Wednesday, September 9, 2020

Pricing can shore you up or bring you down


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Developing the right pricing strategy is a challenges of many business. PHOTO | FILE
BY JOANITA MBABAZI
On July 17, 2020 Daily monitor published a story that PEP stores, a leading clothing discount retailer in Africa will close shop by end of business this year. This development was confirmed by the PEP Group of Companies country general manager, Mr Liaan Max Scholtes.

PEP is not the only retail shop that is going to close business. Other retailers like Nakumatt which had grown from a mattress shop in Nakuru to have branches across Kenya and East Africa, was forced to shut dozens of its outlets in 2017 as it struggled to repay its suppliers, landlords and other creditors.
In 2017, Shoprite Naalya branch that was housed at Metroplex Mall was also closed.
Some business experts say this is always associated with how these former giant retail chains want to be perceived in the market by setting low prices they think would be attractive to their customers yet they in reality, they have so many overhead costs to meet such as electricity bills and paying employees.
According to Mr Charles Ocici, the executive director of Enterprise Uganda, nothing can cause confusion and doubt in a business like pricing your products and services. While you do not want to charge less than your worth, you also do not want to price yourself out of the market.
“For someone to set up a business and they want it to succeed, it must obey the rule of value for money,” Mr Ocici says, adding “Why would one buy from your stall and not the other?
“Openness and trying to reward the customer is key. A customer’s ability to afford should be at the forefront,” he says.
“Retailers should not take customers for granted. Customers are logical and can tell what is worth and what is not worth. For example, everyone knows a bottle of water in five-star hotel cannot cost like that in the lower end area,” he adds.
The customer target bracket should be at the back of your mind especially for new entrants in the market. Mr Ocici says some people start businesses and their target market is not known . If you fail to get to know your regular customers, breaking even might be harder.
Purchasing ability from customers also is derived from the extra services you offer . To Mr Ocici, this is sometimes rewarded through a price.
“Are you offering your customers parking space when they come to shop? Are you offering after sales services to them? All these attract customer satisfaction and even if you added it on price, the customers might not feel cheated,” Mr Ocici says.
He adds that one has to watch out the competition around them. What are your competitors doing? If the competition is among many people selling similar products, the price will be extremely low. But if the competition is among few people, sometimes these can collude and raise the price .
The newness of your product on the market also matters. You are paying for marketing costs to ensure you sell your new product and make the best profit margins. But after getting these profits, you might be forced to go back to the normal prices because your product has already become a commodity in the market.
Where retailers go wrong
Fixed overheads for your place matter. “If you are a new entrant and opt for a higher cost venue, that will cost you. Big retail shops tend to employ many people, pay high electricity bills, rent big space and yet they are selling at discounts. All this has a cost implication on the profit margin one will make,” Mr Newton Batureba, the chief executive officer of House of Wealth, says.
Mr Batureba says retailers have to revisit their overheads and the number of staff they want to employ at that particular moment. You either have few stalls when they are breaking even as compared to having many branches operating in losses.
“These retail shops are on pressure to sell as many products as possible just to meet rent arrears sometimes which are worth Shs20m. Usually, the profit margin is skeletal and this does not make business sense,” Mr Batureba adds.
“If you are a new entrant in a market which already flooded with alternative products, the price you set might attract competition. Your competitor can beat you at the game when they decide to the lower price lower than you and yet our product margin always will determine the level of profit margin we shall make,” he says.

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