Price First, Then We'll Talk About Everything Else

Tales from The Trenches: “Price First, Then We’ll Talk About Everything Else” – Consumer 2013

Oct 16, 2013 21 Comments

Recently I was walking a garden center, looking at selection, pricing, silent selling, etc. to get a feel for their market position when a price stopped me in my tracks. I had an earlier “uh oh” feeling on seeing a basic 2 gallon ‘Knock Out’ Rose at $29.99 … and then a smallish 1 gallon Juniper ‘Blue Rug’ at $14.99 gave me the “oh dear” reflex. This was NOT a one-off, more I’d say the continuing default setting of most Local Garden Centers (LGCs).

Exposed!

After 5 years of recession, with every national retailer in the country using prices to drive traffic; with mobile smartphones able to access comparison websites on all manner of goods and services, why do so many owners still not get the message about selective mark-ups and pricing? The 1990’s position of “we need to make 50+% on every item” is being painfully exposed by this grinding recession.

Why do buyers persist in thinking that their store is a “special case” to the consumer, who will continue to pay more (often a lot more) for a known product because they are local and offer superior service?

When are owners (this has to be driven down from the top) going to connect the 12 years of declining customer count in the LGC channel with the public’s perceived image of “beautiful, knowledgeable but EXPENSIVE”?

When the economic tide was coming in from 1995 to 2007 and all boats were rising, few noticed the steady decline in customer count. Most companies more than made up for it with a rise in consumer average spend, and some owners were actually relieved that price-driven shoppers stayed away.

That was then and this is now

Price-driven shopping has become the norm. People at all levels of affluence boast about going to Costco. Social networks buzz with deals and offers. We have consumers of all earnings levels looking for bargains and, critically, judging an entire company’s image on the prices of the relatively few “Known Value” (KV) lines – like a ‘Knock Out’ rose.

The known value (KV) effect has been around for years, yet LGC owners and teams still apply department or category-wide mark ups to achieve the high Gross Margin they think they must get on everything. That makes a few things (the KV lines) way over-priced to the shopper while leaving dollars on the table with other less known or unique lines. Selective, volume-based, seasonally sensitive mark-ups have been the norm for years in grocery stores; when did you ever see all apples the same price, or a year-round price on Coke?

LGC owners’ peers in the family-owned local hardware store business have long since figured out how to compete on price-perception with the big box home centers. Think about it: everything the hardware stores carry such as paint, electrical and plumbing – not just lawn and garden – is in a home center!

These hardware stores use competitively priced national brands to drive traffic, unlike many LGCs who shun them. Hardware stores might lower Gross Margin to 20% on a few carefully selected KV lines and get 60% on specialty, unique and local lines. Some hardware stores use 72 hour prices to further promote their competitiveness; others choose just one size of a certain product to get down and dirty with. Some use their marketing budget to “subsidize” the lost margin dollars on a deep price offer for a weekend special. And guess what? The hardware channel has (comparatively) had a very good recession – if there is such a thing!

Time for Action

So, as we hear about another large multi-generation LGC closing down, I think it is time for leaders in the LGC industry to wake up and smell the POS reports. Identify 20-40 Known Value SKUs (out of 5,000 to 45,000!) that create a price-perception to the consumer, reduce prices, budget for it and shout about it – loud! After 50 years of being seen as “pricey” this change in strategy might take several years to pay off, but now is the time to start showing your market that you are sensitive to their budget struggles.

My mantra is “get it where you can and give it back where you have to.”

I firmly believe that local garden centers have a great future as a resource for a consumer that is garden-success challenged. However, as the number of LGCs falls monthly, consumers are frightened away by a few KV prices before the company even gets a chance to show their relevance. So it’s time to copy our cousins in the hardware industry: get customers in the door with prices and retain them with service and success!

Americans are very generous to local causes and charities, but pretty unsupportive to the plight of a local retailer. Unless you can achieve cult status (like Apple), it’s time to embrace and promote a KV strategy – or register as a non-profit!

