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Value based pricing


#1

was: Pricing woven silver chain

Interesting thread. Other thoughts? 

What about a value-based pricing model? Up to here, we have a
cost-based pricing, ie. you define your selling price from your
costs and your profit expectations.

In a value based pricing model you try to exploit the acceptable
price range of your clients, ie. your try to get near the upper limit
of what customers are ready to pay for your work.

In such a case, you will eventually end up with the same price if
your work is similar to other people’s work. And if you do really
orginal work, you will find buyers willing to pay a premium
irrespective of materials and costs.

Note here that I said original work, not unique work. Every hen’s
egg is unique, but they are hardly original. The sometimes proclaimed
uniqueness is not a strong argument to most customers, to some
buyers it even disqualifies the producer.

Many kitchen table jeweller’s success is a value based success: The
3 F’s (friends, fools and family) pay an premium because they are
somehow directly attached to the selling person. Avon and Tupperware
have build their entire business model on this effect; garden party
sales put the same emotional stress to buy on the invited person.

If you dare to do so: Up your prices until you have lost 80% of your
customers. You will work less and earn (relatively) more money. Now
up the volume until you reach previous work levels and you will be
rich. Simple, heh?

Andreas


#2

Genius, Andreas!!!

You’ve said what I do; but now, with the slowing market, there’s
some back stepping to do to recapture lost sales that kept me "rich"
for the past decade. Such is the folly of business!

Paul


#3
In a value based pricing model you try to exploit the acceptable
price range of your clients, ie. your try to get near the upper
limit of what customers are ready to pay for your work. 

“Exploit” is not an appropriate word! If you do real handmade
pieces, it is the jeweler who gets exploited, no matter what the
price
is.

I apprenticed with the guy who was the real master in coronet
clusters, but he never showed how it was done. Whenever, he was
working on one, he would always find me something else to do.

I was fascinated with the setting, and still am. When I went on my
own, I spent countless hours to discover correct sequence of steps. I
have read everything that was ever written on the subject and I
realized that one does not have to know the subject in order to write
about it, but that is a topic for another day.

I offer coronet cluster to my clients and the cost of the material
is a relatively small factor compared to labour, but considering my
efforts in discovering the technique, it is I who’s being exploited.

Jewellery trade is multifaceted. Some outfits treat jewellery as
commodity and that is where these pricing schemes originate. Gold X
2, or 1.5, or any other number. I have no interest in that. I am
addressing my comments to the jewellery community where work involved
in making a jewel is respected for what it is.

There is a very simple yardstick. Take a good look at a piece that
you just finished and ask yourself “what would it sell for 10 years
from now ?”. For most of the commercial stuff, client would be lucky
to get the scrap value for the metal, and may be 10 cents on a
dollar for the stones. On a handmade piece, a client should at least
triple the money originally paid. That is because highly skilled
labour, required to produce handmade jewellery, becoming more and
more scarce, and skilled labour costs grow exponentially.

The only component in jewellery, which is a real investment, is not
the metal, not the gemstone, but the craftsmanship. There is no
mathematical way to value it.

It is appropriate to finish this post with the following: If you do
not respect your work, nobody else will !

Leonid Surpin
www.studioarete.com


#4
If you dare to do so: Up your prices until you have lost 80% of
your customers. You will work less and earn (relatively) more
money. Now up the volume until you reach previous work levels and
you will be rich. Simple, heh? 

I’m not so sure about that. You might run the risk of becoming a one
trick pony, you only make over priced widgets. That’s fine as long as
it lasts but I kid you not, sooner or later the gravy train runs out.
Develop a nice bread and butter business and at least you will always
eat.

Why not market more effectively to the 80% you just dropped instead?
They already know and trust you. Cultivate them like little sprouts
because many of them will grow into nice plump fruits. It takes time
of course. But how long would it take you to attract a huge number of
customers ready to buy over priced widgets?

