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[Long] Winning The Pricing Game


#1

While searching the web for repair pricing I came across an article
from (of all things) a trophy shop operator. His article talks more
about the product than anything else but this is very cool!

It’s long, print it out and read it. In brackets “[ ]” I have added
a few comments. The webpage for this article is:

http://www.sublimationlibrary.com/pub_arch/winning.htm

David Geller

“Winning The Pricing Game”, written by John Pratt of Alpha Supply
Company, appears in Awards & Engraving, “the Guide” copyrighted and
published in mid-September 2001. If you would like more information
or a subscription, call A & E at 800-669-0424 or visit their web site
at www.nbm.com/aemag

Winning The Pricing Game

Since the beginning of recorded time, the cost of something (to the
buyer) has equaled value plus price. For the seller, establishing a
cost has also been the cause of much discussion, some violent
arguments and even a few wars.

Now, we are more civilized (theoretically) and our battles are
fought in showrooms, the print media and on the web. While the
battles may be bloodless, the action and desire for success is just
as intense.

Victory, by our definition, means that you are charging prices for
your goods and services that allow you to prosper, grow and provide
a better future for you and yours. Anything less than that means
eventual defeat or years of drudgery and discouragement.

In today’s highly competitive environment however, the perplexing
question is; where is the dividing line between charging too much
and not enough? As we delve into that question, you will discover
that the division between too much and not enough is not a thin line.
The division between too much and not enough is actually a broad
expanse that allows plenty of room for profitable maneuver. Pricing
As A Strategy Perhaps the most difficult concept for an entrepreneur
to understand is that pricing is only a tactic, not a strategy. By
itself, pricing alone will never make you profitable or successful.
Pricing is only one component of an entire inventory of needed tools
that allows you to successfully compete.

This bedrock concept is so important that it definitely bears
further examination.

In business or war (both are similar), strategy defines your overall
game plan of using your total resources to accomplish your goals.
Tactics are the specific tools, working together, that make your
strategy successful.

This may sound like just a theoretical discussion. It is not!
Understanding that pricing, by itself, is only a tactic will make
the difference between you becoming very profitable and successful,
just barely making it year after year, or totally failing.

The awards business is highly personal and personalized. Unlike a
department store, almost every single item sold has been customized.
Unlike a grocery store, very few of the items bought are
necessities. Unlike a party store, the goods bought are used (given)
after the fact of an event, not before. Unlike an art gallery, what
you see does not have to be what you get. It can be changed hundreds
of ways, to suit the customer.

In addition, when a customer comes into your showroom, 99.99% of the
time they want something. There is very little “window shopping” in
the awards world. Now with all of these facts do you really think
that the only factor that is going to make a sale is your prices?

[This is true for jewelry repairs and almost for custom designing]

If you think that, then pricing is a strategy for you and you will
probably never be as successful as you could have been. Why? Because
since human nature nearly always infects those type of thinkers with
the “low price” and “bargaining price” disease and they are
constantly giving their profits away.

Don’t misunderstand me, there is nothing wrong with reasonable
prices (high or low) but it must be based on more than just making a
sale. The pressure is understandable. If you don’t sell enough
products, you can’t stay in business.

However, if your prices don’t reflect the perceived value and costs
of what you sell, you will find yourself on a vicious treadmill. You
will find yourself forever constantly selling, producing and
worrying, but not really profiting all that much. Elements of
Successful Pricing Smart (profitable and growing) dealers understand
these basic truths of pricing:

First, successful pricing tactics depends more upon the customer’s
perceived value of what they offer than it does upon the dealer’s
actual costs. Bluntly, a junky look commands one price and an elegant
look commands another.

Second, one third of the world considers price first and two thirds
don’t. Offering what the other two thirds want (and pricing
accordingly) means less work and more profit. In fact, if offered
well, the other one third may decide the prices are reasonable
anyway.

[Did you read that first line? 2/3 of people shopping don’t consider
pricing the most important part. But most jewelers do]

Third, the appearances of what you offer commands better prices.
Plaques that have been on the wall so long they have faded, trophies
with old dates, desk name plates and acrylics with fingerprints all
over them, engraved black brass that is almost brown with oxidation,
and broken or damaged anything on display, is going to impress no
one.

Fourth, the display environment affects perceived value and prices.
Windows that are never washed and shelves that you could write your
name on and dust bunnies congregating in the corners, give showrooms
a very seedy appearance. There is a reason why car lots are always
washing their cars and sweeping their lots.

