Don’t overdo it: Finding the right sale price

Updated Jul 28, 2017

The following comes from the July 2017 issue of Truck Parts & Service. To read a digital version of the magazine, please click the image below. 

Don't Overdo the Price Infographic

One of the secrets to business success is pricing your products properly.

Making sure your customer needs and your customer’s ability to buy are in line with one another is key to long-term success.

Pricing products correctly can enhance how much you sell. Get your pricing strategy wrong and you may create problems that your business may never be able to overcome.

There are several different types of pricing strategies for the aftermarket to look at, especially when it comes to pricing items that are placed on sale or listed as promotional items.

There’s no one proven-to-be-true, formula-based approach that suits all types of products, businesses or markets, but finding the right formula for your business is essential.

Pricing a product to be a sale or promotional item usually involves considering certain key factors, including pinpointing your target customer, tracking how much competitors are charging, and knowing what inventory you have in stock.

Over and underpricing products can create consequences. Underpricing leaves no room to make a profit, while overpricing can create an overflow of unwanted stock.

But, that inventory can lead to great sales opportunities as well.

Rolando Martin, marketing manager at River City Truck Parts says the company’s monthly sales promotion is based on what items they have in excess.

“We have found that working through our surplus inventory provides us with great opportunities for our customers,” Martin says. “Our monthly promotions allow us to keep moving inventory that we have an excess supply of and it provides good pricing points for customers.”

Pricing sales products for too low a cost can have a negative impact on an aftermarket supplier’s bottom line, so be careful when setting initial price points. On the flip side, overpricing a product can be just as detrimental since the buyer is always going to be looking at your competitor’s pricing.

“Accurately pricing your product is critical at any point,” says Laura Wilson, a business consultant and faculty member at the University of North Alabama. “Many businesses mistakenly underprice their products attempting to convince the consumer that their product is the least expensive alternative hoping to drive up volume; but more often than not it is simply perceived as ‘cheap.'”

She says most consumers want to feel they are getting their “money’s worth” and most are unwilling to purchase from a seller they believe to have less value. Businesses also need to be very careful they are fully covering their costs when pricing products, especially promotional and sales items.

“Reducing prices to the point where you are giving away the product is not usually the best long-term solution,” Wilson says.

There are many methods available to determine the right price, or which particular products should be placed as a promotional item.

Mike Lerach, parts sales manager at Blaine Brothers, says that company has to consider many aspects when determining which parts are needed to be listed at a sales or promotional price. “There is a lot of different things to look at,” he says.

Many are based on a company’s geographical location.

“A lot of the items that we feature are seasonal. For example, we will be getting our winter products such as dryers, tire chains, chemicals, things such as that, ready soon.”

Lerach says the goal is to have winter seasonal promotions in place by the be-ginning of the fourth quarter each year.

Preparing for seasonal promotions holds true for summer items like air conditioners, Freon and brakes as well.

“There are areas in the Midwest where heavy equipment can’t run until March because of the frozen ground during the winter, so we run our brake promotions and other items that those guys need to get back and running,” Lerach says. “We base most all of our promotions on the calendar so we can plan around the winter and what those customers need and the same for the summer.”

Randy George, marketing manager at Betts Truck Parts & Service, says that having eight locations spread from Phoenix to Portland creates some geographic planning, but says that seasonal planning is a must.

“Each location has different specific issues ranging from the weather in Arizona to the mining areas in Oregon, but we try to offer specials that appeal to customers in all the areas that we serve,” George says. “The first thing that we look at is what is top of mind for the customers and that is usually based around the seasons.”

Wilson says that setting appropriate initial price points can determine how to set prices on promotional items.

“A fundamental tenet of pricing is that you need to cover your costs and then factor in a profit,” she says. “That means you have to know how much your product costs. You also have to understand how much you need to mark up the product and how many you need to sell to turn a profit. Many businesses either don’t factor in all their costs and underprice or literally factor in all their costs and expect to make a profit with one product and overcharge.”

She stresses all suppliers, dealers, vendors and distributors should constantly re-evaluate costs.

“To sell it right, you have to buy it right. If you are having a hard time selling a product at an acceptable profit, the problem may be that you are not buying the product right. It may be that your cost is too high rather than your price is too low” she says.

Heavy-Duty Aftermarket Specials“You should always be testing new prices, new offers, and new combinations of benefits and premiums to help you sell more of your product at a better price.”

Test new offers each month. Raise the price and offer a new and unique bonus or special service for the customer. Measure the increase or de-crease in the volume of the product you sell and the total gross profit dollars you generate.That opens the door to raising and lowering prices for your products.

Keeping an eye on what distributors and manufacturers are releasing also provides opportunities to offer new sales and promotionals.

“Manufacturers launch new products and we try to use those as promotions in the market so we can we see the fleets’ interest in them,” Lerach says. “Those are often good promotional products to offer.”

George says many Betts customers know when particular manufacturers run their specials and promotions so they base their buying needs around that.

“We don’t always know if a new product is going to take off immediately,” he says. “Some of them take time to catch on as more and more people use them and tell others about them, so offering specials keep them on top of mind.”

It’s also worth noting you can watch your competitors’ products and pricing when looking to offer promotions, Wilson says.

“It’s helpful to look at the competition—after all, your customer most likely will, too,” she says. “Are the products offered comparable to yours? If so, you can use their pricing as an initial gauge. Then, look to see whether there is additional value in your product or look to see how you can price it to remain profitable. The key to pricing, whether it’s a sale item or not, is to make sure that you keep the profit margin that you need.”

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