BTW, I use the term over priced widgets not as a pejorative. But if
80% of the people won’t buy at the high price, well, maybe that best
describes the items?

I know this vendor. He used to sell mostly imported gold with a
smattering of diamond total weights to round things out. I would buy
consistently from him and each order was larger than the last. Then
he decided he wanted to do only the total weights because it carried
a higher margin. I bought less. I hear that he’s not doing so well
these days. I doubt it was just me.

Yes, you should look for a good margin, but without sufficient
volume it doesn’t mean much.


#5

Neil,

You brought up this 80/20 rule issue and I seem to be seeing it
brought up with different meanings in every magazine I read these
days. Some say that it refers to inventory (20% of your sales come
from 80% of your inventory) and some use it differently for your
customer base (20% of your customers give you 80% of your business
OR 20% of your customers create 80% of your problems) and I think
I’ve seen it used some other way too. I’m seeing it so often now that
I’m beginning to think that it has become some kind of catchword type
of thing and I’m beginning to lose faith in it having any real
meaning. Honestly it’s just been in the last month that I have
suddenly seen so many mentions of it. It must be the new business
mantra.

Daniel R. Spirer, G.G.
Daniel R. Spirer Jewelers, LLC
1780 Massachusetts Ave.
Cambrige, MA 02140
www.spirerjewelers.com


#6

Leonid,

It is appropriate to finish this post with the following: If you
do not respect your work, nobody else will ! 

I couldn’t agree with you more. That is the best said words on
pricing your work I’ve seen here yet!

Paul Reilly


#7

what would it sell for 10 years from now ?

...On a handmade piece, a client should at least triple the
money originally paid. 

Shhhhh, you might get speculators started in a new market,
handmade-jewelry futures. Who knows, there might even be a market for
unoriginal jewelry designs…derivative derivatives.

J/K of course.


#8

Fellow Orchid members:

I have been following the forum for some time now and I seldom post
as the members of the forum always provide thoughtful experienced
advice. However, having been an executive with small and large
businesses (multi-billion $ corporations), the 80/20 ratio has always
been a topic of interest and debate. It is in many ways derived from
an actuarial model of large group behavior. In actual practice it has
only limited value for small businesses. If one has a large customer
base, like insurance companies, it can be used to establish preferred
customers and provide incentives for those customers (much like
preferred insurance premiums for certain customer groups, preferred
car rental status, hotel programs, and so forth).

On th other hand, most small businesses are already working within a
market niche and defined a preferred group based upon the area of
work they specialize in. In other words, the customers seeking the
particular specialized services the small business offers are
already a smaller group than 20 % of the buying public in their
market. The other 80% + are buying from large chain stores and
department stores.

For this reason, I suggest that consideration of the 80/20 ratio be
restricted to marketing decisions and even then only if one has a
data base of customer sufficiently detailed for
evaluation. For example, if ones inventory is becoming stagnant,
concentrate your marketing on customers that appear to favor sales
and discounts; if you find inventory turnover is faster than you can
keep up with (or finance), then either grow or determine the high end
buyers and focus your marketing to that group so that you can
maintain your profits while slowing the businesses to a more
manageable pace.

Again, having worked as an executive in both small and large
businesses, it has been my experience: that small businesses fare
much better by knowing their customer base and focusing their
marketing toward the customers most likely to keep their business on
course and operating as the business owner desires; while large
businesses are more apt to use the various customer ratios to expand
or eliminate various market segments or customers. For example, a
chain jeweler might eliminate a custom jewelry segment that requires
to much overhead to manage, or change terms or stop offering extended
payment terms to customers (thereby intentionally loosing that
customer group), in order to improve cash flow and minimize aged
receivables.

Well, I’ve rambled on to long, I’m sure you understand my point.
Please feel free to respond or be critical of my post. However, I’m
not much for posting wars or personalized debates. This will be my
only post with regard to this subject.

Sincerely,
Larry J. Feller