I just finished a book written on pricing methods. The book is "The Art of Pricing" by Rafi Mohammed. The author builds a strong case for a pricing method I've used for years, but goes much further by breaking it down into the many strategies he feels (and gives real-life examples for) will enable anyone in any business to reap more profits.
The basic theory is that every service or product should be priced to reflect what the customer's percived value of it is and that since different customers place different values on the same product, each should be paying according to how they value the product or service.
Has anyone read this book? If not, I would recommend it and would enjoy participating in a discussion on it. Maybe there are other books you've read on the subject, but I think value pricing could provide a new angle on the pricing game and prove helpful for anyone in the reupholstery business.
Thanks,
Rich
Quoteeach should be paying according to how they value the product or service.
This assumes that they would value the product well enough to keep the vendor in business, otherwise how can the vendor stay?
I have read small articles on this as it relates to marketing Rich. I will keep Rafi in mind, should I encounter the book somewhere.
But, go ahead and divulge if you will, it would only spur more interest in the subject/book.
Doyle
Well, if the persons who place the highest value on the product won't even pay enough for it for the business to make a profit, the business owner needs to be doing something else!
Rich
I hear ya, Rich.
Funny thing about pricing, we use to charge$50.00 for a in home service call for a non contract customer and had nothing but grief about price from prospective customers when F________ -edic arrived and started charging $65.00 we kind of frowned and waited to see how it went. After a short time he had conditioned the paying customers now we charge more than him and get all the work.
How do you read (extract their perceived value) customers? If you want to get X amount for a job, and the customer says, "I've got a few other estimates, but they seem a bit high". Do you subtract from X amount? Is the customer using a ploy? What if the customer says, "Can you give me a price soon, I'd realy like it done ASAP" Do you add to X amount? If you're having a Tag (yard, garage) sale, and someone says, "how much do you want for this?". You read them, right. Do they seem like they just found something to complete their priceless collection? Or do they seem just courious and not to interested? Ploy? Are they salesmen? If you give them a price of $20, and they say, in a wishy washy tone, "well.... will you take $15". Or they say, in a positive upbeat tone, conveying that the item is sold!, "I'll give you $15". Which offer stands a better chance?
Buying/selling....I'ts a tangled web.
Shaun
I try not to negociate if the customer comes in on a welm to get work done then they need to realize they are getting your best deal. If they are coming for bids then bid to your best ability. They are still either come to you for your work or by advertizement or word of mouth. Most I find have already called other plases and are shopping around. If they drop by your shop then I find they are very interested. this way they might be able to see work in progress. NEVER SELL YOURSELF SHORT.
Darrell
I find there is curiosity in shoppers and they aren't out to buy anything.
Many times they can't afford the situation. But, try to be personable enough because you never know when they might be a real "catch".
Those sensed to be shoppers, I stress quality, hoping that will cause them to think other than price.
My ears are always open and sizing the customer goes on, but make it a business relationship and move on leaving the door open is more my style.
That is probably the way I would want to be treated.
Doyle
Doyle, your post reminded me of something that happened a very long time ago. In the late 70's I worked for a very successful businessman who was in the market for a mid-sized yacht - 40' or so. So he went to a local marina that carried a brand he was interested in and the salesman wouldn't even take him aboard one to have a look. My boss was dressed in shorts and a t-shirt with no outward appearance of wealth.
2 or 3 weeks later my boss pulled up at the dock of this same marina in his brand new 48' Bertram to fill up on fuel and made certain it was during a time when the salesman was on duty. Someone lost a BIG commission.
I'm in the process of re-reading the book. It's only about 225 pages or so, but I find I get the general idea on the first pass, then start to absorb the concepts on the second. The author uses a lot of examples, but one idea he is fond or using again and again is the idea of an auction. most bidders would take the item at the starting bid, but as it goes higher, fewer and fewer will until there is one person left that pays top dollar knowing full well that he is doing so. Every pricing method should take this fact into consideration, and I think the best methods are those that plan the pricing before the customer walks in. Some folks are very good at getting the right price from the right customer. but I don't find that I've ever been too good at that and many of you may not either. In the book, he explains ways you can gear your pricing strategy to attract those buyers that will pay the highest price as well as those who will only pay a lower price. If you maximize your market, the higher paying customers subsidize the lower paying ones, you didn't have to turn away alot of customers to turn a profit.
