In the wonderful downtime just after New Year’s Day, I found myself listening to the January 1st edition of the NPR Science Friday podcast. It was utterly fascinating for me as a small business owner and online retailer. The podcast features Ira Flatow interviewing William Poundstone, the author of Priceless: The Myth of Fair Market Value (and How To Take Advantage of It). Poundstone, who refers to retail prices as a collective hallucination, unveils some of the psychological tricks used by retailers to encourage consumers to buy. And while the information presented was targeted at educating consumers, I got a lot of important tips about setting prices as well. And a lot to think about.
- $.99 Sales: Poundstone talked about the hypnotic effect of items priced at ninety-nine cents - the magic number – and I was surprised to learn from him that the profit margin of dollar stores is twice that of Walmart. Those of us who sell on eBay know the appeal of the ninety-nine cent auction and the kinds of strong it can draw to our higher-priced items.
- Anchoring: Conversely, having one or two items in your online – or brick and mortar - store that are very much overpriced can help to make all of your other items look like bargains in comparison.
- Ends in Nine: Poundstone cited the well-known practice of ending prices in a nine, such as $12.99 instead of $13.00, but mentioned further that research shows that when the same item is priced at $39.99 vs. $34.00, for example, consumers are still more likely to purchase the product at $39.99. Wow!
- Double the Price: Poundstone and some retailers who called into the show talked about the practice of doubling prices and then offering a fifty percent discount, reminding listeners that consumers gravitate toward perceived bargains. (I would love to get advice from anyone who has done this successfully. I have tried raising prices and then offering discounts, but can’t get past how manipulative it makes me feel.)
- Raising Prices: Several retailers who called in mentioned that when it comes to prices, particularly when it comes to high-end items, sometimes pricing higher is better. One retailer mentioned that his low prices on gemstones lost him sales, since consumers questioned their authenticity and/or quality. When he raised his prices, his sales went up substantially. We have found this is true for our online sales as well, even though most of our items are moderately priced. Being the lowest priced item isn’t always the best strategy, even when it comes to attracting über bargain hunters like eBay shoppers.
Setting prices can be one of the most important and challenging parts of your business and of your marketing strategy. I just found out that one of my wholesale distributors is raising prices on their entire line for 2010. Sadly, price inflation is to be expected, but it doesn’t make it any less exasperating. Not only does the increased price of the items mean a higher up-front cost for my business, but now I must calculate what, if anything, this increase in wholesale price is going to mean for the retail prices that I set for these same products. In addition to the mix of information I got from the Science Friday podcast, here are a few things I will keep in mind as I set my prices for 2010:
- When setting prices, remember to keep in mind the total price of your item including overhead, packing materials, shipping costs, eBay, PayPal, Amazon fees, etc. and your time;
- Learn from the experience of others. There are lots of tips you can use to set your prices, including remembering that customers are not always looking for the lowest price;
- Use a profit margin calculator to help you determine appropriate markup. Or create your own profit margin template with your own unique specifications (fees, shipping costs, etc.) by using a simple excel spreadsheet;
- Remember to use your experience, both as a retailer and as a consumer. I always have to remember to don my consumer cap on when I am setting prices. Experience is a wonderful, though not infallible resource.
Outright is secure.
What do you think?
What strategies do you use to set prices?
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I have an excel programme written by another crafter. I'd love to upload it for everyone to use if I knew how to
Posted Mar 12, 2010 7:39:37 AM by: Studio Stitches