Value-Based Pricing

[Spence]

Would like to see some feedback on this.

I've used Product/Cost-based pricing for years and I feel I have lost a valuable section of the market and also have not received fair value on most of my products.

I've started looking into the VBP method because I feel I can open up my market reach and increase revenue at the same time.

Most, if not all, of my business is custom work. Therefore, I'm in contact with the customer and learning quite a bit about them, their likes and dislikes and many other items that I can use to place a value on the product they are buying. When I say "value on the product" I mean the value to the customer, not me. How valuable is my product to the customer? As long as I set a minimum in my head, I can increase proportionally according to these values.

Of course, prices set on a website will no longer be viable. This is sticky and I admit that it has turned me away when I'm looking at something and there are no prices listed. But with the quality of our work on display, the potential customer should be able to decide whether to proceed or "go to Walmart."

[DavidL]

I think the best way is to have potential buyers first understand why your product or custom made is better than the regular walmart stuff. You could potentially convert those who are walmart buyers to buy if you make a good enough impression.

One of the most important things I see that is "wrong" is to seem in your description that its forced or feel like you are potentially overselling your product. Avoid trying to say why walmart stuff is bad (unless you are competing against walmart) and the focus should be on the quality of your products, the materials that go into it and most importantly the process of leatherworking. If you compare yourself to walmart junk then it would say that your stuff is slightly better than walmart when it shouldn't be in the discussion Ex. Lamborghini doesnt compare them selves to Honda, its a given that lamborghini is a luxury where Honda is economy. It is in my opinion very unlikely to start off as a luxury brand, but more likely that people start as premium (discussed below).

in my opinion leather working is an art form like painting and is more than just a leather product that should be conveyed. The fact that its domestically made. Made of high quality materials. Skillfully made.

Keep in mind there are many categories like there are in the clothing industry - for t shirt

fast fashion, mass market (cheap and affordable - gap, walmart) $10

premium brand ( affordable luxury - diesel, coach) $30

Designer brand $70

Luxury brand $250

If your selling holsters then the range is smaller but some sell for less and others in the $100+ range depending on the name I would imagine. All about give and take, the more reputable and well known the more you can sell for, among other things psychological and sociological.

People will pay for experiences like watching stand up comedy or riding a roller coaster even though they are intangible. If your product has some psychological or sociological factors which is a whole other subject, that is a form of value that makes a luxury product a luxury product. A common thing with luxury products are they come from companies that are several decades old. I suppose they start off as premium brands then as the years progress they go up the ladder if they get more popular while retain their core values. They in the end would be top of the chain luxury brand.

[BDAZ]

Spence, please elaborate a bit on your issues. What do you make, what market have you lost, what are your margins and how do you cost your overheads, time and materials.

Sometimes charging more and selling less is a very good marketing strategy..

Cya!

Bob

[Spence]

DavidL...I don't see where I compared my product to Walmart. I used Walmart as a tongue-in-cheek context. VBP is not meant to put my value on a product but to put a customer's value of my product on it. If a potential customer tries to knock my price down as part of an ego trip, then I will likely double the price and send them packing - really. If a potential customer plainly cannot afford the product I'm selling, then I will try to bring my price down to a level closer to what they can afford. This is how I rank or rate the people that are wanting quotes for my product. I have a bare minimum set for my product, that I won't go below.

Bdaz...Maybe the above will answer some of your questions. I "specialize" in dog accessories. More specifically, larger working dogs. My customers range from folks that buy a Cane Corso puppy for $5,000 to folks that pick up a German Shepherd at a pound and want to train the dog for Search and Rescue. I've donated collars to people that foster a dog, so that the dog will have a new collar to take to their new forever home. I've donated "meet & greet" collars to K9 units.

I believe I lose that market that can only afford to pick up a dog at a pound but should they train that dog for work, then my brand goes along with that well-trained dog. My margins are all over the page. I typically double material costs for starters. My overhead is minimal and I don't keep a large inventory. I don't do this for a living, but as a supplement to my retirement check. I started doing fancy ropework about 60 years ago and branched out to leather about 20 years ago. In all that time, I have determined that a craftsman can never put a proper hourly wage on their work and hope to make a living. Yes, there are those that have broken into the upper echelons of our crafts, but most of us are not charging anywhere near what we should be charging. Our stuff will be worth more, maybe, after we die. So, I guess I might call it a labor of love that puts a can of beans on the table. And yes, sometimes charging more and selling less is better. That requires research to find that particular market, which I have done on at times.

Thank you both for your feedback.

[DavidL]

When I say "you" i mean companies in general.

Theres other potential markets like the luxury market for dogs if you are interested vs the premium. the higher up you go the more specific your audience gets. Dog carriers,dog crates or dog clothing made of leather and man made materials can sell in the hundreds, women are the largest buyers. Im generalizing when i say that women tend to buy more luxury product, however its where there is a big market.

