The Hardware Man - True Market Price

Howdy Folks,

I always heard, if you wanted to know the true market price of an item, go to an auction and see what it sells for. While that is accurate in a micro supply and demand economy, there are many other factors that contribute to how an item should be priced. Also, for the record, I love the engagement on some of these topics, whether it is through our Facebook page or face to face in the store.

The basic laws of supply and demand are this: When supply is plentiful, the price of a product drops. When demand is high, the price rises. If prices rise, demand may drop. If demand falls, prices may fall to move product. Market equilibrium is when the price of a product and the demand of the product meet.

I have made some trips to our local Family Dollar that is closing. Their Going Out of Business Sale exposes these economic principles in real life. At this point, if you were to walk through the store, you will find items remaining that have low demand based on their price point, even with extreme discounts. Those familiar with the store have noticed empty spots where product with high demand were sold at a minimum discount.

Pricing for products is never a black and white rule. There are many other variables that go into what the final number should be. A primary variable is the cost of the good that is being sold. How much did the store pay for that product to resell? Margin (and profit) are necessary for a business to remain viable. Margin covers overhead, such as labor, facilities and utilities. Other variables include manufacturer minimum or maximum suggested retail price (MSRP), commodity vs necessary vs luxury items and competition.

We see these factors at play in our everyday lives. Fuel, for example, is a commodity with competition. Milwaukee Tools qualify as a luxury item to many, but subject to a Minimum Advertised Price (MAP) rule, allowing Clintonville Hardware to compete with the big box stores. Food is a necessity that may not have as much competition in an area, which allows prices to be a little higher. If prices are too high, customers go to the competition further away and the store loses product due to spoilage.

Items are often priced according to their sensitivity to the market. In the hardware store, we have items priced according to their demand. Sakrete and water heaters are low margin items that are price sensitive. We sell a lot of Sakrete at a low price. Customers will shop for an expensive water heater and buy cheapest, so we must be competitive if we want to move ours. Plumbing fittings have a higher margin as we must carry a large variety and quantities of items that may sit on the shelf until you visit to start that special product.

On the supply side, we carry about 5,500 products in inventory and have easy access to many more products from our vendors. We maintain enough supply to handle two weeks of anticipated demand on our fast movers while keeping low stock of slower movers. If we don’t have a high demand item in stock, we lose sale potential, even with quick order times. We can sell higher ticket luxury items at a competitive price if the customer wants to order them.

With school back in session, let me know if you are interested in the continuing education of life topics. And speaking of supply and demand, we have our End of Summer Sale now through the end of September.

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Daniel Karns and his wife own Clintonville Hardware & Rental along with other businesses. Join the discussion by contacting him at info@clintonvillehardware.com.