Understand Your Customers' needs and the Value You Offer
Your pricing potential is related to the value added for your customers, and their willingness and ability to pay. Products with more features and benefits can be priced higher. For example, a luxury brand is priced higher than an economy brand. To understand your customers target segment and their willingness to pay, first analyze the type of customer you're targeting. High-end customers need high-level benefits and will pay more for those benefits. So focus on the value and benefits you offer, and price your products and services accordingly. Customers need to perceive the benefits of what you're selling—the higher the perceived benefit (all other things being equal), the more you can charge.
Understand the relative value you add compared with that of your competitors by comparing your product to theirs. Understand that even if you've added more value, you may not be able to charge more for very long, because your competitors may copy your product/service. Also consider your competitors’ resources and potential response. If you're competing against giants, a frontal assault with lower prices may only cause failure. Consider entering via the side door and, say, focusing on high-income customers with higher prices or projecting your brand as having more value/benefit than your competitor.
To determine your strategy, focus on your key differentiating factor—your strategy should reinforce the unique value to keep your customers loyal and willing to pay more due to the unique benefits you offer.
When determining your strategy, seek a long-term advantage where you can defend your differentiation. If you can't, others may enter the market and erode your edge, prices and profitability.
•Value Pricing: Many entrepreneurs start with costs to determine pricing, but if customers value your product/service more than that of your competitors, they may pay more. Companies that add high value can have high gross margins. In order to charge higher prices, however, you have to know how to sell the value/benefit you're offering. To really achieve Value Pricing means that each inventory and service item is priced individually to reflect the perceived value your customers are willing to pay for the service or item. The Filopto standard individual inventory pricing screen is best used when defining unique value pricing for each product/service.
•Promotional pricing. The act of offering a lower price temporarily in order to enhance the effectiveness of product sales efforts to cost sensitive consumers. For example, many businesses will offer promotional pricing as a sales incentive when initially launching a particular product line to potential consumers. promotional pricing is also used in a Sale promotion event to attract new and existing customers in the store. The Filopto Promotional Pricing Manager provides several ways to implement a promotional price for an item or service, allowing the promotion to only apply to a select group of clients, items, or for a specific period of time.
•Price bundling is combining several products or services into a single comprehensive package for an all-inclusive reduced price. Despite the fact that the items are sold for discounted prices, it can increase profits because it promotes the purchase of more than one item. Filopto Inventory Package Option permits price bundling.
Supported Pricing Strategies
The Filopto Pricing Rule Manager supports the following pricing strategies:
Definition: The purchase price is the price you paid to acquire the item. If you are pricing a service, the purchase price can be the amount the service is costing you to provide. If you have an item that has no cost (provided free to you) if you wish to apply a pricing rule you must define a purchase price for it, before a pricing rule can be applied. For items contained in the Frames Data service, the wholesale price provided for the item will become the purchase price of the item.
1) Cost-plus Pricing: Simply calculating your Purchase costs and adding a mark-up. Set Retail Price by adding a fixed amount to your products purchase price $XX.XX
▪ Example: Purchase price is $50.00 the Markup is $75.00 the retail price for the item is calculated as $50.00 + $75.00 = $125.00
2) Gross Margin (GM) Method: Enter the required GM and the price manager will auto calculate the Markup and retail price of an item. GM = %
Example in 2019 the average Optical shop gross margin = 55.7%.
▪The markup would be calculated as 1-.557 =.443; 1/.443 = 2.257; 1-2.257 = 1.257 = markup = 125.7% )
▪$50.00 item purchase price would be calculated at $50.00 * (1+1.257)= $112.85 retail price.
Keystone Pricing Methods: Cost plus pricing involves adding a certain percentage to the cost in order to fix the price. This is a pricing strategy that retailers use as an easy rule of thumb. Traditionally, it’s when a retailer would simply double the purchase cost they paid for a product to determine the retail price. Now, there are a number of scenarios in which the price of a product using keystone pricing may be too low, too high, or just right for your business. The Filopto Keystone Pricing method allows users to select the percentage they wish to use versus using only the standard doubling option. This flexibility permits greater flexibility in defining the right strategy for your business.
If you have products that have a slow turnover, have substantial shipping and handling costs, and are unique or scarce, then you might be selling yourself short with the standard keystone pricing. That is why Filopto permits users to adjust both the Keystone margin and premium margin to reflect your unique market. In any of these cases, a retailer could likely use a higher markup formula to increase the retail price for these in-demand products.