Premium is right in the middle of mass market and luxury, which is where you are right now I imagine and where most leatherworkers are. Have you considered spending more on internet adverts or polishing up your business plan to iron out weak areas in your plan or how to gain more exposure.

A great thing companies do now is donate goods/money for every purchase to foundations

[BDAZ]

First off I I think one has to decide whether one is in a hobby business or a real business. If you are just interested in making some money on the side or just breaking even, then blow off the business you don't like. Turn away customers who are looking for a deal (who isn't) and take it personally.

If you are interested in having a business that also gives you the opportunity to be creative and artistic, then you need to develop products that are competitively priced, and quick and easy to produce. This involves investing in the production equipment required to produce high quality at lower than custom prices.

I attend a lot of dog shows and that is an excellent venue for selling BOTH production collars and custom ones that will cost significantly more. Money is typically no object for those folks but an off the shelf collar or harness is a foot in the door.

As for determining what a yet to be made product is worth to each individual customer..a fools errand IMHO.

Best of luck!

Bob

[DavidL]

I agree what bob is saying and i will add onto that.

A great advice that I heard is for a company to take a stance on how much you are willing to sell for the product that you put into the marketplace. So if you believe you have a great product, great marketing (what your brand represents), then you set a price on your product and you stand by that decision and the marketplace will determine if they are willing to pay that price. Rather than the flip side where they put a product out and instead of standing by that price, they change the price lower till people start buying. Its counter intuitive because that takes away from the perceived value and undercuts the company.

Value based pricing - Make the best product you can within reason, cut corners on only the necessary things, marketing the product as something that and set the highest price you think the product and company values are worth and try not to undercut yourself. product first money second

Mass market - Make a product for a certain price point, cut a few corners to output product faster and cheaper without the customers being pissed that its a crappy product. set a price thats lower and try to take on the competition by offering deals, different new styles and something affordable. Money first product second

Of course these aren't set in stone and there are products or companies that do things differently.

Good luck.

[Spence]

You've both made great points and I will change my plan in accordance with those recommendations. I do take pride in what I do and have tried the show and fair route briefly. That's not for me. I don't have the patience or whatever it takes to listen to the window shoppers. I had enough of that when I was doing ropework. My new website should be finished in a few days or so and I'm going to just go for the premium and above customers. Thanks, to both of you.

Spence

[BDAZ]

I don't have the patience or whatever it takes to listen to the window shoppers.I'm going to just go for the premium and above customers.

What you don't get is that a few of those window shopper are the premium customers.Every potential customer is gold and until you understand that you will fail.

Good luck!

Bob

[DavidL]

If you offer enough customization options that could be enough to satisfy a majority of customers. So for example a wallet you can break it down to categories - stitching colour, leather selection, burnish edges or raw edges, initials. you decide how many category will be available and in each category the amount of selection. A simple piece of paper with options printed out could work, if they want to do more details you can tell them to look else where. Custom work takes time and should be much more than a regular item.

At the end of the day it depends on you to decide the outlook of the company and the executive decisions not the customers, just do keep it within reason. Regular off the shelf is so much more cheaper to produce because of economy of scale. for off the shelf - You can stock up on fewer leathers and in bigger bulk and have products done before hand plus no need for all that back and forth. for custom - all that is worth more than off the shelf and in my opinion should be 1.5 times more to 3 times +, more for a one of a kind plus its more emotional experience.

[BDAZ]

My main "earners" come in 3 different widths and 3 different colors. I buy drum dyed hides which cuts a number of steps off the process. I offer lined, for an extra charge, or unlined f I offer customization in the form of a name or other stamp choices and choice of a few other items, at no charge. If I don't have a custom order I emboss which looks great but faster and time is money.

I pre cut my leather when I receive my hides and will shortly have dies to reduce the production times. I can offer a 24 hour turn around, at an extra charge, easy because most of the time consuming work is already done, and I offer wholesale at 35% off retail. My typical wholesale order will run $1,000 or more. I will invest in anything I can use to maintain the hand made, high quality look and feel of the product and make them faster and cheaper. Cheaper = more profit.

Some days I feel like I'm doing piecework in Mexico but never when I deposit the checks.

I have been investigating dog collars for some time and I feel there is a market niche I could address. It does mean making off the shelf product for sale at shows, investing in the right equipment and coming up with a slightly better design than what's currently out there. In addition it will require investing in exhibit space at craft and dog events and having sufficient inventory.

I hope this is helpful.

Cya!

Bob

Edited December 26, 2014 by BDAZ

[Spence]

Thanks guys. Appreciate your insight and it's all going into the folder for frequent study as I move forward.

[Dave Richardson]

I have read these post with great interest and would like to say thank you for asking the question and thank you for taking the time to provide such insightful answers. If I have heard once I have heard a hundred times people say "do you know how much money you can get selling these things that you make ? At this point I can say yes I do know .......0. It is very hard to get the right product in the right market for the right price.

Dave