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The Price is Right—Or is It?

Why it might be the right time to give your frame pricing strategy a facelift

By Erinn Morgan

Is your pricing strategy in line with the times? If you are still relying on a standard, across-the-board markup for all your frame products, it may be time to take a closer look at your pricing program to make sure it is reaping your business the most profits.

Traditionally, ECPs have marked up their frame products with a standard 2.5- or three-times wholesale markup formula. But many question the viability of such a standard practice in today's tumultuous and changing economy.

"You look back a decade or two ago and it was common in this industry to have a standard two- to three-times markup," says Gary Sheer, president of Alvernon Optical, a small optical chain with five locations in Tucson and one in the retirement community of Green Valley, Ariz. "It didn't matter what the product was; all frames got that markup."

Sheer says his company has taken a much harder look at its pricing strategy in the last five years. "We shop our competition and we look at the product and prices we have along with our niche," he says.

As a result, their pricing strategy has changed, Sheer notes. "We may choose to mark a coveted product up higher and take a wider margin to justify the higher level of interest and difficulty in obtaining the product."

While most ECPs today still use a "straight, across-the-board markup structure," says Rene Soltis, The Vision Council's senior director of meetings and education, many could benefit from a more customized approach.

"Now is the time, in a tough economy, when you really need to know if it works and why you are doing it," says Soltis. "What kind of margins do you need in order to stay in business? What is the return you need on your products? When you understand strategy, the pricing part becomes a simple art."

WHAT'S IT WORTH?

Because today's cash-strapped consumers are more scrutinizing in their purchases, proper pricing has become an issue that is more important than ever.

"We have seen through the recession that the new mindset of the consumer equates value and price," says Daniel Butler, vice president of merchandising and retail operations with the National Retail Federation (NRF), the world's largest retail trade association. "This value consciousness is going to continue and they are going to question their purchases, asking ‘Is this worth that to me?’"

How can ECPs deliver good value on all their frame products? One recommended strategy is to price each and every frame in a manner that provides value. This is just one of the strategies covered that can help you boost your margin.

"Today, you have to say, "Well, a 2.5- to three-times markup is what we've always done, but maybe that needs to change,'" says Stacia Decker, vice president of retail at Alvernon Optical.

CUSTOMIZED PRICING

A strategy that approaches markups on a case-by-case basis can be more labor intensive for ECPs, but the payoff is worth the extra manpower.

GETTING STARTED: To get started with this approach, Soltis recommends regularly assessing your sales data.

"We really try to evaluate products uniquely," says Decker. "It's more time consuming, but it does reap your business dividends in the end."

Look at your inventory, "the pricepoints you carry should be based on your strategy and the data gathered from your practice," Soltis says.

IMPLEMENTATION: With a customized approach—category pricing—define the frame categories that appeal to your customers and look for product that fits into those areas. Go through your products on a case-by-case basis, and set your categories. Finally, determine the markup per category based on supply and demand.

"Each category has a maximum wholesale cost for frames, but you could pay much less because you got a great deal or a twofer," Soltis says.

Although you may pay less wholesale for something, it doesn't mean you necessarily have to reflect that in your retail pricing—the product's quality and demand set prices.

"It can still fit into a designated category because it's the latest shape or has crystal detailing," Soltis adds. "You're not going to charge a lower, entry-level price for this less expensive product. Why would you? That's strategy pricing. It takes more time but it's worth it because you start looking at what you're buying a little bit differently."

Conversely, some products may have a relatively higher wholesale price but need to be marked up less to be competitively priced in your area.

"You may have to take a discount and mark it off as a loss leader to hold market share," says Decker. "It's important to maintain confidence with your customer. They can X you off their shopping list, which is detrimental, and it's really hard to earn that confidence back."

Lastly, some frame products that serve as a real "cash cow" for ECPs can be marked up even more. "The guy who has the old Chevrolet in mint condition is going to shine it up, put it out in front, and mark it way up," says Sheer. "You have to recognize your big sellers and mark those up appropriately."

The NRF's Butler confirms that this customized pricing strategy is widely used in other retail arenas. "Markups are generally determined on an item-by-item basis," he says. "It's based on supply and demand."

WINNING WITH A FORMULA

For some ECPs, however, using a more formulaic markup approach is all but a necessity. "We are a Top 5 VSP user, so we try to follow VSP's markup structure," says Sam Morgenstern, FNAO, FOAA, optical manager of The Optical Shoppe at The Princeton Eye Group, which has three offices in central New Jersey plus a surgery center and laser vision center. "I don't need my markup to be complicated. It's generally about 2.6-times list price."

Does this hinder this business' ability to make more money on those items in demand?

"The last time I paid list price for a frame was when we put glass in rimless," says Morgenstern. "I am typically paying less. It's not greedy—our pricing isn't low. It isn't high. It's fair."

In today's marketplace, the bottom line is that ECPs will benefit from having a pricing strategy that is well thought out and not randomly applied like the standard markups of the past.

With competition hitting from all sides, from the Internet to big box stores, and vying for the ever-shrinking optical retail dollar, now might just be the time to take a second look to see if your prices are right. FB