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Thoughts on Pricing #1: Thoughts on Pricing, part one.

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Blog entry by pashley posted 785 days ago 3037 reads 2 times favorited 11 comments Add to Favorites Watch
no previous part Part 1 of Thoughts on Pricing series Part 2: Thoughts on Formulating the Right Price »

Pricing can be a confusing part of the woodworking equation, if we are trying to sell our pieces at profit. We are used to being told what to do – cut it this length, assemble in this order, etc. We get that. Pricing is like black magic.

I’m still trying to figure it out.

There’s an interesting phenomenon called “perceived value”, which is a nebulous value, yet should be taken into account when pricing.

Let me tried to explain what perceived value is, at least as I understand it. Perceived value is what the consumer feels a product is worth. Obviously, if you NEED something, like a new water heater, it’s perceived value is high; if you’re a guy, and you see a Coach purse on sale, your perceived value is probably very low.

However, in the woodworking world, it’s a different story. Let’s say John builds a trestle table, and Mike builds the same table; both use the same materials, plans, finishes and building techniques. John puts a price on it of $500; Mike puts a price of $1,500 on his. If you were just an average consumer (not a woodworker), which one would you buy? The $500 one? Maybe not.

I think most people will look at this proposition this way: A) “If they look the same, I want the cheaper one,” or B) “Hmmmm, I think I want the more expensive one. This is obviously a great piece, and the guy that did the cheaper one must have cut corners, used cheaper materials or something. I want to spend the extra money for the better one.”

Perceived value.

I was watching a pricing video on Etsy , and they were doing a case study on a shop – I think the lady made knit goods. Her top seller? An item on the less expensive side. Not surprising. What is surprising is what her second-best selling piece was: a piece that was ten times more expensive. This lady was straddling the market – catering to the people who only wanted to spend a little, and the crowd that wanted to spend a lot for the very best.

Desire is a big component of perceived value; it’s an emotional response, and as such, irrational, usually. If people really want something, they’ll pay a lot to get it. Think of a Coach handbag. These are high-end, expensive, very well made ladies’ handbags. Many women lust after them. They run $300 plus. Now, as a guy, I don’t get paying that kind of money to tote stuff around. Maybe $50, but $300? But for a woman, it’s a status symbol, beautiful and functional – an item with a high perceived value. It’s very subjective. You’ll also see this phenomenon in play with the “must-have” toys at Christmas. If the product is in pretty short supply, you’ll see people buying them up at the store, and marking them up several hundred percent on eBay – and they get their price! Those moms buying at those big markups find perceived value in not having to camp out at stores all night to get the toy, not disappointing their kids, etc – and they are willing to pay a lot for that perceived value.

There’s another gentlemen on the internet that sells a very similar clock to mine; I think most people would be split pretty evenly between preferring his and mine. He sells a lot of them, from what I understand. Granted, he advertises more, goes to trade shows, and so on. I don’t.

However, he sells them at about 3X what I do! I’ve lowered my prices from $495 to $295 – only to find I sold more at the higher price. He sells in the $850 range…which, I would have a hard time charging, feeling it’s too much. I would feel like I’m gouging people. That’s not to say he is gouging people – he’s not. He put a price on something that’s not an essential item, and people buy it – good for him! Maybe I have a problem with not pricing high enough.

As woodworkers, we need to realize that when a transaction is made, when someone buys your piece, that they are NOT just begrudgingly giving up money to buy your piece – like they would feel if they had to replace a water heater. No, they are feeling GOOD buying your piece, or, at the very least, they want to feel that way. They are not just getting a product, but a good feeling as well. I think we need to build relationships with customers. What I mean is, don’t just put a piece out there, slap a price on it, and ship it. Instead, put a feeling onto the piece, let people feel good about buying from YOU, a real person, and not some factory in China. Here’s what I mean – don’t just put up a website like “Dan’s Woodworking”, with a bunch of pieces with bland descriptions about materials and dimensions, and a “buy it or don’t” feel. Instead, create a good feeling about the product: “I designed and built this table myself after I was inspired while I was hiking in the Adirondacks, and came across a natural rock formation…”, or, “I made this table out of recycled wood – actually from shipping pallets – because I am concerned about the environment, and wanted to challenge myself to make something awesome from a product that would have just ended up in a dumpster.” Does that interest you more than just “Made of solid oak, with a poly top”? I would hope so. Also, let people know who you are. “We are a family run business in Wisconsin; Mike and his son Tim, build the pieces. Jan, the mother, takes care of customers and other business matters. They’ve been making great oak products for over 10 years.” something warm and fuzzy like that. Isn’t that better than “I’ve been doing woodworking since 1980?” The point is, give the product a story, and let people know who you are, a real person they can understand that crafted this piece, as opposed to a bunch of guys in a factory in India.

