More On Pricing

More On Pricing

I've had several questions lately on pricing and, while replying to one asking whether $175 is a good price for a bracelet, my answer accidentally turned into an essay. So I thought I'd just post it here, instead. *s*

Pricing is not a one size fits all proposition because it's less about inherent value than it is perceived value. In other words, an item is worth exactly what someone is willing to pay for it; no more, no less. So I can tell you whether the bracelet is worth $175 to me but that doesn't do you any good because I'm not the person you hope to sell it to.

I have an analogy for you that will initially seem unrelated, but it'll make sense in the end. When taking a photo, you can set the lens opening (aperture) to a certain size and the camera will determine how long the shutter must remain open in order to get enough light through an opening the size you chose. Or, you can set the shutter to a certain speed and the camera will decide how far the lens must be open to get enough light within the time frame you've chosen. One setting dictates the other. If you choose a tiny lens opening, giving the aperture priority, then the shutter will have to be open a long time to get enough light. If you a choose a fast shutter speed, giving the shutter speed priority, the lens will have to be open wide to get enough light.

Pricing is a lot like that, in that the price you choose dictates your market or the market you choose dictates your price. You get to pick one or the other. If you pick the market, meaning that you choose a place where you want to do your selling because it's convenient or you like it or whatever, you're stuck with the prices that market will bear. If a flea market is your sales venue of choice, you're stuck with low prices and, in order to be profitable, your items have to be inexpensive to make, both in terms of materials and time. Think of that choice as the Market Priority Model. You choose the market and the market dictates the price.

If, on the other hand, you choose good prices -- and I think $175 is a good price -- then you have to find the market that will bear it. By that I mean that you have to come up with ways to get your product in front of people who will see $175 as a fair price for it. There are plenty of people in the world who recognize fine craftsmanship and won't settle for anything less and it's quite possible to find them. But you do have to know who you're looking for. (See the other posts in Sales and Marketing for more on this.) Think of this choice as the Profit Priority Model. You choose the price and the price dictates the market.

You'll often hear jewelry people claim that they can't raise their prices because, 'people in this area won't pay more than $x'. In that case, the person is choosing the market (for convenience or other reasons) and that market is dictating the price. That's a perfectly viable choice but it is a choice. The person could, instead, give the pricing priority and seek what might be a less convenient market that will pay higher prices.

It's important to realize that the choice between the Market Priority Model and the Profit Priority Model leads to two completely different types of businesses. Each has it's own advantages and disadvantages. Both are viable business options but they have little in common with one another.

The Market Priority Model

The biggest advantages are convenience and quick sales. The sales venues are close, easy, comfortable or all of the above, and the customers are often friends and acquaintances from work, school, community activities, etc. It's easy to be one's own target market and to predict what will sell within one's own peer group so sales can be fast and furious, inspiring a burst of early confidence.

The disadvantages are that, for the vast majority of us, selling within our own peer group means lower prices than we'd like to get for our work. Trying to keep the prices low means not getting to use all the nicest materials and not being able to spend a lot of time on each piece... unless a person completely sacrifices their profit margin, in which case it's a hobby, not a business. At the lowest price points, even discount store jewelry competes for the same shoppers. Although sales are initially easier, production is harder because a low profit margin means that a great many sales are necessary in order to make a substantial profit. With that many sales required for true profitability, a person will eventually exhaust their own peer group and have to cultivate outside sales in order to continue to grow. That means that, to make serious money, a person will eventually lose the convenience that made this method appealing in the first place. So although this method is great for small money and very nice in the short term, if the goal is really comfortable money, in the long run, this method is probably the harder way to go.

The Profit Priority Model

The biggest advantages are getting to use all the nicest materials and take all the time required to do spectacular things with them while making a healthy profit that allows for growing one's business and having a comfortable life. And, of course, the luxury of pursuing quality over quantity is more satisfying to the soul.

The disadvantage is that sales are neither quick nor convenient. They require time, effort, cultivation and reinvestment of profits. More investment is required upfront, in terms of both money and skills. This is not the way to go if you're trying to be profitable quickly; it takes work and patience. This method takes a long term plan and a serious business mindset... but the payoff of success is serious business profits, happy work and a manageable workload because a healthy profit margin on each item means you can afford to turn down work when you run out of time. In the short term this method is harder and requires more of a person... but it has much better potential for long term satisfaction and business success.

When a jewelry designer comes from a privileged background, she's able to cultivate a Profit Priority Model while keeping all the advantages of a Market Priority Model in that she's selling to her own friends and acquaintances. If it happens that those friends and acquaintances are celebrities whose photos are snapped while wearing the jewelry, her jewelry business might become successful overnight. That's the best of both worlds and we'd all love that kind of opportunity. Since envy makes for bad karma but the universe smiles on wishing well for others, I propose that while we're honing our skills, working on our businesses and sowing the seeds of our own future successes, we should also cover our friends in jewelry and wish them all great fame and fortune. *s*

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