Photo Credit: a smart Known Value pricing strategy as seen at Petitti Garden Centers (OH)

john heaton
Oct 21, 2013 at 7:43 am
I agree with all you have said. I am not sure the KV items reach 20 but Knupper’s has some cheep Knock Out roses as we all should.
Ian Baldwin
Oct 21, 2013 at 8:06 am
John, thanks for taking the time to share your thoughts. It is a sad-but-true fact that a great, relatively new plant such as Knock Out is now a “football” item, but it is what it is, so owners and managers need to be constantly aware of their competitors’ pricing changes. Glad to hear you are staying ahead of the game!!
Tina Bemis
Oct 21, 2013 at 8:41 am
We have taken this approach with what we thought was great success. Another industry consultant advises against it, but I have been fighting it, kicking and screaming. Your advice makes the most sense to me. People are willing to pay extra for extra for they want, but I think you also need to throw them a bone to make them feel good about their choice. But do that special price in your terms, be it a three day sale, one SKU, like you said, or some other way that you can make work. Thanks, Ian.
1. Ian Baldwin
  Oct 21, 2013 at 10:43 am
  Tina, thanks for your validation, coming from the trenches, it means a lot.
  
  Go GCU!!!
Cameron Bonsey
Oct 21, 2013 at 8:57 am
We’ve had success in building a brand, Bumper Crop, that can only be found at a Master Nursery garden center. We don’t sell any of our Coast of Maine lines to the big box stores. Because of the unique, organically approved, high quality compost blends made from marine residuals we have great success in helping stores not only maintain margins but in increasing them through education and a local marketing approach.

The independents would benefit with more options like this.

Cameron Bonsey
Coast of Maine Organic Products, Inc
1. Ian Baldwin
  Oct 21, 2013 at 10:48 am
  Cameron,
  
  Thanks for taking the time to post your thoughts. Many of our Eastern clients carry yours and Master’s lines which fit perfectly into my “Two-Brand Strategy” for this channel; a national brand to drive traffic to the store and a local/independent brand to add value and differentiation – the customer gets to choose – that’s the magic combo!
Frank Fernicola
Oct 21, 2013 at 12:52 pm
Ian, We have always done this with certain items but since your visit in the spring we got more aggressive. We ran #3 KO on special for two weeks around Memorial Day with a price that looked great in our ads and when customers saw they plants they were pleased with quality. The plants were bought on special from a grower and when we had good sell through in week one we were able to get more at the same price. We also did this type or promo with #1 perennials. Having a biweekly special for sun/shade. Namely hosta and lavender that looked great and we offered a price that was as good as any box. These plants were merchandised in their own no frills tower display with prominent sale signage up front near the entrance and repeated again in their departments. There was no compromise on quality and we still made good margin on the price paid because we negotiated with the growers for a deal. This took more work than just faxing in an order but the results were positive. Also had success with Round up, Grub Killer, and Mircle Gro in hard goods. In a smaller capacity I think we will pick a few items in the Christmas category and do this as well. This is a strategy that LGCs should have in their arsenal to help drive traffic and like Tina we work on doing it on our own terms and getting it back where we can on other items. Thanks for the good article.
1. Ian Baldwin
  Oct 21, 2013 at 2:46 pm
  Frank, I know I joke about, “Trust me, I am a consultant” (!) but it’s great to hear that some of this stuff actually worked in those trenches. Thanks for sharing, as we say in GCU: “Sharing is Caring”
Ron Vanderhoff
Oct 21, 2013 at 10:28 pm
In my experience, it seems that in order to maintain sharp, competitive prices on high price-awareness items a garden center simultaneously needs to take advantage of dollars left on-the-table by under pricing certain other blind items.

I suggest there are a couple of ways that we miss gross-profit opportunities: For instance, quite often we are able to secure some interesting plants; plants that are quite attractive, with big impulse appeal, and also new/unique, not mass merchant items. In fact, IGC’s might be better at sniffing out these plants than the big boys. The other instance is when we are able to negotiate a one-time “special buy” on a popular plant/product. I think historically garden center would “keystone” the cool, interesting plants and then put the special buy plants on an in-store special. Both of these actions reduce our gross profit opportunities.

Seems like we’re often afraid to make a healthy profit on an item that we worked hard to get, maybe it’s guilt. But other, more sophisticated merchants aren’t afraid to price opportunistically. It’s common practice in the fashion and garment industry for some items to have extremely large markups, often four or five times cost, while others are at much thinner margins.

