How many times do you shop for a product that is in a group of product price points only to default to the least expensive choice because you just can’t make the value proposition work for you? This is an age old issue at retail. Merchants often take the cost and apply a markup percent vs. looking logically at where the next price point break occurs naturally-cost be damned! Remember is the gross margin DOLLARS that count, not the GM percent.
I used to grab new buyers and have them pick an item in a family. It could be a furnace filter, it could be a watering hose nozzle or it could be a round point shovel… My point is, too many items for an end user to select from – with a variety of costs and markups that all lead to a lost opportunity to step a customer up and make more money.
Lets focus on the Round Point shovel as an example. The current line up on the shelf is:
The OPP (opening price point) small head unfinished wood handle 15 yr warranty Ames brand is $5.98
And the selection continues, Step Up (larger head) wood handle, 5-year warranty HDX $9.97
MPP-larger head and wood handle (finished) handle better warranty at 15-years $14.97
MPP-larger head with fiberglass handle better warranty 15 yrs was $17.97…now $15.97
HPP-pro head wood handle Razorback pro brand better larger power step lifetime warranty $21.97
HPP- pro head fiberglass handle Razorback pro brand better power step, lifetime warranty $25.97
Let’s focus on the Round Point shovel as an example. Despite the SKU proliferation of too many choices (granted it is the largest category in LH stick tools) the NEW LOW PRICE on the Ames MPP fiberglass handle has done two challenging things.
First, the gap now between the MPP wood and fiberglass is only a dollar. ALL the sales will move to the fiberglass handle unit. Also, unless Ames is covering the margin loss, one would expect that the GM on the $15.97 unit has collapsed. So we trapped sales on the $14.97 unit and possibly made less margin dollars on the $15.97 unit. One could argue just offer a fiberglass unit at $9.97 EDLP and be done with it. Most of the sales would gravitate there. Better holding power and shorter assortment might make shopping it easier too. Most Ace and True Value members hit the $9.97 price point with fiberglass throughout the spring and summer. For sure I’d dump the Ames brand and the 15 yr warranty on the OPP unit.
Just my two cents.