If You Were CEO if 99 Cents Only Stores?
As a new feature for our recently launched PPS blog, I invite you to participate and contribute your perspective, on some of today’s real world pricing issues.
Below is the first in this series of “What Would You Do If?
Eric Mitchell,
Founder and Chairman, the Professional Pricing Society.
Ninety-nine cents just doesn't go as far as it used to, and that's a problem for 99 Cents Only. Faced with rising inflation and soaring food prices, the large retailer ,founded in 1982 --- known for never selling anything for more than 99 cents — is re-evaluating its pricing strategy.
According to the LA Times (9/2/2008,) Chief Executive Eric Schiffer said "There's no question we're going to need to do something," said after the company reported its second consecutive quarterly loss. "When you are part of a family that comes up with a concept, sometimes you're the last to admit that it needs to be changed."
99 Cents Only, pioneered the single-price retail concept. It has expanded to 277 locations, mostly in California but also in Nevada, Arizona and Texas.
The deep-discount retailer sells groceries, household supplies, health and beauty products, and it remains one of the few true "dollar" stores.
Competitive Landscape
At discount chain Dollar General , current promotions include $8 backpacks and $2 for a box of Ziploc sandwich bags. Family Dollar Stores, a chain of more than 6,500 discount stores, currently is advertising Glad trash bags for $4.99 and Huggies diapers for $9.99. In fact, keeping prices at a buck or less was never part of the overall pricing scheme at Family Dollar, an large competitor based in NC.
99 Cents Only is able to offer such low prices because of a business model that is "not based on having every single variety of every product out there," said President Jeff Gold.
But lately, the company just can't get a wide-enough or attractive-enough selection of goods that it can turn around and sell for such a low price, Gold said. According to the Bureau of Labor Statistics' inflation calculator, 99 cents in 1982 has the same buying power as $2.26 in 2008.
By capping prices at 99 cents, the chain has had to play around with the quantity and size of its goods, which can confuse customers.
But "The number 99 is a magic number — deviating from that is something we absolutely are not taking lightly," said Gold, "I find significant discomfort emotionally about considering making the change."
OK Pricers ---What Would You Do ? -- If you suddenly were appointed as the CEO of 99 Cents Only.
3 comments:
Anyone who had the pleasure of visiting one of these stores would be appalled by the goods for sale. (I have a store about a mile from my house, so I have). The goods are so "cheap" that even at 99 Cents the value for money is terribly low.
I would rebrand the store the "4.99 Store". Still darn cheap but gives the company some leeway in building selection and quality to bring back shoppers to the store.
Eric -
So in a nutshell, the 0.99 store was trying to signal cheap (but hopefully good) products. But now 0.99 isn't getting you much.
Why not change the store name to the 0.99 to 4.99 store. Still conveys cheap prices but also signals that you'll get better quality items than other 0.99 stores. Just a thought. Congrats on the blog...love it!
Value is determined by your customers. Not one or two, but all your customers.
I'd inquire with my customers, face to face in many cases, about the what value you really bring to the marketplace.
If it is 99 cents, then your job becomes very difficult. If it's low cost for "decent" quality, determine what price your customers value and stick with that price for a while.
If you decide to rebrand to a new number, say 4.99, make certain that your 95% of your initial stock is priced below that number
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