Selling in the sports equipment industry is no easy job. There is a lot of competition and seasonality of products, since a lot of these are heavily linked to a given season-customers tend to buy products in seasons where they can use it, such as skies in winter- or related to major events, such as the finals of sports competitions (NBA, NFL or the football season in Europe ). Not to mention that dealing with stock left of products of brands in perpetual evolution has also a significant impact in the everyday performance of online stores selling sporting goods.
Is there any way to maximize profit margin? This is a very recurring issue or, if you prefer, a dilemma, across retailers not only in the sports sector alone, but in every industry.
Competing in the sports industry is definitely a challenge and business owners in this sector are constantly looking for ways to sell, improve margins and not fail in the attempt. In addition to that, new competitors keep entering the market and not all of them share the same competitive advantage.
You may find that certain competitors are really strong and they may be squeezing prices at a point that makes it difficult for your online store to keep up with price changes and acquire a competitive position without the risk of losing your profit margins on the way.
In this guide, we’ll be explaining to you how to take advantage of dynamic pricing strategies to assess your current price and associated margins and profitability, and to spot opportunities to maximize your profit margin. Let’s go then through some points that are critical to define a clear market approach and reach this ultimate goal.
Inventory management is a tough task when you’re selling sporting goods. This is due to the seasonality factor that we have mentioned earlier on in this guide, and also because there may be certain brands for given verticals that are constantly evolving and launching new products in the market.
That is why it is important to analyze your verticals and the brands and categories you work with within each of them. This is paramount to make them fit in your pricing strategy, and get to see results at the end of the day by spotting the right time to:
Gain competitive advantage.
Spot opportunities to increase your profit margin and get the maximum return from each product reference.
Activate SKUs without rotation.
So analyze at this point the strategy that you want to carry out for each of these groups of products in order to achieve the goals above.
Even before starting maximizing your profit margins you need to first find ways of safeguarding minimum margins.
It is very likely that the purchase department of your online store negotiates different conditions with the brands you work with. And that makes it difficult to have the same margin in each of them. This said, the most probable scenario is that you have different ranges of flexibility regarding brands in your product catalog even if you try to establish a default minimum margin at a global level.
Discuss with your purchase department your conditions in each of the brands you work with and clearly determine the minimum margins you want to protect when suggesting new prices for products belonging to a given brand.
It is worth defining two approaches here: how you want to compete with your competitors on the whole and how you want to compete against specific competitors in the market. So these are some of the questions that you should be asking yourself:
On the whole do you want to be cheaper enough so that you can ensure your competitive advantage? Do you want this to happen taking into consideration all your direct competitors? Will there be exceptions to this global rule?
Regarding stock, it would be worth checking which competitors have product availability and which ones have run out of stock. This is a clear strategy in order to spot opportunities to increase your margins: if you are among very few competitors with stock availability or even the only one with product availability, you still have the option to maximize your profit margin. Will this be risking your conversions? Given that there is no real competition since the rest of competitors have no product offer, you will be able to set prices without reaching your minimum margins, while still acquiring conversions for your online business.
Some paragraphs above, we were talking about something that is very characteristic of the sports industry: seasonality of products. This seasonality makes it paramount to elaborate a clear strategy for products under certain tags or categories that are sensitive to this season-relevance. A clear example of this seasonality would be the case of winter sports, for instance.
Besides, there’s another complexity added at this point: products that keep evolving and no longer are the newest model, and for which you keep accumulating stock.
You need to define a clear strategy to deal with products that fall into either of this scenarios:
Products belonging to brands in perpetual evolution
In any of the cases, you need to define a clear strategy for each of the scenarios. And this is particularly important if you wish to activate rotation of SKUs in your product catalog and deal with inventory management, mostly when products are replaced by new models, or even when you are dealing with discontinued products.
Define your strategy for specific products
Last, but not least, it is very common for the sports industry to have quite regular product launches. In this kind of situation, the brand will negotiate certain conditions for the product launch with your online store.
If you are facing this sort of situation, the most probable thing is that you want to treat this sort of product differently from the rest of products in your catalog. That is why, a smart decision here would be to exclude product launches from your global market approach and develop a strategy specifically for each of them.
Once you have defined a clear strategy for all the points mentioned above, you can start redefining your pricing and do so in a way that you will be reacting consistently to the market state without incurring profit loss.
So on the one hand, we have accomplished this critical point of safeguarding profits, and on the other hand, we need to pay close attention to market state to spot opportunities of profit maximization.
So let’s say that you have developed your strategy for given brands, categories, products, etc. But that is not enough, the competitive scenario in the market may be constantly changing, and in the same way you can spot threats to your competitive advantage, you can also find ways to still maintain such position while making extra profit.
Let’s see an example of this:
In this example, we are competing for a product in the market for which we have a cost price of 148.75 EUR (without tax) and we sell it for 257.49 EUR, and we get a profit of 64.05 EUR. The thing is that for this product in particular, we do not want to be the cheapest competitor, what we’d like is to equal our store to the cheapest competitor in the market for that given product. By automating the whole process, we notice that the cheapest competitor (excluding my own store) has actually a price that is higher than the one that I have set. In this case, I’m missing the opportunity to increase my price up to 322.96 EUR, increase my margin and reach higher profits for that given product.
The market changes so fast that it becomes almost impossible to track rivals’ moves in a manual way. In order to save time, the majority of retailers keep looking for ways to make their repricing process more agile. If you find yourself within the same situation, you’ll notice that by defining isolated strategies for given products and categories within your product catalog, you manage to tackle the main concern of losing profit and that also gives you the chance to increase your margins whenever possible.