SUGGESTED RETAIL PRICES, BOON OR BANE?

A commentary by Bee COLMAN

THIS IS THE QUESTION:

To borrow and paraphrase some lines from MacBeth... "Whether t'is nobler in the minds of partners to see retailers suffer the slings and arrows of outrageous gross margins. Or for the retailer to take arms against a sea of suggested retail prices and by opposing, end them,"... referring to the pratices of self-serving and self-appointed price consultants. Are suggested selling prices that are indicated in price lists of manufacturers and the prices on product labels TRULY meant to guid retailers in determining the selling prices of their products OR are they intended to set maximum prices or price controls for the trade to follow?

One school of thought maintains that SRPs are helpful to a retailer who is a newcomer in the business or one who does not have a formulated pricing structure of his own and is largely dependent on “manufacturers suggested retail” prices or on what his competitor is doing in terms of pricing, hence has no profit targets or price mix strategies set for his business. Sadly many “suggestors” and even retailers are afflicted with the 5\% and 10\% Syndrome believing that all retailers can make a profit on 5\% and 10\% gross margins.

Another school argues that they are subtle ways to dictate maximum limits to what the retailer can price the products at and therefore influence if not control retailer pricing policy without regard for the retailer’s profitability. This is especially true with products whose retail prices are on the labels or on the packaging and those that are announced on TV, radio and print. It is a vicious scheme of a marketing man who has run out of creative ideas and has resorted only to price points to sell a product… at the expense of the retailer and also the salespeople who have to explain to the trade why the prices and margins are such. Remember the P’s?

REGARDLESS OF INTENTIONS, ARE SUPPLIERS TRULY QUALIFIED TO SUGGEST?

In both cases, the manufacturer/trader/supplier presumes that he knows the retailer’s cost of doing business and uses this presumption to determine not only suggested retail prices but more importantly the retailer’s margin of profit. The means that the manufacturer knows how much the retailer pays for rent, his salaries and wages / benefits expense, his power expense, his cost of shopping bags, his security expense, his shrinkage, how much he pays for insurance, how much taxes he pays, etc. Assuming that the manufacturer has become an expert in guesstimating the retailer’s cost of doing business which I seriously doubt, does such genius vest in him the prerogative of determining how much should be left at the retailer’s bottom line? One recalls a remark by Sir John Harvey Jones and I quote “It horrifies me that ethics is an optional extra in Harvard Business School”.

MAKING SENSE

No two stores are alike, even if they belong to the same group of chain of stores. The difference becomes more pronounced when one deals with independents and single branch stores. Needless to say, stores, just like other businesses, are managed differently and the cost of doing business varies depending not only on the volums they generate, their size but also on their philosophies and practices. Some have profit margin targets, product and price mix formulas. Some pay better. Some pay peanuts. Some have become penal colonies (penalties?) stock exchanges (listing fees?), creative accountants, TPL’s for manpower etc all in the name of retail e/re -volution.

When companies advertise products with price tags, they are not suggesting prices. They are saying “ don’t pay more “. Consider the sales pitch sample hereunder aired on TV and radio as well as in print and in price violators on product labels and discern if the proponents were merely being suggestive. This I leave to your imagination.

XXXXX ‘The little mermaid’ SAKTO PACK P6.00

XXXX ‘Sea movement’ detergent with the power of protect SAKTO LIMANG PISO LANG

XXXXXXX ‘Running after breath plus ene’ CONDITIONER in sachet P5.00

XXX XX XXXX ‘Oil from Spanish cheer pronounced the American way’ only P79.00

XXXX ‘Peace BIRD’ Beauty Soap now only P40.00

XXXXXX ‘Sounds like another word for past’ mosquito mat only P2.00

IF IT IS NOT GOOD ENOUGH FOR YOU, IT IS NOT GOOD ENOUGH FOR ME.

retail pricing as the word “ retail “ explicitly and clearly connotes belongs to the domain of the retailer. In the same token, wholesale pricing belongs to the manufacturer/ supplier. Shouldn’t this be the case? Since the manufacturer has encroached on the retailer’s domain, the retailer also has the right to exercise the prerogative of suggesting what his acquisition cost should be or at what wholesale price the supplier should pass-on the product. Some people say what is good for the goose is also good for the gander?

It is popular notion, true or not, that the cost of goods of a manufacturer is 30-50\% of the wholesale price before marketing and selling cost. Will it be fair therefore if all retailers were to demand a 30\% discount from list price or wholesale price thereby allowing the manufacturer/supplier 20 to 30 percent profit margins which are more than double the margins they allow retailers. The manufacturer can make a profit on the volume that they sell, as they always tell the retailers. Turning the tables? No wonder there are stores where the suppliers’ cost of doing business is 30\% or more and still going up because they are asking for more.

RETAILER’S OPTIONS

Since the malady appears to be immedicable, some of the options open to the retailer are the following:

1.       Stick to their margins, either by ignoring suggested retail prices or by compelling the supplier to lower his pass-on / wholesale cost so he can follow SRPs or even price lower than SRPs. Many big players somehow manage to do this. The small players can group themselves together and act as a solid group in demanding for lower acquisition costs. I mean “ solid”.

2.       Create house brands for their stores that will compete with the national and heavily advertised brands. Some big stores have done this, albeit, with mediocre results. It will have greater impact if a national association of stores will take the initiative, come up with the an association brand and manage the brand professionally. It is not easy to create and sell a houe brand. Unless economies of scale are present in the equation, house brands will not prosper.

3.       Or they can, as a group, refuse to carry the products whose suggested retail prices do not afford them enough room for strategic price mixing, profitability and creativity.

I end this commentary with the words of Fred Allen and I quote “ A conference is a gathering of important people who singly can do nothing but together can decide that nothing can be done “. If this conference is so, then let us drop our pencils, head for the beaches and just enjoy the sun, the sand and the sea. C’est la vie!!!

Disclaimer From Bee COLLMAN : The opinions expressed herein are exclusively those of the writer. They may or may not represent the feelings of the association nor are do they refer to all partners. Stone Stone in the Sky….. Read at your own risk or with pleasure.