The Science & Art of Pricing Products
Yesterday we had a client meeting that went very long. It was all about pricing for 16 sets of jewelry. These are the first pieces coming off production of a very, very special line. That conversation was to be the foundation for all future pricing decisions.
This was the first time that 4 out of 5 people at the table had ever approached pricing a line.
I was the only one there who has done this hundreds of times. In fact, I've priced lines being shown to Target, Walmart, Michael's Craft Stores, Lowe's Home Improvements Stores, Whole Foods. And a WHOLE bunch more.
My new assistant had never seen this kind of work done. When that is the case, we always do a debrief afterwards.
Here is some of what she said:
"I had no idea there are so many steps to getting pricing right."
"It was very eye-opening to watch how you look at all the jewelry and the individual pieces together."
"I've never seen that done. Wow"
So to give you a glimpse into the world of pricing products for lines, for retail stores, or corporate sales, here is how to start.
First off, pricing of products tells a story when people look at the entire line. That is how buyers will almost always look at your product business.
The story your product pricing tells can be one of quality, value, design, consideration.
Creating prices without a methodical process is sketchy at best and catastrophic at worst.
Matter of fact, we had a client who had purchased a product company two years ago. Not understanding the product business they decided that to keep a MAJOR account, they would cut prices to get more business. A year later they were almost upside down in the business. Cashflow had bled out.
Fortunately, we were able to change the product & packaging. The changes that we made gave enough reason for the client to tell the buyer there was a price increase. A $15 WHOLESALE price increase.
Since the product was so massively updated, she agreed!
That meant they were able to start to turn the company around.
Now... Back to YOUR pricing.
Part 1: The Science of Pricing
1. Gather all your true costs in an easy-to-use format, preferably a spreadsheet. Remember to include packaging, handling, everything down to shipping envelopes.
2. Have your actual products in front of you. At the very least, images. Preferably printed full size.
3. Lay out the various products being sold along side each other.
4. Use mathematical formulas with your appropriate margins for how you WANT to sell. Run the numbers for each product the first time.
5. If you are deciding what margin percentages create a good value perception for consumers, setup three columns so the numbers are side by side for the same piece of product.
Part 2: The Art of Pricing
6. Compare the math generated retail prices to the actual products again.
7. Does the product look like a value? Or does it feel "off" somehow?
8. Look at the whole assortment of products keeping their retail prices in mind.
9. Do any of them feel inconsistent?
10. Adjust as needed so the line tells a consistent story with it's prices.
And lastly, call us if you want an expert guide through the process. We can get it done together.
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