Benefits of Understanding Retail and Wholesale Pricing
In the business world, the markup represents a ratio combined with the cost of a product to arrive at the final selling price of that product. Markup is added to the initial product costs for many reasons but creating additional revenue needed for covering the necessary expenses to run the business is the main one.
This is important information that every consumer should understand and if understood properly, they can use it to great advantage. Every price tag out there allows a certain room for negotiation. Not every price in front of you needs to be the price you pay. Everything can be negotiable, including the price of the merchandise, be it a handbag or pearl jewelry, you want to purchase. One quick example will put everything into perspective. Let’s say you are the owner of a retail store. You get pants from a distributor for $40. If you sell those pants for $80, your markup is 50% (50% from $80 is $40). This means you have made $40 on those pants. Just like this, retailers could set any markup percentage they find reasonable. Of course, a higher percentage means more profit for the retailer.
The Markup Knowledge
The Inventory Trick
When you understand how markup is created, and how prices vary because of it, you will also know how to use it to your benefit. The inventory of a given product is directly correlated with the price. Inventory affects how much a business is willing to charge for their products, which directly affects their markup and profit.
For example, when there is a surplus of a particular product, businesses many times conduct a sale so it can help them to clear out their excess inventory. Lowering the product price during the sale reduces the business’ profit, but it also helps them to make some money back on products that previously were not able to be sold. This means that the sellers in this brand’s stores will be more willing to go for a bigger discount than what they give usually, just so they can sell that product. Even if they just break even on that product, with a zero profit, it is a better option than the product sitting on the shelves, costing money and inventory space.
On the opposite side of the spectrum, if the demand for one product is high, vendors tend to buy more units and increase their price, therefore increasing their markups and profit.
Checking the Competition
Another point that directly affects the markup is competition. Knowing the direct competition of your preferred brand will give you the chance to compare prices. Brands always try to price their products with a certain competitive advantage to their competition. Selling a product which is more expensive than the competition is usually bad business. So if you possess this information, you can use it during your negotiation. Although this will decrease their profit, when they know there is someone else out there selling the same product cheaper and knowing that you can walk away at any moment, they will be more open to match your request for a lower price. The advantages for them are they sell the product and keep you as a customer.
Be a Strict Negotiator
The theory of negotiations tells us that when there is a discussion regarding a price, a win-win situation is the easiest and best approach. But when you have the information about how the product price is created, you know the business can go even lower than that. When you start the negotiation and give out your offer, go for something extremely low within their acceptance spectrum. You don’t want to ask for an overly low price, because that can cut the negotiations immediately. But you want to ask for a price on which the seller will be still interested to come with a counteroffer, but because of your offer, it will be far from the middle.
Select the Right Shopping Time
Knowing what the weak points of each business are will always put you on higher ground during your negotiations. Every brand has its top and slow months. So being willing to wait for the perfect moment might be hard but would be worth it. Depending on the product line you are interested in, there will be several months when there is a high demand for it, and months when it is fully off-season. And this is the perfect moment to go and try to purchase your product. As the season is slow, the stores will be way more willing to give you a discount, just because in those months every sale matters.
