Pricing Dilemma...You Comments Please???

[Laura Zaruba]

I'm just getting my business started so I'm in the early phases - ordering various samples, practicing, testing markets, etc. My prices aren't set in stone but I think I have a retail pricing model I'm comfortable using.



However, I've run across a product that seems to be well received among general retail customers but I've also found a niche market to wholesale the same type of product. The problem...the general retail market won't support much higher prices than I'm charging and the niche market retail prices for basically the same item, just some slight differences in the personalization and designs, are significantly higher and they are more than willing to pay the higher prices.


I don't know how I can charge one market more than the other for basicallly the same item, especially when the wholesale prices to the niche market would be more than the retail prices for the other market. It wouldn't be hard for the niche market to find my general retail prices if I continued to sell to both.

To add to the confusion there are several other niche markets I had planned on contacting for wholesale opportunities however the pricing would also be significantly less than this particular market I'm considering now.

I could offer the same product in different materials for the different markets, however, my niche market customer knows the relative wholesale price of materials (being in a similar industry) and they could use any of the materials for their purposes. I'm thinking about only offering these products to the particular niche market and here are my current thoughts:

Niche Market

Pros: Higher profit margin, less labor intensive, many opportunities for multiple wholesale relationships as my current prospective customer is wanting to plug me into their network.

Cons: Potentially lower volume, requested designs/artwork are so far hard to find and/or expensive. If I only sell this product wholesale at the higher price it restricts my retail product line.

General Public Market & Other Niche Markets
Pros: Potentially higher volume, designs/artwork easy to find and not expensive, adds to my overall retail product line.

Cons: Much more labor intensive, lower profit margin, sales will depend on mostly my own efforts (labor intensive).

In simple terms, if you can sell a widget to Market A for $10 retail or to Market B for $20 wholesale (and Market A won't pay the retail prices Market B will), what would you do? (Now that I re-read this it seems I've answered my own question!) Is there any way to sell to both and be fair?

I can always try only selling to the niche market and if things don't work out I can start offering the product to retail customers again but I'd like your thoughts and advice if you've run across this. This opportunity is making me reconsider my entire business plan and I'd like to get as much feedback as possible before I make any significant changes.

Thanks in advance for your (hopefully quick) replies. :)

[George M. Perzel]

Hi Laura;
First of all, get over your guilt! There is nothing wrong with selling the same item to two different markets at different prices- if you can do it. I don't think you can if there is public visibility of your product and pricing.

Marketing 101 tells use that you need to do something to the product to differentiate it between the two markets, i.e, add something to justify the higher price. Without knowing what type of item you are talking about it's difficult to make anything other than generalizations, but I think you answered you own question- focus on the higher profit market which requires less effort. I would, however, spend some extra energy to make it a really quality, desirable product and increase your market share.
Good Luck
George M. Perzel

[Michael Wells]

Ah Darlin' you did answer your own question!

#1 Always go with the market that gains the most financially with the least employment of effort! So long as that market is stable.

#2 If the Retail market has enough profit to thrive by purchasing at your prices, then that means they can retail at X price. That means that you can too! Your retail prices should be at or near the wholesaler buyer's retail and all will be happy! Naturally as the manufacturer you can sell cheaper than can your wholesalers, but why, when you can sell at the fair retail?

#3 Never underestimate the willingness of people to pay a higher retail price for a product that is of high quality and holds uniqueness of design!

I would sell to the wholesale buyers and also to the retail customer under the caveat of establishing customer awareness and desire for the product line. Once the wholesale market is strong enough, I would drop the retail market in deference to strong wholesalers, who will sell far more than you can.
Hope this helps,
Michael

[Carl Eyman]

This is the second pricing question I've commented on this evening. Guilt has no part in this decision. Last year I completed the last of ten dining room chairs. They took me an average of 75 hours each and were for a family member. During the time I was building them. I heard a story about a woodworker who was asked how much he'd charge to make a certain chair. He answered $500. Then he was asked how much he'd charge to make ten. His answer: $75.000. That is exactly how I felt.

If you enjoy the making and selling at retail with meeting people and seeing their reactions to your work, then price your work to attract that customer. If you'd rather the impersonal, arm's length approach, then price your product to attract that type of business.

Anyway good luck and have fun.

[Charles McKinley]

Hi Laura,

Are you in this for Profit or Pleasure? If you are trying to pay your bills the highest profit margin job should pull more of your resources. Have you taken a basic economics course? I rember you are educated I just don't remember which field. I love econ. Just understanding the basic principles of supply and demand, elasticty of demand, inferior goods, commodities can make the interactions between people a little easier to understand.

If the products are that simular and you are putting More work into the one they should be willing and able to get a simular price as the other retailer. If there is an acceptable cheaper substitute that is what people will buy. Yet another reason to focus on the retailer that will pay you the most per your unit of input.

You need to look at the whole picture, machine depreciation, consumables, utilities, rent (even for your basement), insurance (business, health, life), paying yourself, RETIREMENT funding.
You do want to retire some day don't you ;)

Ahh the joys of being self employed! :)