Think about it; have you ordered something, and when it came, you were hoping (and expecting) to be wowed, either because of the price or it’s reputation? How did you feel when it met that expectation? Capitalize on that.

-- Have a blessed day! http://newmissionworkshop.com



11 comments so far

View americanwoodworker's profile

americanwoodworker

180 posts in 978 days


#1 posted 785 days ago

Thanks for this, I enjoyed the read. I have to agree with you.

I once read an article about a man in my state that loves woodworking and he loves kayaks. He struggled, if I remember right, to make a living and sell his items. So he decided one day to make it more personal. He started advertising to people that he will help the customers build there own. Sort of a class for customers to come in and take part in their own hand built kayaks. He is now successful and the customers perceived value for the kayak went up because they had a part in building their own customized, hand built kayak.

-- Your freedom to be you, includes my freedom to be free from you.

View abie's profile

abie

590 posts in 2375 days


#2 posted 785 days ago

I Can’t quite remember the sign in a store but I think it was
Price.
quality.
service.

pick two.

-- Bruce. a mind is like a book it is only useful when open.

View pintodeluxe's profile

pintodeluxe

3279 posts in 1418 days


#3 posted 785 days ago

Most marketing professionals recommend offering at least three different price points for all the reasons you described. One entry level price, one mid-level (maybe not much better quality) just an additional feature, and a sky is the limit “gotta have it price”. Usually the top price can be marked down 50% off, and the shop could still realize a small profit.
If sales ever slump.. raise the price!

-- Willie, Washington "If You Choose Not To Decide, You Still Have Made a Choice" - Rush

View DS's profile

DS

2131 posts in 1025 days


#4 posted 785 days ago

Many people get confused with terms when it comes to pricing.
While I agree with you about higher prices and perceived value, too many confuse higher profits with higher prices.

It is quite possible, in your example of the similar tables, that the guy selling for $500 is making more profit than the guy selling for $1500. It sounds strange, I know, however, what we care most about is the profit and NOT the selling price. So what’s the difference? The difference is the contribution, or, our purchase cost for the item we sell.

I have found that the better positioned I am with the contribution costs of an item, the more latitude I have in negotiating a profitable sale. In many cases, the quality of an item is raised when more efficient methods of production are used.

I took a lot of flack a while back for saying I could charge $1100 for a wall unit that another Lumberjock thought he didn’t charge enough for at $3500. What was the difference? Contribution.

Because I could hire the unit cut on a CNC machine in mere minutes instead of the fifteen hours he spent fabricating the unit on site, I could still make a 63% profit and be in and out of the job in a day while he took the entire week for it. While it was less actual dollars, it freed me up for the remainder of the week for other production (at 63% profit) where he was limited to this one job.

If you are making ANYTHING for sale, you should know your contribution costs. Until you do, what are you basing your pricing on? How will you know if you are being profitable? How will you know the minimum and maximum price you can afford to charge or not charge?

-- "Hard work is not defined by the difficulty of the task as much as a person's desire to perform it.", DS251

View Jorge G.'s profile

Jorge G.

1526 posts in 1080 days


#5 posted 785 days ago

“perceived value”, which is a nebulous value

It is not such a nebulous value. For example, if you come to Mexico, go to a bazaar or market and want to buy something, the vendors 9 times out of 10 will raise their prices to double what they normally charge since they clearly see you are a tourist. Now, at those prices to you it might still seem cheaper, but for the local market it is a windfall for them.

If you really want to be accurate about pricing, you need to develop a business strategy, the first step is to see what is the median income in your area. You can charge more for your work in New York than you can in West Virginia.

Seems to me (and I mean this with all respect) that you don’t know a thing about pricing. When I first started my business, I had an application on my ipod phone that let me track how long it took me to make something and how much I should have charged for that time. If you figure out the median income for your area you now have an average hourly wage you can charge for your work. Then you add the value per hour of use for your equipment, your shop (even if it is yours, that space has a real estate value), your insurance, etc. For your area.

Armed with all this information you can arrive at a median price that would be within the earning potential of your customers in your area. From here you can decide to raise prices or lower them, but let me tell you a warning it is easier to lower prices than to raise them, specially if you have had local costumers in the past.

