Pricing Strategies for the New Era
The landscape of retail is constantly changing, and nowhere is this more evident than in smoke shops and cannabis accessories, save maybe the plant itself. Jeff Beverly from Kola Venture Group sums it up perfectly: “A new retail reality faces smoke shop owners . . . they no longer face near the risk, but many still want the profit margins of an era where you could go to jail for selling a ‘bong’ versus a ‘water pipe’.”
This brings us to a crucial question: In the wake of reduced legal risk, is the high “hazard pay” once associated with smoke shops still justified?
“Hazard pay” refers to the additional profits that smoke shops could charge when the legal status of their products were still based solely on the hazy loophole of intent created by the caveat in U.S. Code Title 21 Section 863 which served to carve out an exception for tobacco accessories. This extra money served as a cushion for the risks they were taking. A decade ago, owning a smoke shop was a daily stroll on eggshells with even the choice of words used to describe products potentially leading to legal issues. However, today, with a widening acceptance of cannabis, and prohibitions being reversed, the industry is quickly gaining a newfound legitimacy.
But even with these changes, many old-guard smoke shop owners are still trying to keep the high profit margins from the days of prohibition, charging markups of 2x to 4x. In comparison, convenience stores (C stores), which focus on volume, might only mark up an item by $0.50 on a $2 sale. Experts agree that holding on to such high markups might not work in today’s market.
Consumer expectations are changing too. People are more careful with their money but also appreciate the unique experience that smoke shops offer which is different from the mass-market approach of C stores.
So, the task for smoke shops is to find that sweet spot: fair prices without undercutting themselves. With a smart, balanced, and adaptable approach to pricing, retailers can carefully curate how customers perceive their offerings. By finding their way in today’s retail scene and setting prices that convey the right message, they can ensure consistent growth and profitability.
Competitive or Profitable? Striking the Balance
Tiered Pricing Strategy:
Offering products in different price ranges (budget, mid-range, and premium) ensures that you cater to diverse customer preferences and budgets without compromising your profit margins.
Cost-Based Pricing :
Ensure that you have a clear understanding of your cost structure, including inventory, overhead, and operational costs. Price your products in a way that covers these costs while still providing value to your customers. A markup percentage can be applied to the cost to ensure profitability.
Dynamic and Seasonal Pricing:
Adjust prices based on demand, seasonality, or events. For example, you might offer limited-time discounts or promotions during holidays or local events. Regularly review your sales data to identify patterns and optimize your pricing strategy accordingly.