Rethinking your retail markup strategy
Small business owners often feel pressured to be the cheapest in the market. I know I do. There is a common belief that lower prices are the only way to attract and keep customers. However, competing on price is rarely a sustainable strategy for independent retailers. Instead of following the crowd, it is time to evaluate how your pricing reflects the actual value you provide to your community.
I know of many local small business retailers who price compare to big competitors who advertise plenty claiming they are the cheapest, and adjust prices to be competitive.
Value beyond the price tag
People shop with local businesses often for reasons that have nothing to do with the lowest price. Convenience is a significant driver. If your shop offers easy parking, longer trading hours, or a central location, you are providing a service that saves your customers time.
Consider the pricing at a cinema or a convenience store. Consumers understand they will pay more in those environments because the items they need are available exactly when and where they want them. This is essentially a convenience tax. Independent retailers should feel confident in applying a similar logic to their own markup policies.
Challenging the recommended retail price
Suppliers often provide a suggested or recommended retail price (RRP). This figure is based on a general national average and does not account for your specific overheads. If your business is in a regional area with higher freight costs or limited local competition, your pricing should reflect those realities.
Take the time to review your inventory category by category. If your supplier agreements allow for pricing flexibility, use it. You may find items where you can increase the margin by a few percent without affecting sales volume.
Navigating rising business costs
The current economic climate includes rising fuel surcharges, increasing rents, and higher labour costs. These expenses occur annually and can quickly erode your profit margins if your pricing remains static.
Many suppliers are already passing on their increased costs to you. Because customers hear about these economic pressures in the news, they are often more understanding of price adjustments. Adjusting your markup helps create a financial buffer. It ensures your business remains viable when external costs inevitably rise.
Avoiding the race to the bottom
Trying to match the prices of national chains is often a losing battle. Large retailers spend heavily on marketing their low prices while using internal tactics, like home brands, to recover their margins elsewhere.
Independent shops in sectors like fashion, gifts, homewares, or pet products have more room to move than those selling high-ticket white goods or basic groceries. Consumers generally expect to pay a bit more at an independent store. Meeting that expectation is not being cheeky; it is sound commercial practice.
Small steps for long-term health
You do not need to make drastic changes to see a benefit. A small increase in gross profit across several categories reduces your reliance on sheer sales volume or finding new customers. It allows for steady, incremental financial growth.
Review data from your POS software and your current markup settings. Don’t blindly follow what you have always done. By taking control of your pricing, you build a more resilient and professional retail business.
This works.
I have done this with plenty retailers who have subsequently increased prices. Unit sales did not fall. The businesses banked more money as a result.
Try it for yourself. There is no point in denying your business additional margin dollars.
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Mark Fletcher founded newsagency software company Tower Systems and is the CEO of newsXpress, a marketing group serving innovative local retailers who continuously evolve their businesses to be enjoyable, relevant and successful. You can reach him on mark@newsxpress.com.au or 0418 321 338.