly promoting, that really draw shoppers to their stores. These items comprise perhaps 10 percent to 20 percent of the stock keeping units (SKUs) in your own store.
Since consumers know the advertised prices of those items, make sure you price them either at or near the prices at the big box. Customers want to know they can get these high profile items at a competitive price.
- Step 2: Bulk up the remainder of your stock keeping units with higher prices.
“There are many items for which people don’t have the foggiest idea what the prices are,” explains Shay.
The higher margins on these items must more than offset the lower prices on the items being promoted. The result is an overall store gross margin that matches or exceeds what you were enjoying in the days before the arrival of the big-box stores.
Here’s the strategy in a nutshell: “Price smart, not cheap.”
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