Have you ever heard of a variable margin matrix? It’s a popular pricing strategy used by large retailers like Walmart, Staples, Sam’s Club, and Office Depot. When there is lots of competition, companies create a low price image by pricing known, or highly visible, items with a low margin or even take a loss. They practically give away the items everyone knows the price of to get you into their store or on their e-Store. Then they compensate for the lost margin by charging higher for everything else.
This creates a perception in the marketplace that prices are low or at least similar to others. The absolute key to this strategy is creating a shopping experience for the buyer. By offering lots of choices and styles most buyers will end up buying more items, or choosing a higher profit margin item. This strategy breaks down if customers can cherry pick the loss leader items only.
We have heard about promotional products and apparel companies who use this same strategy for merchandise in a company store. Offering lots of variety sets up the conditions necessary for the use of a variable margin pricing strategy. Variety is a great thing if it supports your strategy, not if it supports a chaotic increase in your spend. This is clearly an integration issue.
Transparency is part of being an integrated vendor/partner. So is a mutually profitable relationship. If a company store is set up to make a profit because your vendor is “playing games” with the merchandising of promotional products and apparel, then that is not a transparent partner. Executive Data Control is your LEAN Supply Chain Management partner and we are focused on optimizing your spend. We can be your best partner to achieve your goals.