Rich
My brother, the ad guy who does advertising for a couple of the Ashely furniture stores around here, was telling me about one of the stores and their added feature. They have a guy trained and certified as an interior design consultant. The salesman can bring customers to him and he will not only assist in their choice for a particular piece, but then he starts accessorizing and adding additional pieces and filling out a space in a person's home. He'll even go to their home and build an entire room for them. My brother said he has tripled some daily tallies just by his presence.
He's not a salesman, which gets the customer comfortable that he is there to help them, not cheat them. He is trained and has knowledge of what works together and how something should be done. And he has follow-through, offering to assist the customer set up their room, taking charge of a redesign and doing what is needed to make the whole process enjoyable. My brother said he saw a salesman bring a customer over to the guy with two bar stools that she wanted to buy. By the time the conversation was done, she had four bar stools, an area rug, end tables with lamps, wall hanging, and stuffed chair to "fill out" the room.
It's the same for us, or should be. I just delivered a Chevy HHR to a customer. I put a new Katzkin leather set in it. As he was looking it over I suggested we upgrade it with a dash kit and a couple other accessory items. The seed has been planted, and he is happy with the seats, so it might be future income.
As I get more secure with the business (I'm over the new business jitters and not worried about having to close shop) I'm more like Darrell. I don't like to negotiate. I shouldn't have to. I am honest with my work and what I charge. So if I put the time into it, I need to be compensated. I don't walk into Wal-Mart and ask to pay less than what's shown, so I don't want it done to me (although, I guess there are whole books about doing just that. Counter offer with the manager and probably walk out with an overall cheaper bill.).
Now you know, that guy at Ashley furniture is us! We (as a general rule) are more craftsmen who know the ins and outs of upholstery than salespeople. And that, as Stitcherguy has illustrated, can be what enables us to upsell; we don't seem like we're trying to increase our commissions so much as we appear to be trying to provide the full experience for our customers. Most of the time, that's what we are doing. Many customers appreciate having someone with expertise advising them.
Rich
Hey guys we are more than craftsmen if we stay in business, so all your points about explaining, assisting customers professionally is the proper thing to do and almost always it will show at the register.
June.........wow! What an expensive way to learn a lesson. I assume that salesman got off his duff when the next casual customer showed interest.
Good story, and will serve as a reminder when dealing with all my customers. I do pretty well face to face but can get a little short on patience with my phone inquires, especially when it starts out too general and price is the main thing early in discussion.
I am doing better with phone inquiries, for example a little patience today resulted in getting a total interior job on a 74 MG convertible. I gave the caller an extra couple minutes, explaining his options and moved the sale from vinyl to leather. Turns out I was recommended and he didn't initially offer that; wouldn't been a bad move if I had given the guy a quick brush.
Sort of parallels the salesman story sterotyping, from appearances.
Good point!
Doyle
One thing I found interesting about the book "The Art of Pricing" was that it made me look at lower profit jobs in a different way. I'd always felt that since my time is all I have, I should be getting the highest return on every hour I spend working on a job. That is a good goal to pursue, however, if it means that I've turned a way a sufficient amount of jobs (by having a higher price than they were willing to pay) that it leaves me with periods of no work, then overall, I'm losing money. The lower margin work, if used to fill in where no high margin work exists, will boost the bottom line in the long run. Back to the auction, setting aside the issue of a reserve price, when the highest price an audience will pay is not what was expected, the auctioneer says "sold!" and movs on to the next item knowing that that was the highest price to be gotten for that item. If it went unsold, there is no income from that item, and the higher bid items must be relied on to make all the profit. Better to sell everything and reap the profits both high and low from the entire lot.
Rich
Hello, I'm the author of The Art of Pricing and Rich invited me to participate in this conversation.
Tagging up on what Rich mentioned, I believe in setting your price based on the value of your product - not cost. For example, street vendors shrewdly increase their umbrella prices the moment it looks like it is going to rain. This simple story illustrates a key pricing principle: pricing is about value, not cost.
