Putting a Price Tag on Success
A tiered pricing strategy can go a long way in helping pet specialty retailers attract a broad customer base across economic and demographic spectrums.
In the independent pet specialty retail channel, price is often spoken of as almost a non-issue. Seemingly insulated by a product selection that typically has little to no overlap with big-box retailers, which wield low pricing as their main competitive weapon, many pet store owners and operators do not appear overly concerned with developing a structured pricing strategy. Instead, they count on the fact that their customers are willing to pay a premium for the best-in-class products that can only be found on their shelves.
But in today’s still-turbulent economic climate, can independent pet stores afford not to pay attention to pricing? Probably not—particularly if they are looking to expand their customer base beyond those pet owners who can afford to provide only the best for their four-legged companions in a post-recession environment.
“We had a really fun time in the late 90s and early 2000s, but then the economy started showing some serious defects,” says Eric Abbey, president of Loving Pets Products, based in Cranbury, N.J. “Since then, discretionary income definitely hasn’t been where it was. The price of basic commodities is up, and salaries aren’t—in many cases, they’re down. That does affect the way you have to think about products.”
Given the confluence of price-sensitivity among shoppers and increased competition from other retail channels, Abbey says that a specialty retailer’s pricing strategy should be aimed at keeping as many pet owners shopping in the pet store as possible. “You definitely want to show unique, more-expensive items that people can’t get anywhere else, but if that becomes your entire focus, what percentage of the population is that really appealing to?” he says.
In fact, even those consumers who find themselves with more discretionary dollars than they had several years ago cannot be counted on to spend freely on their pets. As many economists have noted, the recent recession dramatically altered the spending habits of most shoppers, including those who are relatively well off. It is a trend that Fritz Goodnow, chief operating officer and partner at Wood Dale, Ill.-based Rush Direct, Inc. Pet Products, has witnessed firsthand.
“Look, my grandparents never got over the Great Depression and always shopped that way, and the same thing applies for the Great Recession,” he says. “People are careful with their money, and they’re looking for a value in whatever they’re spending.
“Your customers may be doing a little better than they were a couple of years ago, but they’re still covering a whole spectrum of demands. Maybe at this point, they can afford to buy a treat that they couldn’t buy before, but that isn’t a reason to try selling them a $35 antler [chew]. You still need to have that opening-price-point item.”
Expanding on this premise, many industry experts suggest that pet stores take a three-tiered approach to developing their product selection and pricing strategy. “I think a good-better-best pricing structure is key to attracting a wide base of customers,” says Gretchen George, president of Burlington, Mass.-based PetRageous Designs LTD.
This is a strategy that Herb Kepke, owner of Pet Friends, a single-unit pet specialty store in Commack, N.Y., takes with his business, noting that it helps attract a broad range of pet owners. “My business has to appeal to everybody, so I want to carry the high-end, the low-end and the middle ground,” he says.
While taking a multi-tiered approach to pricing is important throughout the pet store, industry experts point to a few areas in which such a strategy is particularly important. Categories that rely heavily on impulse sales are at the top of that list. “Anything that people are going to buy [on impulse] needs to be a purchase that they don’t have to go home and consult their spouse about,” says Goodnow. “You’re looking for something that is less than $10; and about 80 percent of that [impulse] business is going to be done at less than $5.”
Toys are a perfect example. Leslie Yellin, executive vice president at Multipet International in Moonachie, N.J., says that a successful selection of pet toys, which are often bought spur of the moment while pet owners are shopping for other necessities, should include a variety of items at different price points. “Not everyone wants to spend a lot on toys,” she says, noting that they should not have to. “You can find great-quality toys for as little as $2. There are a lot of stores that actually have a dollar section of toys, and some break it into segments [by price], such $1, $5 and $9.99.”
Beyond appealing to budget-conscious shoppers, low-priced toys can also be good moneymakers in a pet store, as they often carry the same percentage of margin as higher-priced options and generally have a higher volume of unit sales. “The opening-price-point toys can make as much or more per square foot than a larger toy,” Yellin says. “And because pet specialty stores have the advantage of being able to offer more toys than non-pet-specialty retailers, they can also sell the larger, more expensive items, with the understanding that the store’s knowledgeable salespeople can help guide shoppers to the toys that would be best for their pets.”
As an example of how such a multi-tiered pricing strategy might work in a pet store’s toy aisle, Yellin points to Multipet’s expansion of its popular Loofa Dog line. “All of the retailers we work with carry the [basic] Loofa Dog,” she says. “But to capitalize on the Loofa Dog and grow their margins, we offer the Jumbo Loofa Dog toy and Loofa Launchers. And on the other end, we offer small, six-inch Loofa Dogs. All of these items are doing gangbusters because they capitalize on shoppers’ recognition of the Loofa Dog brand and offer retailers an opportunity to make an add-on sale.”
When it comes to pricing in the toy aisle, Chris Wilson, executive vice president of marketing for Arlington, Texas-based Petmate, says that retailers will find that pet owners are particularly price sensitive when it comes to feline fare. “Our research has shown that cat toys, in particular, are relatively low-priced and extremely impulse,” he says. “There is a completely different pricing structure to cat toys than what you will see with dog toys.”
George agrees that toys represent a product segment in which tiered pricing can be important and suggests that pet stores extend this same approach into other categories. “The same goes for pet feeding,” she says. “Some customers prefer a plain plastic bowl at an opening price point, while others would want a high-fashioned, hand-painted stoneware bowl that coordinates with their kitchen or laundry room—which would be the ‘better’—or a raised feeder out of metal with stoneware bowls, which would be the ‘best.’ Why let any of these customers walk [away]?”
