Field of activity. Different industries and fields of activity are characterized by different sizes of trade margins.
Elasticity of consumer demand. This russian business email list indicator shows the curve of demand dependence on price growth or reduction. Elastic demand dictates the need to implement special programs that increase it. After all, the product must bring profit even if it participates in promotions and sales. If demand is not elastic, then special programs do not require any special attention.
Trade markup
Source: shutterstock.com
Availability of additional services. Most organizations offer additional services free of charge along with the main product. For example, free consultation, software installation, assembly or disassembly. Of course, you need to understand that free services are all rather conditional. They also affect the amount of the markup.
Target audience characteristics. The entrepreneur must have an idea of how much money the consumer is willing to pay for the product. This is influenced by factors such as regional characteristics, product type, product location, and competitive environment.
Competition. The size of the markup depends on how competitive the company is. For example, if the company operates in a highly competitive field, then the markup will be minimal. Otherwise, buyers will go to sellers who have more favorable offers.
It should be borne in mind that a small deviation from the average price level is possible when the company has greater competitiveness. The level of trade markup does not always have a rational explanation. There is a term "prestige consumption", in which buyers acquire their affiliation with the brand in addition to the product.
Case: VT-metall
Find out how we reduced the cost of attracting an application by 13 times for a metalworking company in Moscow
Find out how
Additional parameters affecting trade margin
Price level of competing stores
If your store sells goods that customers can buy in other stores, then that's good. With the right approach to pricing and an adequate markup, you will always be provided with your customer. It is important to optimize your costs so that they are less than the markups, thereby ensuring a stable profit.
Assortment
If you sell a narrow range of goods, there may be difficulties in forming a markup. Initially, it is assumed that a retail outlet selling one, maximum two types of goods, will have a small flow of customers who need it and come to you because of the democratic prices. If the store has a wide range of products, then you can set a high markup on some of them, and a low markup on the rest, thereby attracting a flow of visitors.
Uniqueness of the product
If an entrepreneur sells a unique product, then in theory he has the right to set the maximum markup, since the buyer will not go to another seller anyway. But in fact, it is necessary to keep in mind the cost of goods that can replace your product, and the solvency of people who might buy it, but cannot do so because of the high price.
For example, you start selling heating covers for upholstered furniture, which no one has sold before you. Theoretically, all pricing is in your hands, and you can set any price. But you should understand that an electric cover does not belong to the category of essential goods and is only needed by residents of multi-story buildings before and after the heating season, when it is cold in the apartments.
Therefore, some people will carefully consider such a purchase, and also compare what is better and more practical - an electric cover or an additional heater that can be placed anywhere, and not just on a sofa or armchair. It is necessary to set a reasonable markup in order not to scare off a potential client.
Location of the outlet
The size of the markup is also affected by whether the store is located in a busy place or not. The more customers there are in the store, the higher the turnover will be. From this we can conclude that there will be a profit even with a small markup. If the store is located away from the main flow of people, the entrepreneur will be forced to set a higher markup, since he will need to recoup all his costs.