What's interesting about pricing is that for virtually any product, different customers have different valuations, hence prices they are willing to pay. Think about an auction, everyone is bidding on the same item and has the same information. When the bidding starts, many people bid. But as the price increases, people slowly drop out of the bidding. When someone drops out, they are in essence saying "I do not value the product as much as the remaining bidders do." An auction illustrates the key notion that different customers have different valuations for a product. The same concept applies to upholstery: some customers are going to value your services more than others.
A key pricing principle is to allow customers to pay you the value they place on your product. One pricing technique involves offering good, better, and best product versions. Here's a true story about a friend of mine that is a photographer. He told me that people call him for an estimate and since he wants the job, he strives to offer them the lowest price (with low margins). A situation that I'm sure all of us can relate to. I explained to him the concept of value and the notion of different people having different valuations for the product. We created a pricing strategy of offering potential good, better, and best photography packages. The next day, he offered the first two callers the 3 options - both callers to the best (and most profit laden) option. This simple pricing strategy resulted in a tremendous increase in profits. All he did was offer customers choices of what to pay him.
I'm happy to answer a few questions on this board. Also, please feel free to check out my site: www.pricingforprofit.com
Thanks to Rich for reading my book and inviting me to comment on this board! Rafi
Hey Rich. SCORE on getting the author in here, man. Cool. And Rafi, thank you for taking the time to make some comments.
I've always been a proponent of the smaller jobs. Along with shoring up the slow times (which -- knock wood -- doesn't happen often) I have another philosophy: Then Joe Blow brings in his grass bagger to have a zipper put in, or Mrs. Blow has a purse strap that needs some attention, that is indicating they are interested in keeping their items in proper working order. And, if they have that desire, then they also want t heir cars to be that way, so there is additional work if I prove myself willing to help with the small jobs. AND, the biggie, if Mrs. Blow is happy that I helped sew up her purse, or did a little oddball item for her, she will tell her husband how nice that man at the upholstery shop was, and then Mr. Blow will realize that the 69 Camaro he's been wiping with a diaper and parking on carpet pads for the last 30 years could stand a new headliner and maybe some carpet and some new seat covers. It's surprising who has what hiding in their garages.
Now, t here is always a flipside to that. The above is the ideal and what keeps me doing the small jobs. But, more often than not, people come in and bug you with the small stuff with no intention of ever doing anything more. So when that points comes up, I refer to the reading my customer way of doing business. If they come in and are good-natured and seem willing to work with me on getting their work done, then I accept it (in fact, I usually try to sew patches on motorcycle jackets and the like right as they stand there waiting).
But what I have to really be aware of is letting the little jobs eating me alive. I sometimes will have 10 or 12 boat covers with holes or seats with little holes, etc. sitting around and waiting. Those are a job that only take an hour or so to do, so the customers begin to think that it should be done in a day or so. What they don't realize is that the work is filler, and it's done when I have time, which might be a couple weeks away, or more.
Any more, I always tell them that yes, I'll do the work, but I will not guarantee how long it will take. If they push it, I tell them within four or five weeks of dropoff. Sometimes that causes them to take their job, but usually they don't care because they have nowhere else to go.
"A key pricing principle is to allow customers to pay you the value they place on your product." - Rafi M.
Now, this I will not do. People do not place any value on upholstery, at least in the automobile industry, or with the little "nothing" jobs. They will sink thousands into engine and mechanical, put the best paints over hundreds of hours in body work, and then gripe if the interior is going to be more than a couple thousand. Even though interiors are going for $10K, $20K, even $30k. I agree with the ideal that upholstery work on an automobile should be approximately one third of the overall build cost for a project.
Thank you Rafi, for taking the time to post some comments here. As you will see, there are some common pricing problems in this business, which, I am sure, are shared by others in other businesses.
Stitcherguy, it may be your experience that no one wants to pay for interior work, (it had been mine as well when I was doing custom auto interior work) but the fact that they are willing to put thousands into the paint and mechanical components means that the money is available IF they want to spend it. I think their are ways of getting these customers to part with more money for interior work. Our job is to find what it is that motivates them to spend, or better yet, WHO it is that will spend.