According to George, PetRageous Designs’ good-better-best offerings in the feeding category starts with plastic items on the first tier, then melamine and stoneware bowls, and finally raised feeders on the top tier.
Treats and chews represent another category in which pet stores will want to offer customers an array of price points to choose from. Luckily, retailers will find a number of companies that are making it easier than ever for retailers to develop and refresh such an offering.
According to Abbey, a multi-tiered product assortment from Loving Pets would start at the opening price point with Puffsters, a new product that the company is developing to create a “snack-food” segment within the broader treat category. “They’re healthy and all natural, but they’re not very high in protein, so they are a lower-priced alternative,” he explains.
On the “better” tier, Loving Pets offers Natural Value treats. Available in duck and chicken flavors, these treats are made in the U.S. and free of soy, wheat, grain and gluten—features that signify added value to discerning pet owners. Finally, on the “best” tier, the company offers the It’s Purely Natural lineup of all-natural treats that are made in the U.S. from domestically-farmed ingredients.
Goodnow says that Rush Direct also has a lot of experience with helping pet stores build a good-better-best assortment in the treats and chews category and offers up what a sample set might look like. “To start, we’re going to look at having that good product that people can just grab off the shelf [on an impulse] and have great success with,” he says. “On the next level, we’re going to have that step-up product for customers who have [shopped the category before], are looking for a quality product and want to make sure they have the right item for their pet at the right time. Then for the best item, we will have the product that has the whole sourcing background and a compelling reason why it’s important. Retailers should have all of those elements to make sure that all three bases are covered.”
Even though pet beds do not typically fit the mold of an impulse purchase, Wilson says that this is yet another area in which multi-tiered pricing can play an important role. “The overwhelming majority of sales in the bedding are in the basic items [that retail for around $20],” he explains. “But bedding prices go all the way to upwards of $100 for that customer who wants something particular for their pet, or if size or durability are a factor.”
Nourishing the Bottom Line
Whenever a retailer’s pricing structure delves below the better and best tiers, the margins that the store can make on lower-priced items will inevitably be a concern. Of course, as Yellin points out, lower prices are often balanced out by higher sales volume, but even when this is not the case, many industry experts suggest that making the highest possible margin on every item should not necessarily be a pet retailer’s first concern—particularly when it comes to commodity-type products.
Using the food category, as an example, Wilson notes that independent pet stores often find themselves competing directly against low-priced, big-box retailers, which can ultimately depress margins. However, he says that using food to get people into the store will open up the opportunity to make higher-margin impulse sales that will help to balance out a retailer’s bottom line.
“You have to take a broad view of the whole store, when it comes to the impact of pricing on a retailer’s margins,” says Wilson. “As in any other retail environment, using things like loss-leaders to draw people in is a proven strategy.”
For those retailers that refuse to acknowledge their competitors’ pricing of overlapping products, the results can potentially be disastrous. “When you’re talking about basic commodities that are widely available in the marketplace, customers are very astute on what something should cost,” says Kevin Fick, president and CEO of San Rafael, Calif.-based Worldwise. “When you’re 20 percent higher than everyone else, their immediate assumption will be that the entire store is about 20 percent overpriced.”
Some industry experts contend that such comparisons are inevitable if independent pet stores want to operate on the lower end of the food-pricing spectrum. “The ‘good’ [tier] doesn’t really exist in pet specialty anymore, because that has all gone to private-label in the chains,” says Fick. This suggests that small, independent retailers without sufficient sales volume to offer their own private label will likely have to turn to brands that can also be found in mass and grocery stores.
This approach of utilizing mainstream brands to compete at the opening-price-point level in the food category appears to be paying off for pet stores, says Maria Lange, senior product manager for GfK, a New York-based market-research firm that specializes in the pet specialty channel. “We’re still seeing those brands continuing to grow in pet stores,” she says, noting that pet specialty retailers that offer food brands also found in the aisles of grocery and mass retailers have an opportunity to convert shoppers to some of the more premium diets on the market.
The other alternative—simply refusing to carry lower-priced products that can be found in the aisles of other retailers—can be similarly damaging to independent pet stores that decide to go this route. “If a retailer chooses not to carry lower-priced items because they don’t want their customers trading down, that might seem like it makes sense in theory,” adds Wilson. “However, the reality is that the customer has access to what is virtually an infinite marketplace—whether it’s online or one of the many other choices they have. So, if you’re not carrying that lower-priced item, they’re going to buy it from somebody else—and all you’ve done is lose the sale.”
According to Lange, this is an important point not only in food, but also in the cat litter category. She says that the data GfK collects from pet specialty retailers indicates that natural litters—which are typically 60 percent more expensive than traditional cat litter—only account for 45 percent of the category’s sales in these stores. With that said, pet stores that eschew traditional, clay-based litters are probably failing to meet the needs of a majority of their cat-owning customers. In addition, since natural products only account for 25 percent of litter sales in big-box stores—according to GfK—focusing on higher-priced alternative items in the category would provide little help to independent retailers that are looking to steal business away from Petco and PetSmart.
This is a point that is reflected in the way that Kepke runs his pet store, which carries cross-channel food brands like Purina and Friskies next to independent pet specialty staples like Weruva and Wellness. While he acknowledges that it is not always an easy road to travel, and his store usually cannot achieve the same pricing structure as the Walmart around the corner, Kepke says taking this approach is essential in today’s competitive markeplace. “We have a tremendous amount of competition out there these days,” he says. “And I’m not going to concede any business to them.”