Effective Retail Pricing Strategies

This is the second section of a three-part series on how to determine pricing for your bath and body products. In the first post we discussed wholesale pricing. This article will cover retail pricing. The final post will cover craft show pricing.

Converting Wholesale to Retail Prices
So by now you’ve determined your wholesale pricing. For the sake of your business’ growth, you won’t want to sell to everyone at wholesale prices. Why? There are several reasons you should not sell wholesale to the masses. First, you are cheating yourself and your business out of retail pricing profit.



Secondly, should you later decide to wholesale your products, retailers will not carry your line if you are retailing at wholesale prices. Third, by selling at retail prices, you will have enough margins to have an occasional sales promotion and still make money. Lastly, you’ll be perceived as more professional if you price correctly.

To mark up to retail, take your wholesale and multiply it by at least 2 times (known as “keystone”) or up to 3 times. Be sure to allow for the allotted research to determine how much your fixed wholesale price should be set. Retailers are going to take your wholesale price and mark it up by 2.2 – 2.5 to cover the shipping costs of your products.

Example

Wholesale 8 oz. Body Lotion = $5
Suggested Retail Price at 2.2x Wholesale = $11
Suggested Retail Price at 2.5x Wholesale = $12.50

If you are new to working with retailers, it may seem at first glance that they are making an incredible profit selling your product. But consider that retailers also have their own overhead as well as advertising, store theft and in-store breakage or damage to merchandise to account for their own markups. Instead of focusing on the money that retailers are making off of your product, instead think about the time it would take for you to sell the same merchandise on your show schedule or online.

Retail Competition

Retailers have challenges that impact us as wholesalers. First, there is a great deal of competition between retailers in close proximity such as the same neighborhood or small town. Each retailer spends significant time selecting merchandise that reflects the tastes of his or her customer base. As a result, for the most part, retailers want to represent lines that are not in neighboring and competing stores. For that matter, you’ll want to offer exclusivity on your line to one retailer per town (if it’s small) or section/neighborhood if it’s located in a city.

Second, retailers do not like to compete with crafters in such venues as craft fairs or online sales. It is not favorable for a crafter to undercut retail prices at a nearby craft show when a store in the same town just purchased $500 to carry your line. Suddenly you’ve become additional competition for the retailer.

Another challenge for retailers is crafters who also sell online at their business website or other websites such as Etsy or Artfire for less than the suggested retail price. Pick up most products in a retail store and you’ll see a price tag placed prominently over the manufacturer’s website address. Retailers don’t really like the idea that their vendors sell online as they view it as tough competition.  

Most store owners are concerned about savvy retail shoppers who purchase a product in their shop and then visit the website shown prominently on the label. Shoppers will be the first to let retailers know if they feel as if they were overcharged for an item. Such research can be done “realtime” in stores now with many smartphone applications that allow shoppers to do a quick price comparison prior to making a purchase. A shop owner who is reprimanded by a customer for their high prices is soon-to-be a shop owner who will be upset and most likely no longer be your wholesale client.

If you choose to sell online, sell at suggested retail prices and if retailers refer to it as competition, mention that there is a vast difference from purchasing online such as shipping time and shipping charges that aren’t encountered with brick and mortar store sales.

Doing the Sidestep: Offer Different Product Lines
There is the occasional situation when a crafter chooses to wholesale a line nationwide that perhaps the suggested retail pricing cannot be justified for its local market. In these cases, one option is to split a collection or create a new collection. One collection will be for wholesale only and the other for retail only. Create two lines, at two different price points, aimed at two very different customers.

For example, think of the fashion industry where a particular designer may have a couture line sold in high end boutiques and another completely different line sold through mass merchandisers or discount stores. For bath and body, incorporate unique scents or designs. Change the packaging and labeling so that the lines are completely different and non-competing. Each line must serve its own purpose.

Be sure to avoid comparisons between the two lines. Consider two brands – one for wholesale only and one for retail. Again, incorporate research into the project and carefully choose its price points and determine which products will sell best in each environment.

The only caveat is that you’ll need to keep up with production and inventory on two lines, which can be a daunting task. It may be easier for an established business to launch a new line rather than a new business launching two lines simultaneously.

As you are pricing your product for retail, remember to:

·         make sure you mark up your wholesale prices to retail prices

·         make sure you are not putting yourself in a position of being direct competition for the retailer you are selling to

·         if you find yourself in that situation, if possible, create two different product lines so that one can be sold at wholesale and  one can be sold at retail so that your retailer does not feel threatened

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Marla Bosworth is the CEO and Founder of Back Porch Soap Company,

(http://www.backporchsoap.com) She teaches group and private classes on how to make natural skincare products in Boston and NYC. Ms. Bosworth also provides product, brand and marketing strategies for handmade beauty companies.   Marla wrote this feature article exclusively for Debbie May.com (http://www.debbiemay.com/), an organization dedicated to helping small businesses succeed.