As mentioned before, not everyone is a candidate to spend the big bucks. For the rest of the crowd, lower priced alternatives have to be developed (remember the ATRN editorial) so that those customers can get what they want at THEIR price without the shop owner having to lose money on the deal. If they don't want to spend as much as what is normally charged for high level custom work, maybe a more off-the shelf version could be developed that will fit this level of pricing.
Rich
Quote from: Rafi M on October 03, 2007, 07:18:13 pm
Hello, I'm the author of and Rich invited me to participate in this conversation.
, I believe in setting your price based on the value of your product - not cost. For example, street vendors shrewdly increase their umbrella prices the moment it looks like it is going to rain. This simple story illustrates a key pricing principle: pricing is about value, not cost.
I don't know who this Rafi M is, but he doesn't know the 1st thing about the book
"The Art of Pricing" :P
I've always wanted to do that!@# LOL. Don't mind me, I'll be on my way, nothing to see here. Move along now.
"The art of Pricing" can be purchased at Amazon.com, see it here; http://www.amazon.com/Art-Pricing-Hidden-Profits-Business/dp/1400080932 (http://www.amazon.com/Art-Pricing-Hidden-Profits-Business/dp/1400080932)
I have this book on order; if this guy is going to come on here and help me, I'm going to support him and his book.
Does anyone open (or at least get in early) the conversation with their customer by asking what their budget is? Its perhaps counter intuitive but I'm finding it works. If they have £2000 to do the job i come up with a schedule that meets that budget, if they have £3000 they will get a different product so on and so on. Custom/bespoke means just that -tailored to their needs and budget,
Quote from: Rafi M on October 03, 2007, 07:18:13 pmI believe in setting your price based on the value of your product - not cost. For example, street vendors shrewdly increase their umbrella prices the moment it looks like it is going to rain. This simple story illustrates a key pricing principle: pricing is about value, not cost.
kinda reminds me of my bait shop up north.
My shop was right next tithe boat ramp. If a customer forgot somthing at walmart inhad what they needed as a concience I'd didn't gaff them but walmarts cost was about mt wholeale. I heard a few times " walmart has it for -----"
now. Just figure time and materials and if I can do I quicker the. The ti e alloyed good for me
todayi had a guy stop by with a sime fix just about 1' of zipper comming loose so I sewed all 3 zippers. Maybe a minute. And had a nice chat and told him. No charge. The guy will probly call me with a big job. .
market is also a factor. I do vinyl and leather repair.
and I charge from 65.00 a hour on up.
My best jobs are repairs. If I lived in an area where all I did was repairs I would be a lot better off. And people are so grateful when you can fix their sofa or chair for a fraction of the cost of a full reupholster or buying new. I think in part this goes with what Rafi M says about Value Added
Quote from: Rich on October 03, 2007, 05:30:33 am
One thing I found interesting about the book "The Art of Pricing" was that it made me look at lower profit jobs in a different way. I'd always felt that since my time is all I have, I should be getting the highest return on every hour I spend working on a job. That is a good goal to pursue, however, if it means that I've turned a way a sufficient amount of jobs (by having a higher price than they were willing to pay) that it leaves me with periods of no work, then overall, I'm losing money. The lower margin work, if used to fill in where no high margin work exists, will boost the bottom line in the long run.
This makes sense but what if you could make every job the higher price jobs and stay busy all the time. And this you can certainly do. Another good book, written nearly 90 years ago, The Science Of Getting Rich by Wallace D Wattles explains this. Also on audio book. I'll bet Mr. Mohammed has already read this book.
Just got done reading this book, and will continue to use as a resource. Excellent, excellent book. Easy read, very understandable, and he presents a lot of examples so that at least something will stick in my thick head!
Shows to to present value to your customerssomethingng not easy to convey.
And anybody who thinks my prices are going up after reading, they don't understand the basis of the book.
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Hey all,
Besides my obsession for my chesterfield sofa, I am a Sales professional and used to research marketing, including in a US business school.
My pick on this topic is that if, in theory, value pricing is certainly worthwhile, in practice you will save time and earn more money with a simpler set of rules:
(1)price your work based on the work, not the client
(2) ask consistently for the same price for similar jobs, whether it is for the same or différent clients
(3)price it on your cost+ the minimum margin you actually want or need.