3) Keystone Pricing method: Set Retail Price by adding a % markup to Purchase price: %
Examples:
•100% Standard Markup = Purchase price = $50.00 *(1+100) = $100
•80% Standard Markup = Purchase price $50.00* (1+0.80) = $90.00
4) Keystone Premium Pricing method: Set Retail Price (Premium also called keystone + method) by adding first a % markup to Purchase price then adding a second markup % on top of keystone method: Keystone method % + Premium %.
Examples:
•100% Standard Markup + 20% premium markup = Purchase price = $50.00 *( 1+100) = ($100* (1+.20))= $120
•80% Standard Markup + 20% premium markup = Purchase price $50.00* 1.80 = $90.00 *1.20= $108
5) Keystone Fixed Premium Pricing method Set Retail price (Premium also called keystone method + fixed premium) by adding a % first and then a fix amount $00.00
Examples:
•100% Standard Markup + $20 premium = Purchase price = $50.00 *200% = $100+$20 1.20= $120
•80% Standard Markup + $20 premium = Purchase price $50.00* 1.80 = $90.00 +$20= $110
MSRP is the price a manufacturer recommends retailers use when selling a product. Manufacturers first started using MSRPs to help standardize different prices of products across multiple locations and retailers. Retailers often use the MSRP with highly standardized products.
6) Manufacturers Suggested Retail price (MSRP): Set retail price to the user entered MSRP price
Loss Leader Pricing: We’ve all done this: We walk into a store lured by the promise of a discount on a hot-ticket product. But instead of walking away with only that product in hand, you ended up purchasing several others as well. If so, you’ve gotten a taste of the loss leader pricing strategy. With this strategy, retailers attract customers with a desirable discounted product and then encourage shoppers to buy additional items.
7) Fixed Loss-Leader Pricing: Starts with the purchase price – Fixed discount: Fixed amount $00.00
Examples:
•Purchase Price $50 - $5 = $45
•Purchase Price $50 - $10 = $40
•Purchase Price $50 - $60 = not valid (Purchase price cannot be set to $0.00)
8) Percentage Loss-Leader Pricing: Starts with the purchase price – % discount: % discount
Examples:
•Purchase Price $50 – 10% = $45
•Purchase Price $50 – 110% = not valid (cannot be equal or greater than 100%)
Inflation Pricing: is typically used once a Retail Price has been determined to be working and the retailer receives notice of a price hike. A retailer can adjust his retail price by increasing it to cover the price hike received.
9) Inflation Pricing % : Increase existing Retail Price By X % (Retail Price must be active)
Examples:
•Retail Price $50 + 10% = $55
•Retail Price $50 + 3% = $51.50
10) Fixed Inflation Pricing: - Increase existing Retail Price By X $ (Retail Price must be active)
Examples:
•Retail Price $50 + 10$ = $60
•Retail Price $50 + 40$ = $90
Identify the items and pricing method to be used by the Pricing Rule
1) Select the Pricing Rules  button and then the Add a New Pricing Rule  button to create a new rule. If you wish to edit a rule select the rule edit button  located in the grid. |
IMPORTANT:
1.Before saving your rules click out or tab out of the last field you modified to make certain that your last change has been recorded. It is possible that the last field you modify is not recorded if you do not tell Windows that you have completed entering data in this field. The best way is to either click on a previous field or tab out of the field which tells Windows to record the entry. The Save button will be grayed out until Filopto is able to save the entered data. However, the Save button does not know that you have made a change and have not saved it.
2.If a mandatory field is missing or an obvious error is detected by Filopto, the field causing the error will be highlighted in RED for easy correction. The Save button will be hidden or grayed out until Filopto is able to save the corrected data.
3.The Sequence Order in which the rules are applied is dependent on the sequence order you specified in the Pricing Rule Priority Sequence screen. Once an item retail price has been modified by a rule any subsequent rule that would also modify the Retail Price of the item will be ignored. Therefore it is best to order the more item specific rules first and the more general rule afterward. Also all specified criteria must match an item for a rule to be applied. If one of your criteria does not match or has previously been used by another rule (i.e. you specified the same specific vendor / manufacturer / etc in another rule) it will be ignored.
4.The pricing rule retail price update on your inventory cannot be undone. You can however create a new rule that can fix possible issues or manually fix issues your rule may have created.
5.Depending on the amount of inventory items in your inventory database the process of updating the retail price of every item can take a significant amount of time. Updating 1000 items will be faster than updating 1 million inventory items. The speed of the retail price update process is directly dependent on the number of rules that must be evaluated, the speed of your CPU and the speed of your Hard Drive (I/O). . |
2) Using the Pricing Rule screen a user can define the price of a single item or a group of items.
