I never imagined that how to price my inventory would become such a complicated process. Before I opened the store, I had it all worked out. I made up a formula and planned to use it equally on all of my items.
It didn't take me long to find out it doesn't work that way.
Because I sell handcrafted items, pricing is very subjective. Two items that look the "same" may be worth very different amounts depending on who made them, if they're signed or not, how intricate the work is, etc. I don't believe that I markup prices excessively, but I do spend much of the day explaining to people how different items are made and why some of the prices appear to be high. These are not mass-produced dog figurines. (remember Mike?)
Does that mean I should be targeting another market, one where the customer demographic is already familiar with the type of handcrafts that I sell? Possibly, and that is what I'm doing with the online store. But short of pulling up stakes and moving, there is not much I can do about the customer demographic in my part of the world.
So, what I've begun doing is marking up some of my smaller items by as much as 400%, as long as the final selling price still seems reasonable. This way, I can sell some of the items that I pay more for at less markup and still make a profit overall.
I believe one of the tricks to this, though, is going to be in getting the customer's attention on the small items, and then educating them and building an ongoing relationship so that they realize the value of the higher-end items and return for future purchases. To that end, I do have a few strategies in place. I'll be discussing them in this week's blog entries.
It would make a big difference if you changed your approach to a customer first culture instead of driving a product/pricing culture. Many new businesses, and old for that matter, make this crucial mistake. We find a product or service and then open the doors. We expect the customers to want what we have on our terms. Unfortunately it doesn’t work that way. This shows that you didn't go out and identify the need or in some cases the wants of your potential primary markets and do the necessary research to find out what they would buy and in what price ranges.
Research on similar stores and competitive research identifying your competitors would have given you a better key to what to expect in your pricing models. Actually your marketing could also help derail many of your pricing issues by setting customers expectations.
If you had focused on the customer need and did the market research first you may have completely by passed your learning pains. Listen to the customers and listen to what they are asking for instead of trying to convince them that they need what you have. Yes, you may have to change and adopt your product line, but that's the price of doing in hind sight.
The biggest mistake small businesses make is not doing the market research and development that is needed to create the success that will bring in the bucks.
s.
Posted by: Tim Whelan | June 26, 2006 9:18 PM | Permalink to Comment