(4)refuse politely any price bargain if it is not an exchange with your customer (I.e. more work for lesser margins, etc)
(5)ALWAYS deliver exactly what you said you would deliver, and when you sais you would deliver (for a repair, estimate, product, etc.)
These five rules do not have the lure/high profit expectations of value pricing, but they will give your customers the impression that you are honest and ethical, and that they can trust you, which will ensure the long-term growth of your business.
Quote(1)price your work based on the work, not the client
(2) ask consistently for the same price for similar jobs, whether it is for the same or différent clients
(3)price it on your cost+ the minimum margin you actually want or need.
(4)refuse politely any price bargain if it is not an exchange with your customer (I.e. more work for lesser margins, etc)
(5)ALWAYS deliver exactly what you said you would deliver, and when you sais you would deliver (for a repair, estimate, product, etc.)
These five rules do not have the lure/high profit expectations of value pricing, but they will give your customers the impression that you are honest and ethical, and that they can trust you, which will ensure the long-term growth of your business.
I agree with most of the above with the exception of #1 and #3. I see cost and minimum margin as mandatory starting points (you can't go below them or you will find yourself gradually going out of business. I think that a major point of the book is that people have inate senses of value and either will be uncomfortable paying your calculated minimum, or will think of them as too low. Each business owner has to have his or her finger on the pulse of this sense that customers have and set final prices by that, not the calculations.
Also, I'm all for consistency in pricing, but if you are able to accommodate a customer who is in a big rush for a job, should they pay the same price as someone who is willing to fit into your schedule?
Rich
Hi fp2161. All good points. The only one I'm having a little trouble understanding is # (4) Refuse politely any price bargain if it is not an exchange with your customer. Im not trying to be smart here but who else would I be dealing with but my customer. And I can easily upholster 40 conference chairs faster, if I pick them all up at the same time. Rather than doing them one piece at a time. Wouldn't I give the larger order a break in the price?
Please explain. :)
Hey Rich:
imho if you are asked to do a job in emergency, this hints at a justification for a higher price, provided this is always applied for emergency jobs and provided you have it in your price list (ie surcharge for urgent work: +20%). Another decent answer would be: "I can't do it, why don't you go and see ...". Both of these can be seen as transparent, honest behaviour.
price and value are representing the biggest point of endless argument making between economics, and marketing thinkers, it has been so for centuries... I say cost+minimum margin that you WANT, ie easy way of saying: decide depending on how much you are willing to work for. Value is, boy, a complicated thing: among other ideas it is not objective (people value things differently with their own perspective) and yet it is not completely subjective (no one would exchange a bar of chocolat against a Ferrari... Or very few people!!!) My point is: do not get into this, you have everything to loose and very little to gain, leave it to large corporations, you have something they do not usually enjoy: a reputation for honesty and hardwork, and you could loose it all by starting to charge people based on your evaluation of how they value their work (you should maybe read Malcolm gladwell's blink, it addresses in part this issue)
Quote from: kodydog on July 11, 2011, 06:35:33 am
Hi fp2161. All good points. The only one I'm having a little trouble understanding is # (4) Refuse politely any price bargain if it is not an exchange with your customer. Im not trying to be smart here but who else would I be dealing with but my customer. And I can easily upholster 40 conference chairs faster, if I pick them all up at the same time. Rather than doing them one piece at a time. Wouldn't I give the larger order a break in the price?
Please explain. :)
Ok: 'customer: why don't you give me a better price?
you: No, I can't, sorry' (no exchange)
'customer: would you give me a better price per chair if I order 4 instead of one?
you: sure, I'd reduce the price per chair by XXX' (exchange)
see what I mean???
Did you read the book?
Rich
which one?
Quote
Another way of looking at pricing
« on: September 29, 2007, 09:44:12 PM »
I just finished a book written on pricing methods. The book is "The Art of Pricing" by Rafi Mohammed. The author builds a strong case for a pricing method I've used for years, but goes much further by breaking it down into the many strategies he feels (and gives real-life examples for) will enable anyone in any business to reap more profits.
The basic theory is that every service or product should be priced to reflect what the customer's percived value of it is and that since different customers place different values on the same product, each should be paying according to how they value the product or service.
