Pricing in a vacuum?

[Rich]

When the type of work you do is closely associated in your customer's minds with your competition, I think you pretty much have to fall into step with them on pricing, or risk losing your business to them. That's the supermarket in the article.
The better place to be is where customers who care, see a reason to believe that you are different in a better way. Your shop is organized and clean, your reputation for high quality materials and workmanship precedes you, you are able to convince them of your attention to detail, or your honesty and your service record (it's completed when you say it will be) is already known. That would be the high end restaurant and you are then pricing, as the article says "in a vacuum". In that case, you want to know your costs for sure, but you use that only as a jumping off point. You price based on the perceived value you customers place on you.
Has anyone ever given a price to a customer and gotten the response "Oh that's not bad!" or "Oh I can deal with that!". It's nice to have a customer pleased with your price, but didn't you wonder if maybe you could have given a higher price and still had a happy customer? I believe in pricing based on perceived value, not just my costs. After all, my customers (and I'm sure yours as well) could not care less what my costs are! And that works both ways because when I just can't get what I need to cover my costs for a particular job, having priced the last few jobs higher than what I need could spell the difference between a good month and one where I just broke even.
Rich

[gene]

Who is my competition?

This is a critical question to ask and answer. And most small businesses never do.

If your customers are "people shopping for the lowest price", then your competition is someone else's lower price. SCORE talks about this being the worst position for a small business to be in.

My biggest competition is brand new, high end quality furniture.

Thanks for all the comments. This has been an enjoyable thread to read.

gene

[Mojo]

Who is my competition?

This is a critical question to ask and answer. And most small businesses never do.

gene

This is so true. When I was still consulting I was always amazed at how many small businesses never knew who their competition was.

In my little area of our upholstery trade that I specialize in I know exactly who my competition is and thankfully they have a piss poor reputation among RV'ers. Otherwise I would have a tough time competing with a large International company.

When I decided to go head to head against them I knew I had to compete on price and quality in order to grab a little tiny bit of market share. So I designed slide toppers and window awnings that are of much higher quality then what they produce. As it turns out I produce a much higher quality fabric replacement at the same cost and sell them at or below their price point. My smaller toppers are slightly higher priced but my larger ones cost less. My overall full quad slide costs are much lower. I grab market share though on quality not pricing.

I have gotten slow a few times, started worrying and considered running sales but never did. You can create a huge mess by moving your prices around on products and piss off more customers then you would want to. I locked my prices in and promised myself not to run sales despite things getting a little slow at times. I have worked way to hard to present a quality product to the RV world and dropping prices would do three things 1.) Piss off the customers I just sold to at a higher price a week ago 2.) dilute the product ( brand ) itself by cutting prices. 3.) Make future price increases painful to the customer.

When your a business such as a grocery store or restaurant and are selling numerous products you can get away with price manipulation / changes. When your product line is small you cannot. My other problem is that my customers all know each other through the associations they belong to and the vast majority of my business is referrals. I am not going to drop prices and upset my customer base by getting people talking to one another about what they paid.

My current profit margins are very good so I see no sense in messing with the formula. Yes I could drop my prices and still make a good living but why ? I produce an excellent product and feel I price it fairly. I am not Walmart nor am I GM or Ford so have no plans on playing games with prices.

Chris

[sofadoc]

I don't consider high end furniture to be my competition. I consider it to be my lifeline.
High end furniture carries a high end price. It makes it much easier for me to sell a reupholstery job on a piece that cost a ton 'o money to begin with.

My competition is low end EZ finance furniture.

My competition is also Interior Designers/Decorators. There is only so much money to go around on a job, and decorators are hell-bent on getting all of it. I know that many of you have wonderful relationships with decorators that are beneficial to both of you. But I have yet to meet one that didn't need me a lot more than I needed them.

I wish there were a whole row of high end furniture stores on MY street!

But I really don't think that all this big time marketing lingo that you guys are throwing around even applies to a small upholstery shop. Unless of course, your goal is to become a BIG upholstery shop (good luck with that).

[mroy559]

Seems like to me that when pricing is completed to protect costs or away from fear (or both) the particular big loser will be the one who's setting the particular pricing. Next it's their own competitors. I do think it's just about all too common with this industry sad to say.

[baileyuph]

Sad to say the economy we have been in during the last several years has hurt the higher quality furniture market much harder than the low end.  Probably several reasons, but most people either can't afford or think they can afford to spend more than the low end prices for furniture and even at that rate I hear them lament that furniture is so high today.  I remind them that they bought a sofa for about the same price they were 20 or 30 years ago, compare that to auto cost.

They hear me, but it doesn't have much impact.

Doyle