Seems like we need more items at BOTH ends of the margin spectrum.
1. Ian Baldwin
  Oct 22, 2013 at 9:35 am
  Ron,I totally agree. Many LGCs do miss mark-up opportunities, maybe as you say from a sense of guilt, maybe because it takes time/work to change the price on the POS or the cashiers aren’t trained etc etc. Not all LGC operators are like that though and they are thriving, with a range of Gross Margins from zero to 75%. In effect they “Get it where they can and give it back where they have to”.
  
  Thanks for sharing your wisdom, this is good stuff!
Rhonda Grinels
Oct 22, 2013 at 6:48 am
Ian, I understand this strategy and I came from a old school Big Box where we would take a loss of 10cents a bag on Top soil but it got customers to the store. On these KVs, say we make 20% on these, should we then raise the margin on unknown value products from 50 or 60 to 60 or 70? Or keep the margins as they are and hopefully the foot traffic and turns will be enough to make overheads?
1. Ian Baldwin
  Oct 22, 2013 at 9:42 am
  Rhonda, thanks for your validation. In answer to your question; get what you can, where you can. when you can. We are almost at a point where every SKU could beg the question: “What is this worth, here, today, to our market and potential customers?”.
  
  While this sounds like an extreme, time-consuming approach it is actually more of a mind-set to owners. buyers, managers. I know one successful LGC that purposely prices 2-3 SKU’s below the local Home Centers just to get a reaction from the public, just as you did with Top Soil. The balance is overwhelmingly on the side of mark ups, as long as we take a few mark-downs. But it is a balance that changes with the seasons and especially the competition, so step one in this strategy is to monitor the competition very very closely.
Steve Gallion
Oct 23, 2013 at 2:22 pm
Ian,
You are right on the money with your comments(please send the $5 you promised) :-). As you know, we have always been price friendly , especially in our ads, but we got real serious this fall with amazing results. Ran smokin’ specials on pumpkins and mums–really known value items– with great success. We generated more margin dollars, less gross margin %, and a side benefit of energizing the staff with increased customer count. This will be a major driver in our adds for black Friday, Christmas and the entire spring next year. 4 HOT specials that have mass appeal to give folks a reason to come to us. Then our work begins once they are in the door.
1. Ian Baldwin
  Oct 23, 2013 at 5:52 pm
  Steve, go GCU Class of 2004!!
  
  Look for that $5 check, it might be in a hidey hole somewhere 🙂
  
  Good to hear you are doing the traffic drivers, I just wish others would follow your lead, at least we now have a conversation started, thanks, a great Fall to the SKH team
Mark
Oct 23, 2013 at 9:03 pm
Thanks Ian for posting this. I just wished more IGC’s would follow you and listen to your advice. I am a relatively young salesman for a new organic company and it frustrates me as I try to convey this same message and many others to store owners and I often get that look of, “What do you know? This is how I’ve always done it!” I then retort that we have a big problem in this industry and that is the fact that our number one customers in this industry are leaving the category faster that we are replacing them and if we don’t start attracting the younger consumer we are all going to be out of a job in 10 years. Do you have any articles about effectively attracting a younger demographic into the IGC’s? I like to share with them the importance of an effect social media campaign and image, where in turn you reverse market back to the consumer. I’m not talking about the weekly email that everyone ends up deleting. I would love to hear your thoughts.
Ian Baldwin
Oct 24, 2013 at 11:14 am
Mark,

Thanks for your note. Please email me separately and we can discuss it,
Ian
Roger Bolger
Oct 30, 2013 at 12:54 pm
Ian:
You are certainly right that there is no excuse for lazy formulaic pricing, but there are additional factors to consider. First, green goods are not as easily price-shopped as hard goods because of the wide variation in quality. Customers price shopping KO roses are far more likely to get what they pay for, than when they price shop Roundup. Second, mobile access to the internet makes nearly every hard goods SKU a “known value” because they can all be easily price-shopped online. (Google any independent-only brand name with the word “shopping” an see what you get.) Third, one must make sure that customers purchasing loss leaders are also purchasing high margin products, and not just taking advantage of low- or no-margin items. A strategy that has worked well for us as grower-retailers is to offer premium quality plants with fairly priced hard goods as add-on items.
1. Ian Baldwin
  Oct 31, 2013 at 4:32 pm
  Roger, thanks for some well-reasoned feedback, which is of course is the reason for me doing blogs like this!
  