Fifth, they display a wide assortment of options (not necessarily a
million different items) in their showrooms, each priced according
to perceived value. Again, bluntly, they know that customers will pay
more for some options, even if it doesn’t cost the dealer anymore.
They unashamedly do this because they know that, in spite of their
best efforts, they are not going to have a profitably successful day,
every day.

[I’d say this is having low end diamonds along with your “only the best” selection]

Sixth, they attempt to make major portions of their showroom look
different from the look of their competitors. When customers don’t
see exactly the same look, they don’t expect to see exactly the same
prices.

Seventh, that the cost of materials is only used as a baseline to
adjust prices, not as a figure to be multiplied times a hypothetical
"pricing formula" multiplicand

[Too many jewelers markup material to INCLDE labor. What a loser way
of pricing]

Lastly, (but by no means least) really smart dealers realize the
supreme importance of superior sales skills and understanding the
psychology of their customers.

The awards business is somewhat unique in the small business world.
It requires artistic, technical, manufacturing, sales and pure
business skills. Not many professions require that many skills to be
successful.

Once a dealer understands that it is the improvement and application
of these skills that builds a solid future, they are ready to be a
serious competitor and get out of the “low-ball price” rat race, by
adding perceived value to their awards, that customers will pay for.
The Strategy of Profitable Pricing As we continue this article we are
making two assumptions. First, you want to make more profit. Second,
you see yourself as a professional, who wants to build their future.

It does not matter if you are part-time, full time, new or
experienced or operate out of a showroom, garage or on the web. If
making a good profit is not your objective, then you need to
reconsider your status. You just have a time consuming hobby.

Oddly enough, many newcomers and experienced pros have trouble with
pricing for the same reasons (albeit from opposite ends of the
tunnel). On one end, the newcomer is reluctant to charge the same
prices as the pro because of fear that they won’t make sales.

[New stores and especially bench jewelers do this. They think “one
day they will get to the right price”. But that day means the jump in
prices to “catch up” is more than you can bear. Price right from day
one.]

On the other end, the pro is reluctant to “rock the boat” and raise
prices each year for fear they will lose sales to the newcomer. The
pro also has to fight what we call “comfort level stagnation,” but
more about that later.

This primary concern of both groups is both right and wrong! Right,
in that if all they compete on is price, that is the only major
difference. Wrong, in that if they concentrate on the two-thirds of
the world that considers other factors more important they will sell
more and prosper.

If there is a secret to strategic (and profitable) pricing, it is
this: “The entire package of what you offer and how you present it,
is what allows profitable pricing.” There is also a corollary to this
statement. Put the right package together and you can make it very
difficult for your competitors to compete with you.

[The entire package is not only the jewelry. It includes the
guarantee, the ring box, the thank you card, the on time delivery.]

About now, you may be thinking, “this is all fine and good, but how
does this relate to me?” Every day and in every way. Keeping A
Profitable Price The concept of “package pricing” and “high value
presentation” is easily explained and understood if you agree that
your customer could care less about your cost of materials, labor or
fixed overhead, but you still have to make a profit to survive.

If you agree with the statement (and if you don’t, you live in a
different world from the rest of us) then the concept is simple.
Customers (and you, when you are a customer) will willingly pay more
if they feel what is offered is worth more. If they feel like value
is worth less, they want to pay less.

Yes, they want a good deal, no, they don’t have much money, yes,
they might get it cheaper somewhere else, no, they don’t want to pay
more than last year, yes, they want a discount, yadda, yadda, yadda.
The point is not what a customer says, but rather what they do.

Over reacting to a customer’s price negotiating tactic is the
quickest way to lose profit. The obvious is immediately caving in
and giving a discount. Less obvious, is immediately becoming
defensive. Like a shark smelling blood in the water, the customer can
easily decide you are defending high prices and their dorsal fin will
rise.

Trying to get something for nothing is an American past time. It is
almost as common as “hello, how are you,” and can be answered and
dealt with just as quickly. If you present a perceived high value
package of benefits, product and presentation the customer will still
buy, regardless of what they say they want. Not all, but way more
than enough to let you profit. You just need to work on handling
price objections relaxed and natural.

Old or new, the average dealer loses ten times more profit by giving
it away (either with low sticker price or discounts) than they ever
do from lost sales because of high prices.

