July 11, 2016

New Item Pricing

Here's something I frequently observe in my Merchandise Forensics projects.
  • Existing Items Carried Over = $25.00 average price point.
  • Newly Introduced Items = $39.00 average price point.
Guess what happens?
  • Customers prefer $25 items over $39 items.
  • New items do not look like they are performing well.
  • Merchants say new items do not perform well.
  • Merchants carry over older items at disproportionate rates.
  • Merchandise assortment becomes stale.
  • Company posts -5% comps on existing items and -20% comps on new items.
  • Marketing is blamed for sales problems (they didn't target the right customers, those idiots).
  • Marketing responds by offering 20% off or 40% off or whatever it takes to keep the top-line growing, thereby lowering the actual price of an item purchased and permanently damaging the trajectory of the brand.
  • Customers respond to promotions, they buy stuff!
  • Marketing measures response, notices that customers respond to promotions, then marketing adds 40 weeks of promotions to the calendar and notices that nobody buys during the other 12 weeks of the year.
  • Company becomes a cesspool of promotions to get customers to buy boring, tired, old items.
  • Every company metric shows that promotions work ... "you don't understand our customer, we're unique, we're different, our customer is promotionally savvy, we have no choice but to tickle her buying bone."
Yes, this happens all the time. And when I outline a path to the future, the path is rejected. I had one Executive respond to me, repeatedly ... "the clear answer here is that we need even deeper promotions". Alright.

Raising prices via new items is risky business. The new items must be highly coveted and productive, in order to make the math work. Maybe one Merchandising team in ten can pull this off. For everybody else, this is a doom cycle.

Be very careful about introducing new items at expensive price points. You can experience success, but if you don't, you set yourself years behind your competition. And you likely turn your brand into a promotional monster where the customer only purchases if you offer the customer a deal.