How to create a competitive & profitable pricing strategy.
A pricing strategy should be something that you review seasonally for your fashion brand and 100% every time you launch into a new market and/or channel. Because how you price your products will be a factor as to why they sell well or not.
You need to make sure your products are accurately priced based on their worth, their perceived value as well as your profit needs.
In this video, I will walk you through the steps you need to take to ensure you are not only profitable via your pricing strategy but also competitive therefore appealing to your customer base globally.
The steps I will walk you through are applicable for;
- Fashion brands looking to create a global pricing strategy for wholesale sales expansion, as well as …
- Fashion startups just starting out that are wondering how to effectively price their collection.
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Here’s that transcript …
Complete a competitive pricing comparison by market, by currency.
So let’s get stuck into it. Step one.
The first stage is to look at the competitiveness of your pricing. So we’re going to do a competitor analysis.
So if you’re a brand, you’re actually comparing your price point by category versus your competitors.
And if you’re not a brand (startup), you’re going to find the entry and exit price point by category to give you a framework, to give you a dyed line in which to work with them.
So let’s, let me show you now exactly how to do that.
So this is a pricing comparison table (min 2:30). So I encourage you to create one exactly the same.
If you have a brand, you’d enter your price point here. If you not, obviously don’t do that and just enter your competitor’s price points.
Find your competitors in the specific market you’re selling him. So if you were selling into the UK from Australia, you’d be looking at your competitors overseas. If you’re looking at pricing strategy for your own market, you again, you’d be looking for the competitors directly selling in the same market as you so discover who they are and their names in here.
And you’re going to be finding that price point. So how you do this. Hey, you can see departments. So that’s pretty much categories. So assuming you sell women’s wear, we’d be looking at what categories do you sell? Denim, skirts, jackets, networks, et cetera. You would list them here on this site. Then simply what you’re doing is you’re going on to either your own website.
You’re looking at the entry price point and the exit price point by category. So say if you sell t-shirts you sell them, the cheapest is $20. The most expensive is $50. That would be your entry and exit. You do the exact same for every single category for all of your competitors. So here, you’ll see in the table, you’ve got Ozzy dollar, you’ve got the GBP and you’ve got the Euro.
So pretty much dependent on what you’re trying to find out. So are you just doing a pricing strategy for Australia? Because that’s the only country that you’re selling in right now. Or is this a wholesale pricing strategy? Therefore, you’re looking at what you’re interested in the UK market. Therefore, you’re also looking up the Ozzy price as well as the GB price that you have, um, both comparisons.
So dependent on what market you’re selling into. This is where you would look at the currency in that market by category of your competitors. So pretty much once you have filled in this table, so of competitor one, two, three, four, five, however many what this first section, this is the most important. This will then start to make a comparison.
Great. So I’ve just quickly shown you how to do the basic first step, which is simply entering the price points of your competitors into a table. Next, the reason why we’re doing this is the most important factor.
Analyse your competitive pricing comparison.
So now you need to analyze what this data is actually telling you. So again, if you’re an existing brand, you need to look at the summary, the average table, and look at the average price point and see if you can increase or decrease your price points to be more competitive.
Or if you’re a new brand, therefore you’ve got no pricing right now. You’re literally looking at the data to see what the entry and exit price point is per category of your competitors, which will give you a guideline of which to price your product to ensure your competitiveness.
So now you’ve got the basic bit, let’s actually look at the data and what this means. So here we go back to the table. So pretty much as mentioned, you’ve filled this bed. What we’re now looking at is this section. This is the most important. So all this is doing is looking at the average price point of your brand, as well as your competitors or just your competitors.
So here we can see, for example, I’ve just written the word shirt. Let’s say we were comparing shirts. You can see that the entry is $45. The exit is 75. Therefore you now have a competitive framework to work between if you want to be competitive, you know, it has to be cheaper than 75. And if you want to be even more competitive, you could price yours just beneath 45 as an entry price point.
