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now. The current retailing mod- el, which expects consumers to pay this premium, is starting to look broken.” Still, Mohammed thinks change is in the air. “It’s time for a new system in which manufacturers help compensate physical retailers for the value they bring to the sales propo- sition,” he says. “They can do that by offering brick and mortar retailers lower wholesale prices than their web counterparts. I call this discount the Physical Store Equalizer, or PSE. Retail- ers’ pitch to manufacturers to try to gain this discount should be
straightforward,” Mohammed says, noting they should say something along the lines of, “as a brick and mortar retailer, we add value and generate higher sales of your product. Our stores increase your brand awareness, provide a venue for people who want to touch and feel the prod- uct before they buy it, whether they buy it from us or online, and our sales staff helps educate your buyers. We bear costs for these services, so it’s impossible for us to match online prices of your product. To be fair to us, we require a wholesale price that is 10 percent less than what you are offering web retailers.” This strategy focuses on a key pricing principle that all B2B and
B2C companies need to prac- tice, Mohammed says; that is, to articulate and charge for the value that you provide. Faced with a Physical Store Equalizer, manufacturers will have to de- cide whether the value provided by a brick and mortar retailer merits the smaller margins, and the potential backlash from In- ternet retailers. Rafi Mohammed is a pricing strategy consultant and author of, “The 1% Windfall: How Successful Companies Use Price to Profi t and Grow.” His original article can be accessed at
http://tinyurl.com/2duvlyt. ■
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southerndistributorsllc@gmail.com 3535 Bingle Rd. Suite D, Houston, TX 77055 100 March 2011 INDEPENDENTRETAILER
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