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Display’s The Thing For Maximizing Gross Margin

In reviewing the struggle by thousands of retailers to be successful during these days of intense competition from so many giants in the trade, one can see that it’s a bit difficult for a dealer to distinguish friend from foe.

When all is said and done, could the “enemy” be the affluent consumer (of which there are too few these days) who already has shopped the Internet? This consumer has now discerned all the features, advantages and benefits of each model you stock, but wants to see the actual product he desires before he orders it from the e-tailer, unless you can sell it to him for less.

Then again, the “enemy” just might be the supplier who, in taking stock of his retailing customers, thinks mainly of truckload orders.

When purchasing products for resale most retailers think of their customers as adding to their gross profit one sale at a time. It’s not too difficult to see that total volume is a sum of individual instances in which the customer does not “walk.”

But by the same token, when this merchant buys a product for resale, he doesn’t think of it as gross volume, but as one purchase and sale at a time. Then, based on his experience, he prices each product, so that with the combination of loss leaders and profit leaders he makes a respectable gross and net profit.

Does this make business sense? Some trade observers will tell you that the folks in the executive suite at Wal-Mart, the largest retail chain in the world, think of it as the only way a dealer can be successful. A minority of dealers, however, will insist that every model number in the store should be sold for the same gross margin. The only thing worse than taking the wrong side in this argument is not thinking about pricing strategy at all, changing a business plan from one month to the next.

How, then, can a retailer place his merchandise on display in the best way to achieve a maximum gross profit?

The superstore method of product display works best, although it is far from new. Originally, it was known as “price point merchandising,” or PPM. This starts with a minimum of three different models for practically every SKU in the store.

The first of these models is dubbed, appropriately, the “sell” model. It is the one that provides all the benefits a consumer can expect from the product with a fair profit for the retailer. Signage on the model is so complete that the sell piece practically sells itself to the shopper.

Alongside the sell piece in a superstore floor display is a “high-end comparison” unit, or HEC. This not only has all the features of a sell model, but also some extra semi-useful bells and whistles to justify its higher price.

This leaves just one model, a “low-end comparison” sample, or LEC, to round out the product mix. Although it has many of the same features as the sell piece, the LEC model has sufficiently fewer features to allow a salesperson to convince a shopper that its lower price point makes it less of a bargain.

With all three SKU models in position, the superstore salesperson is now ready to step the prospective customer through a demonstration leading to a sale. In this way, a prospect attracted by the price of one sample can easily be shown the advantages of another.

Customers enter your store for a specific reason. This is where the “How may I help you?” greeting comes into play. Customers buy for the pleasure of it. Helping them achieve that goal is what makes the salesperson, working within a carefully planned display, the most important key to a sale.