  I agree with some of what you say and I do think that hard goods are more obviously Known Value at present because they have been the focus (being a lot easier to handle) of big box and other retailers for a lot longer than green goods. There are also more national brands or product names in hard goods than green goods encouraging national price promotions. I think the day is coming when more plants will be used as traffic-driving items, as a few producers and genetics companies become big enough to supply and promote nationally. I just used KO Rose as an example of that.
  
  My main aim here is urge LGCs to earn at least one shot at a visit from the 85 million gardening households in this country. After that it is up the retailer as to whether the customer feels it worthwhile returning. But to miss that one-time engagement because of a few overpriced SKUs is just silly when the cost in lost margin dollars is probably a lot less than the value of plants dumped every year! It is really a marketing strategy with the Opportunity Cost of margin dollars coming out of the marketing budget, which many LGCs have slashed over the last few years anyway.
  
  The subject of “Premium Quality Plants” is a moot one nowadays; but that might be a future blog! Thanks again for taking the time to blog me!
Keith Farrand
Oct 31, 2013 at 4:22 pm
Ian, I agree 100% with the validity of recognizing and pricing ‘KV’s’ to be competitive in the local market. I must admit however, that I am concerned with ‘Price First: Then We’ll Talk……”. How close are we to all items in our stores fitting today’s definition of ‘KV’s’? We seem to be just a moment away from ‘real time’ price comparisons where every item becomes an instant ‘KV’. All prices can be instantly known and compared to 50 stores in your city or just the two on your block. Will our buyers, for example, search only for the cheapest Knock Outs and Ball Heirloom Tomato’s this weekend – by the way, which store has the cheapest 54″ tomato cages to go with them? Will a Purple Wave be searched by cheapest price within 2 miles? Isn’t it at this point that every item becomes a ‘KV’? Will we be able to continue to count on our customers ignorance (notice I did not say stupidity) of our pricing strategies. To me, the dynamics of our pricing plans are changing even as I write this.
Keith
1. Ian Baldwin
  Oct 31, 2013 at 5:09 pm
  Keith, Great to hear from you (Go GCU 2008!),
  
  My “Price first..” philosophy reflects a consumer reality in 2013, they are increasingly attracted to places that SEEM to be competitive. For me this is about getting them in the door to offset the 10 years of continuous traffic losses for LGCs. I feel good about the LGC future IF we can convert those people once in the door to loyalty based on the shopping experience and the consistent success of the product or service. Consumers show every day that they are price discriminatory, saving here to splurge there. I want them to save on wine at Costco so they can splurge at Farand Farms; but you have to get them in the door first and the old “Quality, Service and Selection” doesn’t work like it used to was, as my Mum would have joked.
  
  There has always been an assumption that the superior service, advice and product success that LGCs claim to offer (and that itself is debatable in some cases), will somehow overcome a reputation of being higher priced. I think the last few years have shown that consumers value the price factor to be much more important than many LGC owners and managers admit.
  
  Knowing your place, your customer service ethic and your theme of “Continuous Improvement”, I have no doubt that once a new, price-conscious shopper walks on to Farrand Farms, they will be wow’d and assured by all around them to forgo that nagging “Can I get it $2 cheaper 2 miles away” thought.
  
  You are right, this is a moving target and in the short term it means accepting some lost margin dollars; in the long term it might mean a different fiscal model with lower margins and a lower cost structure. But what worked for 30+ years is clearly not working for many LGCs and I simply want to raise that awareness. Thanks and keep the faith!
Donna
Feb 4, 2014 at 10:17 am
Ian, ran across your blog when doing some research. As an avid gardener you hit the nail on the head. As a weekend warrior gardener time is money. On one hand, I enjoy patronizing local garden centers to a. find plants and varieties that are different and unlike the mass stuff at the big box stores and b. get advice and recommendations from people who actually know what they are selling. However, my budget is not unlimited and end up spending half a day going to one box store for mulch and soil another for the great deal on a flat of annuals, then going to the local garden store to fill in as I am not paying an extra dollar a bag for mulch when I am buying 20 of them or an extra dollar for a 4 pack of moss rose. Would love to get it all at one stop without breaking the bank. Think the stores need to think beyond just the basics and provide the one stop shop for today’s harried consumer. I don’t mind paying a little more for knowledgeable staff and convenience but for staples I am a price conscious consumer and do know what the going rate is, and don’t want to feel like I am getting gouged for these items.