Retail Pricing & Discounting Impact Profits

by Tim Ogle
published in Golf Business Magazine October 2005

"PRICING POLICY: GOLF SHOPS ENJOY A SPECIAL NICHE"

The pricing policy in any retail shop says a lot about that shop. In the spectrum between full discount and full service, green grass golf shops enjoy a special niche. Most of the core customers of any golf operation are not price shoppers; they are in the shop for other reasons and are far more interested in convenience, fashions, displays, and service. Many are impulse buyers who are unlikely to shop for lower prices. Discounting to these buyers will dilute profits without increasing volume.

The discount market appeals to a totally different mindset of price shoppers. Sure, a few of these are your members or regular players, but it would be a grave mistake to modify your pricing structure to try and gain their business at the cost of diluting margins for your core customers. Price shoppers are exactly the ones who will help you clear your sale table. Do not discount to them before then! The most valuable asset you have in a green grass shop is your core customers who buy regularly at full retail price. That advantage must be guarded jealously and protected by your policies.

Treating one class of customers differently than others can have pitfalls. Ask yourself, if your core customers were to learn of special treatment you provided to another customer, would they view it as unfair. If so, you should not consider it.

We can not be all things to all people, so developing a Mission Statement is critical. If you are a full service shop with quality merchandise and displays, some mission factors to consider:

1. Green grass golf shops are ideally suited to offer convenience, superior selection and superior customer service. These factors have value. Full retail prices are fair!

2. Of course bulk-purchasing outlets can buy in quantities that permit lower prices and a clear advantage in the discount market. Your sale table is the place where you can compete with these stores, and beat them. If you are determined to maintain your niche as a green grass shop, but nevertheless are tempted to offer deep discounts to capture business that would otherwise be lost, consider:

  a. Are you certain that lowering prices will increase sales enough to increase gross margins?

  b. Do you have the staffing that would be required to handle increased sales?

3. Is your discounting policy fair to all your customers? Could a discounting policy become a slippery slope? How far can you go without altering the image of your shop?

4. Can your shop distinguish itself in other areas such as merchandise selection, displays and customer service?

5. What are the primary reasons your full retail customers buy from you?

6. Do you have a clear written policy on the limits of discounting and when it is appropriate?

7. Most importantly: If you lower prices, but sales do not increase commensurately, are you prepared to accept  less gross margin?

To produce a $250,000 gross margin it is far easier to sell $500,000 at a 50% Gross Margin than $1,000,000 at a 25% Gross Margin, and it maintains a far superior image for your property. Know your objectives and have a well reasoned plan to attain those objectives. Do not easily give up the full retail niche that you enjoy.

         Tim Ogle, president Open To Buy Wizard, LLC     www.opentobuywizard.com

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