Improve retail profits with these 5 little-used strategies
They are inexpensive, innovative and highly effective.
Many retailers in emerging economies or developing countries struggle to get good profit margins because customers have low purchasing power. Or because there are many competitors trying to attract the same customers.
I have spoken many times about the importance of targeting a specific kind of customer and the importance of distinguishing yourself from your competitors. These are the basics of doing business and of crucial importance if you want to improve retail profits.
Your Most Profitable Customers bring in the highest profits, are loyal and help you grow your business faster.
If you are starting to implement this approach but still find yourself struggling to increase your profits, here are five strategies that I don’t see many retail businesses using.
- Sometimes, this is because of lack of knowledge or skills. Some businesses may not know how to apply these strategies to increase profits. For this reason, I am including examples in this article to inspire you.
- Limited resources can also make it difficult to try these strategies. The strategies that I am sharing are not expensive to implement.
- Retailers may also be risk averse and hesitant to try new strategies without knowing if they will get good results. To them I will say this: the essence of entrepreneurship is risk. The important thing is to start small and experiment to find out what works best for you. If you don’t make a change, you cannot your situation to improve.
Adding the below strategies to your business strategies can be very effective to improve retail profits and achieve long-term success, even if you are a small retailer.
Use them to your advantage and start distancing yourself from your competitors!
1. Encourage customers to buy more
If you can convice customers to spend more money in your business, you improve your retail profits.
You can increase customer order value by upselling and cross-selling products, offering bundled products at a discounted price, and by providing excellent customer service.
Upselling and cross-selling are very good strategies to improve retail profits. You have already succeeded in convincing the customer to enter your store. The next step is to convince them to spend more money with you.
It can help you double the size of your business in one year.
Start by looking for products that are often used together. If you showcase these items together in your store, it reminds the customer that it also makes sense to buy the additional items.
You can also use discounts and advertising to achieve the same results.
Combine items that are often purchased together
Here is an example of how a retail store selling men’s clothes might group particular items together to encourage customers to buy more items.
Note that these items are also placed in such a way that they are highly visible to customers. This is an example of strategic product placement.
Show customers multiple ways to use your products
Here is an example from Nordstrom, an American company. When a customer clicks on a particular piece of clothing, the store shows the customer how that article of clothing could be used in multiple situations by combining it with other pieces of clothing. And of course, all of these items are available for purchase in Nordstrom’s online store and physical stores.
2. Avoid discounts and losses by making smart choices
If products remain in your business too long, it can be hard to sell them. They may become outdated, forcing you to give huge discounts to find ways to move the product.
Discounts can kill your products unless they are part of a well-designed marketing strategy.
So, what can you do to avoid them?
First of all, understand your inventory
Knowing what to sell and how to sell it starts with having a 100% understanding of what is currently in your store. Walk around your store and ask yourself these questions:
- How many products do you have on hand?
- Which products are your fast-movers?
- Which products are your slow-movers?
- What is the gross profit of each product or product category?
Determine your next steps
Having this information about your inventory will help you determine what action to take:
It shows you which products to keep and which ones to get rid of.
- Keep products that bring in good profits and analyse your marketing strategy. Are these products selling well? Why? How can you encourage customers to buy more?
- If you have products that bring in low or no profits, try to get rid of these products as quickly as possible. If necessary, by giving discounts to free up space in your store for products that do well. The idea is to improve retail profits by only keeping products that do well and accepting the loss made on products that are not doing well.
3. Maximise your product visibility
Once you have determined which products to keep, look at how you can maximise their visibility. Customers cannot buy what they cannot see. Customers will not buy if products are hard to access.
The idea is to maximise the number of people that see your products.
This strategy to improve retail profits is less noticeable than an advertisement, but it still brings the same results.
Try to achieve 100% visibility of all the products in your store. This may require you to change the layout of your business to ensure that your products are visible to all customers who enter your store.
Make sure to showcase your most profitable products in the best locations. In a store, the best locations are the shop window and areas in the store that customers naturally walk to.
If your business space is limited, the consequence may be that you don’t have enough space to display all your products. One approach is to rotate the displays in your store by keeping certain products in storage until the time comes for them to be put into rotation.
Another approach is to sell fewer products and choose those products that bring you good margins and sell fast. This is another reason why it is important to understand your profit margins and also know who your Most Profitable Customer is.
Here is an example of a clothing store showcasing their bestsellers in the shop window where people passing in the street can see the products. If the presentation is attractive, it will encourage potential customers to enter the store and view the products in person.
4. Elevate your brand to increase the perceived value of your products
We all use soap.
Yet, soap that is sold in a stall by the roadside is usually less expensive than soap that is sold in a supermarket. And soap that is sold in a supermarket is usually less expensive than soap that is sold in a boutique store.
Yes, the quality of these soaps will likely differ from each other. A lower quality soap cannot charge the same price as a higher quality soap.
That is true.
But if your quality is on point, branding and product placement also play important roles in determining your profit margins.
Your soap might be of very high quality, but if the packaging and branding are bad, I will perceive it to be less valuable than a lesser-quality soap that is well-packaged and nicely branded.
In other words, if you can increase the perceived value of your products, your can improve your retail profit margins.
Here are 3 examples of branding and packaging that retailers use to distinguish themselves from competitors while also increasing the perceived value of a piece of soap.
So, how can you elevate your brand and make customers perceive your products as high-value?
- First of all, your quality must be good. No doubt about it. You cannot elevate a poor-quality product to a high value perception.
- Secondly, focus on the lifestyle and emotional values that your product can offer. For example, can it help people feel better about themselves? Can your product help to elevate the lifestyle of your customers?
Again, is why it is so important to understand who your Most Profitable Customers are and to understand why customers buy, so that you can tap into their needs and desires.
You can also use this strategy in your online marketing on social media or on your website.
Bonus tip: make sure to use images that have a consistent style and align with what you are trying to achieve with your brand.
5. Collaborate with business partners
You can also improve your retail profit margins by collaborating with other businesses.
For example, by forming partnerships with businesses that complement your products or services. As business partners, you could then offer bundled products at a discounted price.
Here are some practical examples:
- A grocery retailer can partner with a local farm to source fresh produce. They can then bundle and brand these items to sell at a higher price and get higher profit margins.
- A furniture retailer can collaborate with an interior design firm to offer bundled services, such as a furniture purchase + a interior design consultation. To increase the attractiveness, part of the design consultation could be free, with addons that have a higher price.
Note: when considering business partnerships, make sure that you choose a good partner.
Here is an example of a store that uses multiple strategies to improve retail profits:
- First of all, the layout of the business means that all products are clearly visible.
- Some products are placed in a central position in the store to increase visibility of these particular products and focus customer attention on them.
- By showing clothes and shoes together, the business is encouraging customers to buy more because they are showing them how to combine products.
- The store has partnered with another business to sell complementary products, in this case, creams. The two businesses are good partners because they have the same target group of customers: women.
Conclusion
The above strategies are innovative and inexpensive. Yet, retailers in developing and emerging economies don’t often use them to improve retail profits.
Study these strategies and the practical applications that I have shown in the examples to determine which one(s) might work best for you. Then add them to your business and test them.
The best strategies will help you improve your profits and achieve long-term success.
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Hi, I’m Tonia Dabwe, founder & director of GuideMyGrowth.com. At Guide My Growth, I help small and medium businesses generate higher profits so that they can grow faster without having to depend on outside funding. This article was originally published on Guide My Growth.