Has anyone read this book? If not, I would recommend it and would enjoy participating in a discussion on it. Maybe there are other books you've read on the subject, but I think value pricing could provide a new angle on the pricing game and prove helpful for anyone in the reupholstery business.
Thanks,
Rich
That's the one I started this thread with.
Rich
no, I did not... The ideas expressed in it seem somewhat classic though, and plenty if books speak about price or customer value: I can't read it all!!!
Well, if you won't read the book, then at least go back over the prior posts in this thread as I think your concerns about will-nilly pricing may have been answered there already.
Rich
what you are calling willy-nilly pricing only works if you do not have any (or only very little) perceived competition-it has been said before, but in less explicit terms. When you do you have to price the way I told you in (3).
I think everyone would probably agree that with little or no competition, prices tend to rise. Competition helps to keep things regulated. But, what I mean by willy-nilly pricing is when no records are kept and each customer pays a different price depending on the mood of the business owner. If one expects any word of mouth advertisement, this will come back to haunt them sooner or later. But when a customer understands that the price is higher for a good reason (as in my example of squeezing in a rush job), then it seems fair so no one should feel cheated. The book illustrates again and again instances when a business can charge more for the exact same service for different customers. One example is when a restaurant lowers the price for those who are willing to come in during slow times. The customer gets a price reduction and the business earns more income during a time when they would normally not expect to. But, not everyone wants to or can make it during that time, so they understand and are comfortable with the fact that they will pay full price.
Rich
Quote from: Rich on July 12, 2011, 05:31:02 am
I think everyone would probably agree that with little or no competition, prices tend to rise. Competition helps to keep things regulated.
to say the truth, when you have no competition, theory says that you will tend to set your production at a level when the cost of your last good or service produced is equal to the cost of your average good produced. You will then be able to price it so that people can still pay for it.
Quote from: Rich on July 12, 2011, 05:31:02 am
But, what I mean by willy-nilly pricing is when no records are kept and each customer pays a different price depending on the mood of the business owner. If one expects any word of mouth advertisement, this will come back to haunt them sooner or later. But when a customer understands that the price is higher for a good reason (as in my example of squeezing in a rush job), then it seems fair so no one should feel cheated.
This is called a discriminant oligopoly policy.It clearly works better when you have no or very little competition: i.e. why should a customer understand that you need to overcharge for a job because you are too busy to do it if another upholsterer can do it for less? It can also work if you enter an agreement with competition in order to set your pricing policy together (but it is illegal)
Quote from: Rich on July 12, 2011, 05:31:02 am
The book illustrates again and again instances when a business can charge more for the exact same service for different customers. One example is when a restaurant lowers the price for those who are willing to come in during slow times. The customer gets a price reduction and the business earns more income during a time when they would normally not expect to. But, not everyone wants to or can make it during that time, so they understand and are comfortable with the fact that they will pay full price.
Rich
this is a fine example of a discriminant policy, but (1)I doubt that you can apply it to upholstering, and (2) I do not see anything that new in there.
I will start right off my saying I have not read the book, but I would like to. I think pricing is very sensitive to your location. The guy selling umbrellas on a street corner in NY NY can get away with raising prices during a rain storm IMO because of the sheer volume of potential customers who pass by every day. Here in Vermont that guy sees more potential customers in one day than I see all year. I think there is a term for it, its called profiteering, and in some cases it may be illegal. In my area I have to be very careful to have consistent pricing, because just about everyone knows each other, or is related to each other and people talk. I can get away with wholesale pricing to business who bring me volume work, people understand that. I can also charge extra for a rush job, once I had a trucker stop after hours, he needed a huge tarp sewn that went over his trailer. He gladly paid extra, much extra to have it fixed right then and there. I also think most people understand that also, he had the option to go somewhere else, but wanted it done "now". There are a lot of good examples in this thread, but I have always believed that honest pricing, for an honest job is the best policy, you may be able to make a little more in the short run with creative pricing, but for long term growth and your reputation, honesty is still the best policy. To many MBA's focus on the short term bottom line these days and ignore the long term consequences of their decisions and policy's. IMO that is one and only one of the reasons this countries economy is in the toilet.
I can only agree with you.
If your way of manufacturing chesterfields is as safe as your way of thinking, I should maybe have ordered one from ya. ;)