RE-PRICING AND FOCUSING ON PROFIT
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Background and challenge
One of the best Chocolate Shops. Have been in business for more than 20 years. They make their own top quality chocolate, on site.
The shop is located at a wine country destination location that enjoys large influx of shoppers’ traffic during weekends and summer days.
All company’s sales are retail to end user, mostly at the store, some online.
Company was consistently on the verge of breaking even, constantly suffering from tight cash flow.
Analysis
We reviewed cash flow, expense structure, cost of goods, mixtures of items sold, sources of reviews and marketing initiatives. We have identified the following:
– POS system used could not provide detailed regarding items sold and clear analysis of gross margins.
– We learned that most items were sold at a price point of $10-$15. We also learn demand to product is significantly inelastic –
– Weekend shopper come from a far. Once they taste the chocolate, they would not “budge” for another $5.
– Internet shoppers are customer that know already the product and simply want this specific product.
– There were minimal marketing initiative taken place locally, and no marketing effort done online.
Solutions
We have taken immediately the following steps –
1. Price increase of 20%-50%, leading to immediate 30%+ improvement to gross profit and impacting bottom line even more.
2. Local Marketing –
1. Initiated referral programs with local restaurant, hotels and other businesses.
2. Added signage, set tasting station and increase overall presence level outside the store, over weekends, to attract shoppers to come in to the shop.
3. Online Marketing –
1. Developed online promotions to existing customers.
2. Made it mandatory for shop staff to collect email address from shoppers, to be contacted for additional promotions.
3. Contracted online marketing specialist to increase online sales.
4. Cash flow – We negotiated improved terms with key vendors and temporary increase of bank line of credit.
Results
We achieve overnight improvement to bottom line (and to gross profit) by simply realizing that we can charge much more.
We shifted the business attention to more aggressive local marketing and most importantly, to focus on increasing online business.