Internet sales are no different, those who fall within the earning potential for your area will buy your clocks, those who don’t, won’t. With the possible exception that you need to offer a greater variety of merchandise. Seems to me you do not stray far away from your comfort zone as far as clocks go. Although nice, they all seems to have a “sameness” to them. In my opinion you need to increase your woodworking and design skills. How about you set yourself to make an “art deco” clock? How about seeing some curved surfaces? etc.

Which brings me to my next point, the price of your clocks should reflect the time you spent designing the clock.

Anyhow, at $295 you are under pricing yourself. I have no idea how much time it takes to make a clock, but lets say it takes you 6 hours, at $25/hr you are already spent to the tune of $150. Lets say you think, “well this is a hobby for me, I don’t need to make $25/hr” and you decide a to set it at $10/hr (almost the same as a kid working at McDonalds) this is $50 in labor which is about 20% of the price of your clock, the price is still too low even at this low wage.

Anyhow, I hope you take my critique in a good way, it seems pricing is one the things that most people struggle with in this forum, so I tried to offer a peek into how those of us who are in business do it.

-- To surrender a dream leaves life as it is — and not as it could be.

View gfadvm's profile

gfadvm

10604 posts in 1295 days


#6 posted 784 days ago

Thanks for this blog and thanks as well to all who commented. This has been helpful in an area that I really struggle with.

-- " I'll try to be nicer, if you'll try to be smarter" gfadvm

View Sarit's profile

Sarit

466 posts in 1744 days


#7 posted 784 days ago

Here’s an anecdote I heard from a friend who is a big soccer fan.
Basically he told me that one time a big name soccer shoe maker contracted a factory in a third world country to make its shoes. The factory decided it could make some additional money on the side by taking the exact same shoe, stitch on a different logo and make a cosmetic change or two and sell it in the local market. The big name shoe was selling for $95, but the material cost of the shoes was so low, they decided to charge only $4 for it. You’d think they would sell like hotcakes, but they didn’t. When they got the design for the next shoe, they again made their own copy of it, but this time raised the price to $40. Strangely enough, these shoes flew off the shelves.

The reason was customers simply didn’t trust a $4 shoe. They couldn’t be convinced that they were getting a $95 shoe for only $4. Once the price was raised to $40, it seemed more convincing that they were still getting a quality product.

View Jorge G.'s profile

Jorge G.

1526 posts in 1080 days


#8 posted 784 days ago

it seemed more convincing that they were still getting a quality product.

Yes, somewhere in a TV program I heard the statement perception becomes reality. It works on all professions. There is another thread here on the preference between hand made dovetails or machine made. Most who comment if they were doing this for a living they would do them with a machine. Here is where I say no, no, no. This is where you should make them by and and have them well done. While the belief that only woodworkers care about this is some what true, once you point them out to a customer and explain to them they were done and fitted by hand (of course you never should fail to mention much like a Ferrari or a Rolls Royce) they become intrigued.

You may have the sloppiest joints in the non visible parts, but if the visible parts are superbly done, you are in like Flint… :-)

Perception has become reality.

-- To surrender a dream leaves life as it is — and not as it could be.

View MNgary's profile

MNgary

235 posts in 1022 days


#9 posted 784 days ago

An absolutely excellant post, Pashley! I’m very much looking forward to part 2 and more beyond.

-- I dream of the world where a duck can cross the road and no one asks why.

View pashley's profile

pashley

1015 posts in 2322 days


#10 posted 784 days ago

Sarit, your story reminds me of another story…

A guy wants to get rid of an old chair, so he takes it down to the curb, with a sign on it, “FREE”. For 5 days, no one takes it. So he takes that sign off, and puts on another sign, ”$100”.

It was gone the next morning.

Perceived value :)

-- Have a blessed day! http://newmissionworkshop.com

View pashley's profile

pashley

1015 posts in 2322 days


#11 posted 784 days ago

JGM0658 You make some great points. As I said in the OP, I am still getting learned on pricing.

I agree that I could have a wider variety of merchandise, especially clocks. I am reviving an old model that sold well. I just didn’t like it myself. Funny how what you personally make and don’t like, can sell well.

I am also working on a concept that no one else is doing, and I think many people would want. It is totally unique, beautiful and useful. It also has a very strong emotional tie-in. Stand by….

-- Have a blessed day! http://newmissionworkshop.com

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