[DID YOU READ THAT? Low or free loses you more money than a customer
walking because of high price. I’ve found that to be true across the
country!]

The first step to being profitable is to establish prices that will
allow you to grow and prosper and then: don’t give it away! A simple
rule that all of us violate too much. Establishing Prices, Based On
Perceived Value “Charge what something looks like it is worth.” This
statement, attributed to the late Ray Dodge (whom many consider to be
one of the founders of the modern awards industry) is as true today
as it was 60 years ago.

Showroom awards dealers have an easy task in adding perceived value
to their products. The only question is if they will take the time
to do it.

$50 worth of cleaning materials, a gallon of paint, a container of
potpourri and a few hours of elbow grease, will make any showroom
shine and smell like a new car. Clean, fresh and exciting adds value
in a customer’s mind. It does in yours too, why do you think they
would be any different?

Now take another weekend and replace (or at least clean and repair)
every old, old looking, outdated, dirty, damaged, dull and worn
product in your showroom. When switching plates, make totally new
layouts. Add new and creative design elements that you can do, but
don’t usually display. You can easily charge extra for design
elements, even if you don’t raise general prices.

New and new looking, adds perceived value. Only old looking antiques
have a high-perceived value.

Want to make 10-15% more money (all profit) on your trophy sales?
First, learn what columns your best competitors within five miles
use. Second, order a full complement of new columns (that you like)
that no one else is using.

Rebuild every “column” type trophy, using all new parts. Switch out
all plastic parts (they really do fade quickly) on “non-column” type
awards. Letter every trophy plate. Yes, it is a lot of work, but
since nobody does that, it will make you really stand out (and be
talked about).

When you make up your new price stickers (and prices), use the
smallest one you can write on and put it on the top back of the
base, not on the plate. Again, you have added perceived value by
appearance (and because you don’t look like everybody else).

You won’t lose money on the old columns. Keep one old trophy of each
column out in a corner of your showroom. Don’t change the sticker,
look or even dust them. Just letter a small sign that says
"closeouts."

Some of your “coupon clippers” will buy the closeouts because of
price and the rest of your customers will buy the new trophies
because of higher perceived value.

Speaking of signs, don’t forget to display a lot of small
promotional signs to add value and increase profitable sales. For
example, displaying a small sign that says “Clock Plaques are a much
appreciated and useful recognition award,” may make your customer
decide a $100 clock plaque is a better value than a $30 plain plaque.

[How about a sign showing old jewelry in a drawer and a picture of a
great new design? How about a picture of a worn ring, thin shank and
a shiny ring with a thicker shank?]

It’s all about perception. Winning the price game is not about
having the lowest prices. It is about a state of mind (yours and the
customer’s) that understands that you must profit if you are to
build a future, and the best way to do that is to sell perceived
value, not price.

If you think the perception of high value can only be controlled in
a showroom, you are wrong. We know of quite a few "home business"
award entrepreneurs earning very good five figure incomes because of
their “packaging and presentation” skills. You don’t know many
because they are interested in profitable business, not “bragging
rights.”

Without exception they are all skilled with their production
processes, creative in their work and persistent in their attitude.
Most have good people skills, present what the customer wants and is
likely to buy (rather than what they want to produce) and charge
about the same (or sometimes higher) prices than their "store-front"
counterparts.

Their extra value “package pricing” includes more flexible hours,
delivery, personal appointments, a strong empathy with customer
needs, guarantees of on-time orders, etc.

Even high value presentation is not overlooked. One entrepreneur
carries all of her samples in an expensive leather sample case. All
of her plaque samples are boxed and other items are either in blue
velvet pouches or wrapped in velvet. Everything is first class (even
the so-called “cheap stuff”) in appearance and presentation.

No matter how you operate your awards business, if you offer a great
package of perceived value, customers will want it, and you can
charge accordingly. Baseline Pricing The most basic question of new
and experienced dealers is what can (or should) I charge? There is no
"magic formula" that applies to all products and dealers. There are
some useful guidelines for new and experienced dealers.

The absolute best pricing guide for new dealers is in knowing what
the top, experienced dealers in their area are charging. The key
words are “top” and “area.”

The top dealers are successful by the only yardstick that counts.
They are making money! The group under them is making a living and
the bottom half is barely making it, period.

Which makes the most sense to you? Should you pattern yourself after
success or failure?

What is going on in your area is also very important. While it is
good to listen to the ideas and experiences of dealer’s 500 miles
away from you, local factors have more influence on pricing.

