How do you set the price of your item, as a wholesaler? The question must also take into account the price your customers will set, as well. You will not (although recently by US law you are able) dictate the price at which your customers sell the item. You will consider industry “price points” and design to those.
And it is necessary to constantly repeat “you never compete on price.” If anyone ever objects to price, they mean “your design is wrong.” Any objection to price must be met with a change in design.
Setting a price is a back-and-forth process. You experience a problem, think up a solution, test it in stores with retailer feedback by plan A or B, more fully inform the idea from that exchange, work with designers to come up with specs, find the best place in the world to have it made, get a sample, cost out the sample, and then, set your price.
This price setting is a balancing act which can only occur when you have the samples and costs and retailers are looking at the item. There are two elements to balance, costs and price points.
You know your costs, and having developed the item you know where you can make your item more or less costly, if need be.
Chapter five of the book has some fundamentals on setting prices in relation to costings. After reading the book and as you begin to execute the plans, there are further considerations, in light of reading Chris Anderson and his book “Free” which provokes thought.
Consider the Apple iPad. The ipad is a device that connects you to the internet. The value of the internet is only lowering the cost and widening access to communication and research. There is no other benefit to the internet (although that benefit is awesome.) Now consider the iPad. The “value” is not the ipad, it is the access to the cost of research and communication that the ipad actualizes. The value shows up in the savings in using the ipad. Apple is moving into business and industry massively and microsoft is watching dumbfounded, with no response available.
The value of a Boeing jet is not the $300 million per, it is the sale of seats for 25 years.
What Jobs figured out long ago was at $400 the ipad is free... the iphone is free... it’s what people are saving by buying it that drives the market.
A crew from Canon showed up at Apple circa 1984 with a presentation on the laser printer. These guys were ready for 3 days of presentation, numbers, etc... and they started by printing out a page from a word processing document, it looked perfectly type set, not dot matrix. Jobs looked at it, and turned ot the manager in charge and said “Buy it. Everyone will want this.” And left. The price didnt matter, it would fall in time, no matter where it started. Kinkos bought 100,000 of them becuase they could charge 10 cents a page for a 5 cent cost at the volumes they ran.
Profits are just another business expense, according to Drucker... and Jobs has figured out the customer thinks in terms of what he can have for free... and at $400, and iPad is free compared to the value...
Joe Girard, "America's #1 Salesman" (sheeesh!) made two important points
1. You're in business when your product (service) is more important to them than their money... (I'd add and their orders cover your supplier's minimum)
2. What can they have that no other customer can have?
The iPad has both, it's free and it is unique to each buyer...
There is a market for iPad at $5000 each, more at $2500, even more at $400... and likely far more at $50.
The $400 price point is just where diminishing returns, or just aerodynamic drag, takes over and it is "there, and no farther."
For an educational toy priced at $20 retail, ain't the $20 that matters, it is the kid will learn with the toy. The popular price points are another element to design around, like clamshell packaging, but not a imperative. It may be that you can spend $10,000 redesigning the thing down to a $15 price point and get nothing extra in sales volume. So why bother? You are not helping anybody.
So price is one of those things like instinctive shooting with a yew bow, where at any given time dozens of elements are in play, and since it is not a target bow you size everything up at the moment and let fly. The yew bowman has six arrows before the first arrow lands. The crossbowman with this power and aim advantage, is taking a few arrows while he reloads. I don't know if the analogy is working so I'll say from my observation and experience, it is all very sloppy, holistic continual judgment, with lots of tries, and the cost of the next 5% above 90% being as much as the first 90%, but each arrow let fly informs the next.
S as you consider costs, and industry standard price points and your product ask yourself “why is your product free?” or “how is your product free?” as in te customers mind that the price does not matter.Feel free to forward this by email to three of your friends.
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