Section 1 contains the basic rules definition such as;
•A Descriptive Name for the pricing rule. The easier it is to know what the rule does the easier it will be for you to manage the rule process.
•The Status of the rule. A rule must have an Active status to be used by Filopto. A Non-Active Status turns off the rule.
•The dates for the rule to be effective. The rule will only be executed during the time frame specified in these fields by the user. If a rule does not have any dates or fall outside the run date, it will be ignored.
IMPORTANT
By default, the Start Date (1) will be automatically set to tomorrow and not the date it was created unless you manually change the Start Date.
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Section 2 contains the rule criteria. Here a user can define under what condition a rule will be applied.
•a user can define one or more criteria that must exist for a rule to be applied. Place a check mark beside each option you wish to define. The user can select
▪All Items, meaning the rule will apply on all Inventory items (BE CERTAIN YOU UNDERSTAND THE EFFECT, since it will apply to everything in the inventory (service, frames , etc))
▪Inventory Type which allows a user to select only a specific type of inventory item for which the rule will apply. In the above example we selected Frames.
▪Inventory Stock Category. If a user has defined custom stock categories they can select a defined stock category to which the rule will apply.
▪Inventory Stock Group. If a user has defined custom stock group they can select a defined stock group to which the rule will apply
▪Manufacturer permits the price rule to be only applied to items linked to a specific manufacturer
▪Vendor permits the price rule to only be applied to items linked to a specific vendor.
•a user can also define all or one or more offices for which a rule is to be applied. The user can select from the drop downs all offices or a specific office or a group of offices. If a user adds an incorrect office, the office can be removed using the Remove button. A Retail Price record will be created for each specified office only. If an office is not specified, no price will be calculated for that office.
•a User can define the Purchase Price range to be used for applying the Rule.
Section 3 defines which of the 10 pricing method is to be used to calculate the Retail Price for the item(s) matching the criteria defined above.
The various pricing methods are described above as well as on the rule screen. A user must enter the required information for the selected pricing method to be calculated.
Section 4 defines if a pricing Charm rule is to be applied to the retail price. A user can select from one of the 4 predefined or from additional custom Charm rules the user has defined.
Select the Save Change button to save your Rule,
Set the Pricing Rule Execution Order / Sequence
IMPORTANT
This step defines the order by which your rules will be applied. The incorrect Priority Sequence Order can have serious impact on your Inventory pricing, since rules may or may not be applied depending on their Priority Sequence.
Rules should be ordered in a pyramid type arrangement. If an item retail price is first modified by a rule, any subsequent rule that would also modify the retail price for the same item, will be ignored. .
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The Rule Priority Sequence screen allows user to define which rule will be first applied first. Pricing Rules are applied in the sequence/order defined by the user. It is best to sequence your rules using the most specific rules, those having the most criteria that define which item will be affected, first and the more general rules later in your sequence.
For example;
1) You create two rules
Rule #1 a rule that specify that the retail price for only Frames from a specific Manufacturer and vendor is to be affected
and
Rule #2 a second rule that changes the prices for all Frames.
The correct sequence would be rule #1 first and rule #2 second. If you sequence the second rule #2 first, the more general rule, that applies to all frames, will change the retail price for all frames first, meaning that the rule #1 which is more specific will be ignored since the first, more general rule will have already modified the retail price for all the frames.
The same is true if for example, you have a rule that:
Rule # 1) modify the price based on the vendor X
Rule # 2) modify the price for a manufacturer Y and vendor X.
In this case, rule #1 which is the first in the sequence will change the price for the items for vendor X. Rule #2 which changes the price for manufacturer Y and vendor X will be ignored since the first rule in the sequence will have already been applied a price for items of vendor X.
To sequence the rules in the order you wish them to be executed use the up or down button beside each rule to set the sequence execution order. The execution sequence will start with Priority Sequence Number 1 and then go to the next rule, Priority Sequence 2 and so on, until all rules based on their sequence number assigned have been run.
The sequence grid will only display active rules that are applicable for today and have and effective and end date that encompasses today. Rules that have a date range outside of Today will be ignored.
▪To automatically update the retail price for new items inserted by FramesData (requires connector for the FramesData DVD service)
If you are using the FramesData Online Frames service, Filopto can automatically create the retail price for an imported item from the FramesData online service. You must first create the rule to be applied for the item to be imported and once imported Filopto will auto calculate the retail price based on the FramesData listed wholesale price. (The Frames Data wholesale price becomes the item purchase price upon import).
