Give 'em what they are willing to pay for!
For some having to have your Champaign served by the co-pilot while paying $3000 an hour for your ride may seem to be a bit scrippy, it's miles above what we put up with getting our bag of peanuts on cattle car airlines.
An interesting thing about that blue sky article was how, even with a relatively affluent client, the airline company was very transparent with their prices.
They were able to compete favorably because they lowered the costs of making the sale. By utilizing technology (aka internet) they were able to handle scheduling and bidding without having to hire someone to do this or pay out tremendous commissions. This transparency made them unique in their market niche and by lowering costs helped them to get to break-even quicker.
Note that they only subtracted costs from where it didn't matter. At no time did they cut back on anything that affected customer experience. Their focus was on the parts that were important to their customer.
Paul Downs is uniquely situated to comment on this article. (Perhaps this would make a good topic for his NY Times blog.) Before Paul focused on conference tables for corporate customers his product was equally high quality residential furniture. Unlike most sites at the time (at least for one of a kind pieces) Paul's was the only place you could get some idea of what something might cost before bothering one of his sales people.
Paul, could you comment on this? How do you think advertising your pricing would work on more pedestrian work? Would this model have been successful with a more limited product line? Why wouldn't you use it for your conference tables?
I recall a thread a year or two ago about providing prospective customers with drawings, specs, before the sale was concluded. The general drift was to never give them measured drawings or details, since they could (and would) shop them and always find a cheaper shop, and your work was for naught.
Paul Downs had a completely different take. He would provide a very professional package with drawings, details, pricing and a complete picture of the project. As I recall, my impression was that he could easily "out professional" anyone else out there. The prospective customer would be a fool to go anywhere else, even if they could save a few bucks. As I recall, Paul learned to have all these details and answers ready to go and easy to produce for anyone that showed an interest in his product.
The book Blue Ocean Strategy and this article boil down to the definition of an entrepreneur. Which is finding out what the customer will pay for and producing it at a profit.
Some say the way to do it is find out who is making money and copy what they are doing.
The Blue Ocean Strategy said to avoid the crowds (the red ocean) their examples were Cirque Solei vs conventional circus, Yellow Tail wine because it avoided the wine snob thing and were fun like the beer market and I think it was SW airlines but this book is not really all that enlightening.
Paul Akers will say you should fix what bugs you which will give you ideas on what to make. But he will also say that many of his products are not that profitable.
Steve Jobs would say that he doesn't ask his customers what they want, he just tells them what they want.
I find the Shark Tank interesting as these guys are really good at determining value in other words what the customer will pay for.
If you start out with a clean slate I don't think you would pick woodworking as something that people will pay much for compared to how hard it is to produce with the custom aspects. But that may be the custom craftsman aspect of it. I'm not sure being a craftsman qualifies as being a business anyway. It is more of a business when you have products like Decore door or DBS or Pauls tables. As this is where value is created for the customer.
At the core of it there are exactly three possible business strategies. The first one is to be the only grocery store in town. The second one is to have deep enough pockets so you can wear your competition down and become the only grocery store in town. The third strategy is innovation. The trick with the third option is to somehow make money yet fly low enough under the radar so that Deep Pockets does not notice you.
The blue ocean strategy book defined relevance in terms of how you benchmark yourself against your competition. The Yellow Tail Wine example showed how all the other players differentiated themselves in ways that were more common than different. They used a lot of arcane descriptions and metrics that only a wine connoisseur could understand. The labels on their bottles describe "estates" & "chateau" in order to reassure a confused customer that they were in good hands because we've been around a long time and you can have confidence in us.
For all this blather the number of bottles of wine sold in America never really changed......until Yellow Tail Wine made it easy to understand for college girls who just wanted the catch a buzz. Their packaging was colorful and lent itself to small kiosks in prime locations up near the cash register. By using only one shape of bottle you could merchandize both red & white wine in the same display. This kind of standardization is right out of the lean thinking playbook.
As an industry we too get confused about who is our real customer. Before you get all wrapped up with need to have dovetail drawer boxes just because your competition does you should first find out whether this is actually of any significance to the lady buying the kitchen. She probably cares that she has enough drawers and cares more about how it looks when the doors are closed .
I first put pricing on my website in 2000, and I did it because I intended the website to provide enough information to my customers that the ones who could afford me would call me, and the ones who couldn't, wouldn't. At that time I was selling a lot of dining room furniture, and my competitors (Thomas Moser and others of that ilk) did provide pricing. When we made the move into conference tables, it was striking to me that nobody in the upper reaches of the market provided any pricing. We actually had a couple of years during which I was showing both residential and commercial work on the website, and it was not a stretch to put some prices on the conference tables. We decided to not put a price on every table, because many of them had features that made for a shocking number, but weren't apparent at first glance.
I also felt for many years that I needed to counter a client's perception that a small, unknown company would be a risky choice by providing world class service and information for free. That worked well and my company has grown as a result. However, we have recently changed our sales tactics. We now show our clients images, drawings, etc. for free but don't let them have their own copy unless they place an order.
In general, I think showing prices is a good idea, no matter what you are selling. From a buyer's perspective, it's one of the very first things you want to know. Having a seller hide that information is, to me, off-putting. That said, we take a more nuanced approach than putting a number on everything on our website.
If you are interested in a more detailed look at our approach to sales, I wrote a series of articles last spring. Link to the first one is below.
Good writing Paul.
Your sales are about the same as ours. We've tried hiring salesmen before. Didn't work out. For the last 12 years we've operated on only word of mouth. Snake Oil consultant types bother me a lot. Please keep us informed about the selling process.
I read this article some time ago. It is as good a read now as it was back then.
The search engine at 'Your the boss' is pretty weak so I couldn't find the followup article about whether you should sign up consultant again. Am anxious to learn more.
If you have the time & inclination would also like to learn more about how you manage the online conferences with prospective customers. I am curious about the part where you concluded that you were revealing pricing information too soon. What is the advantage of revealing this later than sooner? I am in the custom kitchen business and while I usually try to schedule at least two or three meetings with prospective customers to see who I am working with, I find that we never get consummated until pricing is on the table. Like you used to we also provide a pretty extensive bid proposal with about a 50% success rate.
You've been more than gracious with your time on the NYTimes blog so I can understand if you don't want to go down this rabbit hole but I would appreciate, if possible, to know more about how important you think the nuances of timing are for delivering pricing.
Paul, I have started reading your blog, and I wish that it hadn't taken me this long to discover it. It's generous of you to share your experience with those who might be your competitors. On that point, I believe that we are all stronger when helping each other than working against each other.
It was interesting to read your rationale for not renewing the contract with your consultant. It was also informative to read the NYT interview with your consultant to get his take. Equally useful was the reader's responses to the consultant's take on things.
I've enjoyed that reading that section of the NYTimes immensely, particularly your pithy writing. Some of the most nutritious have come from the readers who interpret the articles. This is a highly qualified audience who cares enough about small business to read about it and comment. Always a worthwhile read.
What I found interesting was that most of the comments on the interview with your consultant were from consultant's themselves. They all made very valid points about the merits of outside evaluation and the effect on sales. What stood out was that none of them asked the question whether or not more sales was indeed the solution.
More sales probably always makes a difference if you are Boeing. New sales beget replacement parts and if you lose one carrier to another airplane manufacturer you lose all the downstream sales in the future. I'm not so sure about how this works for boutique shops. They actually may be better off just looking for enough sales.
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