March 12, 2017

Top 10 Problems I Observe In My Projects: #10

Problem #10 = New Items Are Too Expensive


In my projects, I continually observe pricing challenges - and for good reason - pricing is hard work!

Here's what happens ... the CFO demands that gross margin dollars increase, regardless of net sales increases/decreases. Existing merchandise sells at "x" ... and is often required to sell at "x" because Amazon sells a comparable item at "x - $1". Therefore, the CFO has two options.
  1. Increase marketing dollars by 20% to increase gross margin dollars by 5% - 10% (hint - the p&l won't work).
  2. Introduce new items at more expensive price points.
Companies with long-time loyal buyers struggle on this front ... customers typically revolt against the tactic, and do not buy the new items. This creates a challenge, because the company then fails to generate enough winning items, which hurts the business 2-5 years out.

I know, you're caught between a Rock and Amazon.

Please make sure you have enough new items at price points that customers appreciate.

Analyze the success of new items by price point band ... I do this work all the time and the results are illuminating. Define what a winning item "is", and then measure the rate that new items become winning items by price point band.

One last point ... this is the job of the MARKETING department. Your merchandising team should be doing this work, and probably is doing this work ... but the MARKETING department is responsible for managing customers. And if customers are being mismanaged by price point band, the MARKETING department must point this out. Period. In the past decade, marketers gave up their authority to measure merchandising challenges that cause marketing performance to weaken ... largely because of an obsession with digital conversions via software like Google Analytics & Adobe. It's time to change, to take back what we once analyzed on a weekly/monthly basis.

Thoughts?