What is Keynote Markup and how you can use it to Determine your Wholesale Pricing?
Selling directly to the customer is what most brands think is the easiest, however, if it isn’t yielding the same results as you expected, you can move up a tad on the supply chain. What we mean is that you can start distributing your products at wholesale rates to other retailers.
Going the wholesale route may be a big decision for your fashion brand, you might want to consider certain aspects of your business before you make the transition. One such aspect is how to determine the price.
Pricing is always a tricky business, but when it comes to pricing in fashion, there is even more ambiguity and confusion. You need to find that sweet spot between too high which will put your product out of the optimal competitive price range, thus scare away customers and too low which could affect your contribution margin and can hinder operations. So if a boutique or another retailer approaches you, for purchasing bulk amounts of your product; Only you don’t know how you would price these products. It isn’t as intimidating as it may appear, read along to learn the ropes of it.
First of all let us understand why and when should you consider selling at wholesale prices to other bigger retailers.
- Retailers have captured and built a major customer mindshare when a customer buys your product in their store, it helps build an image for your brand somewhat similar to that of the major retailer. Thus you see a majority of brands selling at Macy’s and Bloomingdale’s.
- Selling to bigger retailers and distributors also gives you an insight into customers minds. It helps your brand decide on major decisions like merchandising, an assortment of styles, inventory quantities to be supplied for each location.
- You are also evenly distributing inventory risk and making your brand visible in hundreds of locations which helps create brand recall.
So you are convinced that wholesale may be a viable option for distribution for your fashion brand. How do you now go about pricing each of your products?
You must understand that the products that you sell at a wholesale price, are to be priced very differently from the ones you sell directly to the customer. Also, it is practically impossible to price each of your fashion brand’s hundreds of products individually, to reflect the current market conditions and demographics. Thus the Keystone Markup theory makes it easier to analyze profitability as a function of units sold instead of maximizing each product’s price.
Suppose your product costs $25, you would multiply it by a factor of 4, making the retail price $100. But when the same product is ordered in bulk amounts, the buyer would expect discounts. The discounts can range from 30%-60%. So in our case, where the product costs $25, you would multiply it by a factor of 2, which makes the wholesale price stand at $50, a 50% discounted rate.
How can you determine the Keystone Markup of your brand?
Here are the two steps:
- Market Analysis
Analyse your market which will give you an overall idea of the industry that you are looking to serve. Once you understand that there is a market opportunity you will need to determine the correct price, style, and quality that will help you capitalize on the opportunity.
- Competitor Analysis
You would also need to understand the general pricing bands used by your competitors. The customers view and evaluate your product relative to comparable products, thus your product’s price position must reflect a higher perceived value relative to the competition.
Word of caution though, the Keystone markup is a simple theory, but like every simple theory, it will have to be adjusted based on current market and technological realities. ERP (Enterprise Resource Planning) and IT Systems are giving retail businesses, market insights on every single stage like never before. Also, there is considerable pressure on brands by retailers to markup wholesale price at the least Keystone markup, so that they can have margins to be able to sell profitably. Thus the wholesale price should balance and harmonize, the retailer’s market strategies with the brand’s order volume and profitability constraints.
Deepika is ILFR’s Marketing Expert and oversees various ILFR marketing functions, including Brand Positioning, Social Media, Influencer Marketing, and Content Marketing.
Deepika is ILFR’s Marketing Expert and oversees various marketing functions, including Brand Positioning, Social Media, Influencer Marketing, and Content Marketing.