So this gives you a framework to work between. So now if you actually already have price points for your brand and say, you’re looking at. Um, global pricing strategy. You can now look at shit for example, and you can now see that your brand, your entry price point with actually 50, $50 versus your competitors average, which was 45.
Therefore, could you now consider pricing a little bit lower to ensure you are competitive? And the same question would go for the exit price point. And here we can see yours is 90, but actually, the average is 75. Therefore you’re more expensive than everybody else. Therefore, could you consider lowering your price point?
What would that mean to your profit?
So these pretty much are the questions you need to ask as well. And then you need to start to build this new framework of price points based on the average of your competitors.
What I encourage you to do now is to focus on the price points that you’re going to be selling in and start to write them into a table and always keep this at the back of your mind when you’re designing a product, when you’re selling a product, therefore, when you’ve priced the product.
Gain your operational costs, either quotes or actual costs.
Great. So that’s step two complete.
So now you have a comparison, you know, the entry and exit price point. You know, you are competitive by category in your fashion brand.
Step three is to gain your operational costs.
So it’s either going to be quotes if you’re a startup and you haven’t launched yet, or it’s going to be the actual cost.
If you’re a fashion brand, and this is now where we’re going to progress into checking if you’re profitable. So one tip I recommend I’ve got this great blog post, which is how to sell into new markets, which will give you pointers on the UK, Europe, us as well as Australia so that you can understand more around costs and going into new markets, but pretty much what you need right now are local the operational costs listed on the screen.
So the cost of goods is the actual cost of the garment itself. Duty in whatever country you’re going into, VAT taxes, whatever country you’re going into, the freight, the storage warehouse costs labelling cost packaging. This is every single cost involved in producing, shipping and delivering that product.
You now need to know these to actually find out if your pricing is going to be both competitive as well as profitable.
So let me show you this step.
So now we’ve moved into a different table. So this table is now going to look at your specific line by line collection, your products. So I’m obviously making these up for this, that the Carley shirt.
So this specific shirt, we would refer back to the pricing analysis that you’ve done so here, and we can see that your. Proposed competitive price points were 45 AUD and 85 AUD. That’s what you need to price your product app to be competitive versus your competitors. So here we can see the Carley shirt is at 80 AUD so it’s towards the top end.
It’s an expensive shirt.
What you now need to do is to enter your COGS and all of the costs into a spreadsheet, similar to this. So pretty much your retail price, the price that you want to sell out because you think you’re being competitive. You think a product’s worth that price and you need to know the actual cost of goods.
You need to then know the freight, the additional costs, and, anything else around the packaging? All of those costs that I listed on the other sheet, you now need to enter these here and you need to then column by column. It’s going to calculate what the landed margin is. So that’s this column here. So take your cost price at your freight.
Shipping costs duty, in this case, is not applicable additional costs, packaging, labels, et cetera, and then actually calculate the total cost of that. Individual style, that shirt, Carley shirt, this is the total cost. It’s going to cost you to make it, to ship it, to deliver it. And now what you’re looking at is how much margin, how much profit are you going to make?
If it costs you 40 AUD and you’re going to sell it at 80. So here we can see it’s pretty much 50%. That’s the margin you’re going to make. And I can tell you right now, but that’s not going to make you profit. Well, that much profit, if you’re just selling your product by your own direct consumer. The full there are no additional costs.
You are just purely selling DTC via your website. You’re not shipping anywhere else. There’s no wholesale deals, commission, etc you may be okay to accept a 50% margin.
That’s actually, okay.
It’s not the end of the world, but I would like to advise you that if you have ambitions to sell globally overseas, etc, that you want to be striving to achieve a 70% landed margin.
This is what the likes of New Look and Forever New, all of the big fashion brands that they would be striving to achieve the greater the margin.
