Can you apply the Poundland principles to your business?
We can say what we like about Poundland, the 99p store and other similar businesses, and people do have massively different views, from the “not on my high street” supporters to those who welcome it with open arms in anticipation of bargains galore!
Whatever your opinion, it’s an incredibly clever and yet simple business model and for those techies out there, it’s based on an accounting principle called “target pricing”.
Target pricing is really simple in principle, work out what your customers are willing to pay for a product or service (or what price would really shake the market up and get customers to notice your business) and supply it at that rate – the challenge is;
- Being able to produce, source and supply it at that rate…..AND
- Still making a profit!
In terms of Poundland, they’ve very clearly set out their marker – everything for £1.00, that’s it!
But how did they manage to do it?*
Well, once the target price is set at £1.00, they may decide that, as an average, on every product that they sell, they want to make 20p – on that basis they need to buy that product in for no more than 80p – and that means getting to work with suppliers.
Great relationships with suppliers is absolutely imperative and in the case of Poundland it’s no doubt enabled their business to function.
For example it may be that we look at a box of cereal – in the major supermarkets the cost is £3.00 for 250g, how are Poundland going to sell this for £1 – simple; speak and negotiate with the suppliers and see how much of the 250g can we buy (for 80p) and sell (for £1) – in other words they’ve scaled down the sized of the products to fit the target price of £1 and that’s often why you see different sized products in Poundland as compared with the major high street supermarkets.
We’ve applied the principle of target pricing to Poundland, but the same principle can be applied to any business, in any sector – solicitors, surveyors, builders, graphic designers, they can all achieve a target price – the big question is what will the consumer receive for that target price?
They may have to;
- Do some of the work themselves
- Get a slightly lower quality product or service
- Wait slightly longer for the service
Most business owners have already experienced this many times before – a customer asking “how much cheaper will it be if I do XYZ myself”? Sound familiar?
There is no doubt about it, there is a large section of UK consumers and business owners that are driven by price, target pricing is one way to ensure that you hit the bullseye, if price is the area that you want to differentiate your business.
Until next time…..FD Analytical