For example, if there are 10 companies offering jewelry engraving in
a small city, pricing may be very competitive (and low). If you are
the only one within 20 square miles offering that service you can
charge much better prices (you are worth it).

At our suggestion, one of our customers doubled their jewelry
engraving prices. Over an eight-month period they lost 10% of their
customers but gained 80% in profits. That’s a nice trade.

[I put arrows next to this one. This guy found this to be true in engraving, a subject people kill me on all the time because of the competitor down the street. My research shows 50-100% increase in sales and profits with 5% loss of customers.]

Are we advocating gouging customers? Certainly not. However, we are
firmly stating that if you are a skilled professional, and not
charging for the value of what you offer, you are doing you and yours
no favors.

If you are an unskilled amateur, with no thoughts for the future,
that has a value too: low.

Experienced dealers have the same challenges in the pricing game,
but from a different perspective. While you are the most likely to
establish profitable prices on your products and services, you are
the least likely to change them.

Why? Because of the human nature of enjoying living in the business
"comfort zone." The subconscious rationales for the “zone” are:
“it’s working, don’t change it” and the worse “I can’t change prices,
there is too much competition.”

Sadly, the average dealer would probably rather get a tooth pulled
than sit down and figure out how they could improve their value
package and get better prices.

The feeling is understandable. Your company is established, everyone
knows you and you know everyone, your profits provide a steady
income, ABC League comes in every year, XYZ Company buys the same
order year after year and your future looks solid, although not
spectacular.

Burn this in your mind. Every year that you don’t change prices, you
are losing money, even if your sales are up. You earned the money,
you just didn’t collect it.

We certainly don’t recommend you just immediately, and without
thought, raise prices. We do urge you to cast an evil eye towards
your entire pricing structure. There well may be a lot of room for
adjustments.

We suggest you concentrate on the largest sub-group of products that
makes you the most profit (cherry finish plaques, walnut plaques,
badges and signs, whatever). A small increase there will affect your
bottom line faster than anything else.

Successfully raising prices is all about justification, in the
customer’s mind. If they feel like they are getting better, or more,
or different, they will come a lot closer to accepting a price
increase than just being told “expenses are higher.” That will be
true, but they don’t care about that.

Probably the easiest way to do this is to change your look. Move
things around in your showroom, refurbish your most important
sub-group of products, and change the price sticker look and
location.

The idea is simple. Subconsciously, newer looking and different
always looks like it is worth more. Old and familiar feels like it
should still be the same price.

The other important area to review is repeat orders, for regular
customers who get the same thing every year. This is especially
important if they are one of your top 25 customers.

We know it is difficult to raise prices with many regular customers
and we are certainly not suggesting that you blow them out the door,
with a price hike. We are just suggesting that you review their past
orders (before they come in the door) and decide if and how a price
adjustment should be made.

This can be done creatively. For example, one dealer got a nice
"raise" by getting one price stubborn customer to agree to ordering
9x12 cherry finish plaques, with sublimated gold plates instead of
his usual 8x10 walnut plaques, with engraved black brass

The dealer was creative. He made up a complete sample plaque, very
artistically laid-out and made that sucker shine. When the customer
came in to place his order (60+ plaques) the dealer put it in his
hands and waited for comment.

When the customer said, “Wow,” the dealer casually stated that in
appreciation of past business he was offering the larger and more
elegant plaque at the same price. The customer immediately agreed,
but wanted to know what the price would be next time.

Even more casually, the dealer said he didn’t think there would be
even a 5% difference the next year and added, “and that’s not bad is
it?” The customer agreed and they completed the transaction.

This was very good psychology. The dealer added perceived value,
laid the groundwork for a price increase the next year and made some
nice extra money from the difference in materials cost.

Obviously, this method won’t work with everyone. However, if you
don’t figure out a way to make systematic price changes with
regulars, then each year you are doing the same amount of work, for
less money.

Winning the pricing game has never been about the sticker price on
"things." It has always been about offering a value package that
customer’s want and will pay for.

When you do that, you will grow and prosper. If you don’t, then you
will be forever on a treadmill.

We will leave you with Alpha Supply Company’s "Three Golden Rules."
Rule #1 - Make Money! Rule #2 - Have Fun! Rule #3 - If you are not
doing at least one of the two, do something else!

Hope this helped you today.

David Geller
www.jewelerprofit.com