Obviously, the greater the profit, but also if you’re achieving a base margin of 70% now in your current pricing strategy, whatever stage or at this gives you then the ease to move into wholesale a lot easier because you’ve got more margin to give away, so to speak.
So I’d encourage you right now. That line by line all the products that you’re looking at based on your competitor price points, what we just looked at, enter the price point that you think it’s worth, that it can sell that to be competitive. Enter these prices.
So this is either going to be an actual price, or it’s going to be a quote, an estimate and calculate your landed margin.
So, as I mentioned, overall, you’re striving for 70%. So that is pretty much the goal.
This is how you check if your price points are competitive. That is actually going to drive profit and a tip that every single individual item doesn’t have to achieve 70% overall if your collection achieved 70%.
So some could be 76%, some could be as little as 60%, but overall, if your overall collection margin is 70%, then that means you can afford to lose on a few because you’re going to overachieve on others.
So that’s the goal.
And to explain for those of you that are considering wholesale. The reason why I’m saying 70% is let’s say if you’re selling to Zalando, Zalando can ask for up to 75% off your RRP, their take-home wholesale price.
So in this scenario, if you deduct 70%, so you’ve sold it to Zalando for 80 AUD you’re only going to take home 24 AUD because they’re going to take home the 70% of that selling price.
Therefore, if your product costs you 40 AUD to make and you only then sold it to Zalando in wholesale for 24 AUD, you’ve made a loss of 60 AUD. So that’s why you can see in the example below when you achieve a landed margin of 70%. With the exact same calculation you take off the wholesale margin, you then would be just marginally profitable.
70% W/S that I’ve used as an example is pretty high and hopefully, you’d want to agree to a deal that’s less than that, but this is a scenario, I’m showing you, that you need to now calculate and play around with to make sure that you get your price points. Your retail price is correct.
Now, even if you’re not dealing with wholesale, you want to pretty much make sure that your. The landed margin is 70%, which will make you profit when your direct to consumer business, as much as in the future, profitable with wholesale.
Calculate your profitability looking at landed margin.
So pretty much we actually already completed step four, which is good.
But one thing I wanted to point out is within this calculation, we’re not stripping out wages. We’re pretty much looking at the cost of the goods as mentioned to produce it, to ship it, to deliver it. So that’s something that you’re not taking into account, but also it’s nothing that you shouldn’t necessarily be looking at when you’re looking at your profitability within the sales channel.
So hopefully, you know, you’ve got the confidence. I’m showing you the top bar structure I’ve taught over the cost. Everything that you need to do to calculate if you’re profitable, based on the competitive pricing that you have proposed.
The final piece of advice ...
So just one final piece of advice. I have seen this happen before I have seen some brands that have just simply made up that price points …
Trust me, it doesn’t work making up your pricing, like how are you going to know that it’s going to be competitive? How do you know it’s going to be profitable? It simply is not the right way to do it.
So I encourage you now that every season you rerun this exact same process that I’ve talked about as well as every new market you go into and every new sale channel that you launch on, getting the right pricing based on your competitors in that market is essential to ensure that your product sells and is actually attractive to customers.
And also need to check that you’re profitable.
So alongside would have talked about today we also have loads of new content that comes out every single week on our blog, fashion insights.
Topics we talk about that I think you’d find super interesting would be
how to succeed in fashion wholesale
how to reach out to platforms
how to know what platform is right for you
how to launch into new markets
And alongside that, we also talk about broader topics of how to increase Sales. So that could be what emails you should be sending to customers, etc.
So pretty much go check out fashion insights! There’s loads of content every single week.
So thanks so much for listening and if you have any questions, please feel free to drop me any comments below.
Have a good day.
Very informative. Yes as you said pricing changes according to demand and brands. The competitors will change it accordingly. The trick of running the comparison and calculating the margin every week is so good. I will try this one.
This is great to hear and I’m so glad it was helpful! Feel free to reach out if you need any further help.