Variable pricing: the secret of profit

By Joe Samulln Retail Advisory Services, Inc.

ITARIABLE pricing, which I pre- Y fer to call visual merchandising, is not new. For years merchants have used it to increase profits.

I will lay claim to bringing the technique which can add up to more margin dollars to the attention of many large and small operations. It all began in the early'70s when I was part of the raining team in the Handy Dan chain.

While we were on a routine tour of a store, some idiotic pricing jumped out at me. The 2" and 3" mending plat€s were pnced the same. T}le 2" and 2-112" barrel bolts were priced the same. Zinc and brass in the sane sizes were priced the same.

This kind of stupid pricing went on and on because we were mechanically applying a set departrrental margin to the manufacturer's cost. After I convirrced management that large should cost more than small and that because customers prefer brass they will pay mue for it, the pricing policy became "what is the value in the eye of the beholder - the customer."

Because we eyeballed items for increased margin, I gave the system the handle "visual merchandising." Some years later someone latched onto it as their idea with the 'rariable pricing" tag. The rule of thunb was anything under $5 was fair game. Above that level we used extreme caution on any competitively shopped item.

I used this approach to great advantage when I took over a troubled division. We took markups of over $100,000, then for the next three months gave it all back in strong lead ad items. By the end of rhe year we were in the black in sales and profits with a strong, low price competitive rnage.

I didn't think any other chain could be as dumb as we were, but I found lots of others following tbe same pricing policy. I went to K-Mart to buy a molly bolt and discovercd the ll2" and 1" priced the same. I went to Sears. The saure idiocy existed. Not only was Sears making the same mistake, they were the lowest price in town and neither they nor the public were aware of it.

I took some pictures with the Sears price tickets in full view and used them in an article published in 1979. Three weeks later Sears and K-Mart made price adjustments and never even thanked me. In my travels I began to take pictures and slides of major chains using the same idiotic pricing and showed them in my seminars.

Now, many years later, I find that

Story at a Glance

How variable pricing can increase profits ... ways to apply ... examples of using plus margins to put more dollors on the bottom line.

most companies have forgotten this important avenue to more margins and profis. They have become too involved in puning out fires. Variable pricing has been relegated to "when we have time" and forgotten. Because it is a grueling process, it's easy to put on the back burner.

If you are in a non-competitive area, variable pricing will go right down to the bonom line. [f you face tough competition, it can be used in a strong loss leader progran to qeate a competitive image.

Another important point: all my business life the controller's office has come out with "at a2%o net profit you need 50 times that in sales." An additional $5,000 in sales will generate $100 in net profits.

Nonsense. If you are profitable, $5,000 in additional sales at a 30Vo margin will put $1,5m on the bottom line. If you are profitable, you have already covered all your expenses, rent, utilities, salaries and other costs. Adding sales by using plus margins will put more dollars on the bottom line and at a lot larger amount than 2% of the additional sales.

Variable pricing works for both large and small chains. Many stay alive because they practice it.

HOOD WOOD. Kind of has a nice ring to it, doesn't it? But its not our name that people have grown fond of; its our high quality products and friendly, dePendable service.

Our wide range of Products are considered among the industrys best because of our dedication to first rate workmanship and our utilization of one of the Souths greatest resources, Southern gellow Pine. The trees used to produce our products are well-known for being strong and very treatable. From this inherently strong wood, we Pro- sure our customers are haPPY. we provide pricing for both FOB mill and destination, whichever best suits your needs. And, bY constantly monitoring truck and and tongue and groove panels), as well as top quality lumber. We sPecialize in 2xlo and 2x l2 and extra-long lumber, including 18' to 24. And, our lumber is also available in select and export grades. So, by utilizing only the finest raw materials and rail rates, your quotes can be made immediately. Other special Hood services include Paper wrapping before shiPment and special export packaging. When it comes to service, we do one thing and do it right. We make sure you're satisfied. lts.a simple concept that we've applied to all aspecis of our business. We have satisfied customers in the

U.S., Europe, the United Kingdom, Latin America and the Caribbean. Ancl we've found that our superior service sPeaks for itself, both here and abroad.

When you're in the wood business, you have a resPonsibilitY to use your rcsources wisely' and make sure you resPect and inteUigently manage one of Americas most abundant natural treasures. Hood lndustries realizes that the future of our company, as well as the fulure of the environment, depends on the responsible and careful use of this countryS forests and woodlands. Thats why we've adopted a'good neighbor'policy, which is essentially a pledge to use each tree to its full potential. By full potential, we mean the entire tree is utilized for either lumber, plylvood or wood chips. Nothing is wasted. And. as a meml-rer of the APA (The Engineered \,!'ood Association) and the Southert] Forest Products Association, we the talents of skilled craftsmen, we ensure thal HOOD WOOD is always good wood. nt Hood, we feelthat simply having a great product is not enough. WeYe in a service industry and we focus a great deal of attention on making sure our ser' vice is the best in the business. Wth much pride placed uPon our quick response to orders and our ability lo fulfillsPecial requests, we have developed the reputation of a company that goes to great lengths to make