easonably sound but the following question should always be answered before attempting any price reduction: 'What increase in traffic (volume of sales) is required to not only offset your margin reduction but to increase overall revenue?'

The following example is useful to demonstrate the folly of margin reduction.

You sell product X with a 50% margin (retail of $20) which is normal

In any given market I expect to see a variance in price for the identical product X.

The variance should not be significant even when a volume factor is introduced i.e. more traffic reduces the price to encourage even more traffic.

Aside: Wal Mart offers low prices but have higher margins than most of their competitors because they pay significantly less to purchase the identical product.

Margin

Margin is calculated as follows: Selling Price of Product subtract Cost of Product divided by the Selling Price.

Product X cost $10 and sells for $20 therefore the margin is 50%: $20-$10/$20.

Setting Margins

Merchants want and need to be competitive to survive and thrive: competition is a good thing. Unfortunately many merchants competite only on pricing; in the process destroy their own margins and damage the local market.

Merchants should be in the market to make money:as much as they can. Reducing your margin without a good reason is foolish with the exception of clearing out non-performing inventory (means you clear the item and not bring it back into inventory).

Margins should only be reduced to generate more revenue and profits for the merchant--typically because the volume of sales goes up significantly or because you want to drive your competitors out of the market.

The ambition to undercut your competitors is not as easy as it sounds and requires a large bankroll and patience--it is not for your typical merchant.

The logic about reducing price to increase traffic is reasonably sound but the following question should always be answered before attempting any price reduction: 'What increase in traffic (volume of sales) is required to not only offset your margin reduction but to increase overall revenue?'

The following example is useful to demonstrate the folly of margin reduction.

You sell product X with a 50% margin (retail of $20) which is normal f

duct.

Margin

Margin is calculated as follows: Selling Price of Product subtract Cost of Product divided by the Selling Price.

Product X cost $10 and sells for $20 therefore the margin is 50%: $20-$10/$20.

Setting Margins

Merchants want and need to be competitive to survive and thrive: competition is a good thing. Unfortunately many merchants competite only on pricing; in the process destroy their own margins and damage the local market.

Merchants should be in the market to make money:as much as they can. Reducing your margin without a good reason is foolish with the exception of clearing out non-performing inventory (means you clear the item and not bring it back into inventory).

Margins should only be reduced to generate more revenue and profits for the merchant--typically because the volume of sales goes up significantly or because you want to drive your competitors out of the market.

The ambition to undercut your competitors is not as easy as it sounds and requires a large bankroll and patience--it is not for your typical merchant.

The logic about reducing price to increase traffic is reasonably sound but the following question should always be answered before attempting any price reduction: 'What increase in traffic (volume of sales) is required to not only offset your margin reduction but to increase overall revenue?'

The following example is useful to demonstrate the folly of margin reduction.

You sell product X with a 50% margin (retail of $20) which is normal

merchants competite only on pricing; in the process destroy their own margins and damage the local market.

Merchants should be in the market to make money:as much as they can. Reducing your margin without a good reason is foolish with the exception of clearing out non-performing inventory (means you clear the item and not bring it back into inventory).

Margins should only be reduced to generate more revenue and profits for the merchant--typically because the volume of sales goes up significantly or because you want to drive your competitors out of the market.

The ambition to undercut your competitors is not as easy as it sounds and requires a large bankroll and patience--it is not for your typical merchant.

The logic about reducing price to increase traffic is reasonably sound but the following question should always be answered before attempting any price reduction: 'What increase in traffic (volume of sales) is required to not only offset your margin reduction but to increase overall revenue?'

The following example is useful to demonstrate the folly of margin reduction.

You sell product X with a 50% margin (retail of $20) which is normal

to generate more revenue and profits for the merchant--typically because the volume of sales goes up significantly or because you want to drive your competitors out of the market.

The ambition to undercut your competitors is not as easy as it sounds and requires a large bankroll and patience--it is not for your typical merchant.

The logic about reducing price to increase traffic is reasonably sound but the following question should always be answered before attempting any price reduction: 'What increase in traffic (volume of sales) is required to not only offset your margin reduction but to increase overall revenue?'

The following example is useful to demonstrate the folly of margin reduction.

You sell product X with a 50% margin (retail of $20) which is normal

easonably sound but the following question should always be answered before attempting any price reduction: 'What increase in traffic (volume of sales) is required to not only offset your margin reduction but to increase overall revenue?'

The following example is useful to demonstrate the folly of margin reduction.

You sell product X with a 50% margin (retail of $20) which is normal for your area. At that margin you sell ten units of X everyday bringing you $100 (daily net revenue). You want to increase your daily revenue by 20% for product X.

You decide to reduce your product X margin to 25% (retail of $15.00) to increase sales.

How many units of X will you have to sell to reach your 20% gain in daily net revenue($120).

You would have to sell 24 units of product X to increase your daily net revenue by 20%. That is a significant increase in your normal traffic (240%).

Calculation: 24 x $15.00 = $360 now subtract cost of the 24 units ($240) and you have the $120.

It is highly unlikely that your traffic will increase 240% just because of a price reduction:possible but not realistic. Now your customers think that $15.00 is the correct price and you may not be able to sell X at the original $20--potential for a daily net revenue decrease!

To get the same 20% increase in daily revenue while holding to your 50% margin, a simple customer reward program could be set up. While there is a cost to such a program it will be cheaper than losing $5.00 per sale of product x.

More effective price competition strategy.

The most effective thing a merchant can do is to find a better source for product X i.e. be like Wal Mart.

Price reduction, at the wholesale level, can happen because you purchase more units from your existing supplier and receive a purchase discount or when you find another supplier who sells the item for less.

Keep in mind the following. You do not have to decrease your