Price Versus Value

[Food Network Fan]

Price Versus Value

By Michelle Moran

AUGUST 01, 2006 --
Email the editor:mmoran@gourmetretailer.com

It's not that American consumers are any more cautious about money than their predecessors were. But Americans today are definitely savvy when it comes to researching the lowest prices in town. And they are armed with weapons to complete the task — the Internet, direct mail and discounters on every corner. So how do you compete? Simple. Sell value. Sell yourself.

Today's Price Consciousness
Today, retailers face a challenging market. More product choices abound for consumers, and there is increased blurring of competitors, more media choices, more shopping choices and fewer loyal customers.

Wal-Mart's success in retail is unsurpassed. As a corporate entity, Wal-Mart is shopped by 84 percent of U.S. households. Expansion of Supercenters will continue to drive Wal-Mart sales growth via increased shopper penetration.

So how do specialty retailers brace themselves against competition and the erosion of big-box pricing? Terry Monroe, partner in Stillwater, Okla.-based Murphy's Department Store, said the he believes the solution is to offer both price and value simultaneously.

"I think overall, customers will pay a little for value and added features. But you can't be higher in price than someone else offering the same thing and the same services. I believe it would be a mistake for a retailer to ignore either price or value. The question sometimes becomes whether you can recover the cost of added-value features."

He explained, "It is more of a question of how to offer both . . . whatever price you pick, you need to offer enough value to get the customer to buy it. But, our experience is that customers will always pay for added value, whether it's built into the product or added by the retailer."

Monroe tackled the problem head on when he said, "Stores like ours can't often profitably offer the entry price point, as margins available on, say, the opening price point. For instance, white KitchenAid stand mixers have very low opening price points. In fact, the last time I checked, KitchenAid's minimum, allowable advertised price was actually below the cost to the dealer (still true: cost $170.50, minimum advertised retail price, $169.99). But some chains will use that price, so we need to not carry the entry model. We skip up to the Artisan series, which offers a low-but-okay margin, and which does have additional selling points and comes in more colors. But price is an issue, as the entry-level model is out there and available at a lower price. So we must buy the models we choose to carry at the lowest possible price, and that requires a lot of knowledge of the supplier and how they operate."MORE HERE