Another way of looking at pricing

[Rich]

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

[baileyuph]

each 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

[Rich]

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

[baileyuph]

I hear ya, Rich.

[west coast]

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.

[Skoda]

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

[Backwoods]

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

[baileyuph]

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

[JuneC]

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. 

[Rich]

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

[stitcher_guy]

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.).

[Rich]

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

[baileyuph]

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   

[Rich]

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

[Rafi M]

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