Dr. Albert D. Bates

Albert D. Bates is founder and president of Profit Planning Group, a distribution consulting firm headquartered in Boulder, Colo. He is also a consultant to the National Wood Flooring Association and a regular speaker at NWFA Conventions.

Management

How Blind-Item Pricing Can Improve Margins

• Blind items are products that are not at all price-sensitive, and represent the only real opportunity for margin enhancement in the assortment.• Too many companies are applying the matrix-pricing approach as a rote process, with all slow-selling items treated as equal. In fact, they are very different.• Most businesses tend to overestimate the extent to which their product assortment is totally price-sensitive. Pure commodity items, which have almost no opportunity for adequate gross margins, are only a modest portion of sales for most businesses.• The extent to which a business can use matrix pricing to alleviate growing price pressures really depends upon how many of the company’s products are completely price-driven, how many are less price-sensitive and how many are not at all price-sensitive.• If a business is too committed to pure price-driven items or is engaged in a severe price battle on those items, matrix pricing can never offset the reductions.• Look for items that exhibit three or more of these characteristics: Slow-selling items, unusual or exclusive items, items that are bought only when needed, lowprice items that are not promoted actively, non-seasonal items, unbranded items and repair parts.

December 31, 1999

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