Pricing Specialty Goods

Here is a specialty retailer with ski sweaters on offer.  As see the $1000 range is typical, with sweaters running up to $4000...

Whatever you were planning to sell, whether hats or sardines or sweaters or dRams, anybody can make any product specialty.  There is a change in perspective necessary, but that should not be too hard once the facts are known.

For a $4000 retail sweater, the wholesale is probably $1800 - 2000, but the $4000 sweater is extra special, down lined, and in that measure price blind.  No one can look at it and figure out quite what the price should be.  And being unique the rip-off artists steer clear of it because there are too many unknowns in such an item to mess with.  Lower hanging fruit is available to take elsewhere.

Aside from the occasional price blind items, there are items such as just plain merino sweaters that run $2000, and are not price blind.  Once the facts are known all of our competitors know what your item cost you.  "Merino, 20 micron, aniline dyes, 4 ply, 12 gauge"

Once you could check with Robert Morris and Associates for standard markups in an industry, but that is now morphing into KPI.org.  In any event, you need to learn what those standards are, because they will become your markups.  And, you can always ask, say a retailer or another person in the industry, or google it for news reports on the topic.

Let’s look as something as basic as shoes, and here is a pretty standard men's shoe style, this one by Bruno Magli, at anywhere from $400 to $500 depending where you buy it.  I read a news article that happened to offer some statistics on this shoe, and briefly Bruno Magli sells some 300 pairs a year in USA, at $425 that is $125,000 retail, $62,000 wholesale, or about $5,000 a month.

Not much, eh?  Of course Bruno Magli has more items in their line, but the point is at the specialty level, we are not selling mass quantities.

But we are making the same amount of money as if we were selling mass quantities.

Net profits can be easily be around ten percent, which seems low when people learn of it, but they do not quite apprehend that the net is what is subject to forfeiture in taxes, more on that elsewhere.

The point of this note is pricing.  Say a sweater costs $500 to make.  Say that is five times as much as the going rate, but with better materials and lower quantity, the five times progression is necessary.

The big issue here is quantity.  

Now, your competitors in the specialty field already know what something costs, at what quantities.  They see exactly what you are doing, and do not steal your idea for the simple reason that they 

1. have their own ideas

2. have no customers for your idea

3. As to the mass merchandisers, they would rather wait until you prove there are customers before they “steal” your idea.  But by then you are already proceeding ahead with next moves better informed by the market feedback on your advantageous head start.

Given all that:  If your price is too low, you cannot a cannot attract all of the talent that must be assembled to make this happen.  People need to be paid for their time, and ultimately that has to come out of the sweater.

But your competitors know what everything cost you.  Price it too high, say a greedy $1000 wholesale vs a rational $500 wholesale, and they will know you are charging too much.  If you charge too high you invite competitors to at once punish you and make themselves look good, by knocking you off and pricing at $750.  In this way they at once make better returns making you look bad.  Then comes the regression to the mean, and the greedy get knocked back into line.

In a free market the cop is your competitor.

Don’t fail to charge what you need to charge, don’t get greedy.  Two sides to the same coin.

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