Expanded Pricing Strategies for Dye Sublimation Dealers

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By Steve Typical mistakes that folks make in understanding cost and pricing: First is the Walmart mentality: Walmart, the largest retailer in the world, dominates by stepping on competition with their buying power and huge advertising budget. They pound “price” into the heads of customers at every turn. Yet, if you actually price their products, you will find they aren’t always so cheap – especially on specialty items. They also fall short in the quality department with many of their products. Yet, they can be intimidating competition to us with their website offering sublimated products at basement prices. Don’t be too intimidated however. There are several flaws in their business model we can use to our advantage: One, they aren’t as well liked as they want to think. Although a vast number of people visit and shop regularly at Wal-Mart, it isn’t necessarily because the people love them, it’s because they either don’t have a choice or convenience. Ask your customers how they like Wal-Mart. You may be surprised at the responses. Two. They believe all short comings can be fixed with perceived low prices. I say perceived because their strategy is to beat down their suppliers who can’t survive without them and promote those products while other products are priced the same or even higher than other stores – especially if customer loyalty cards, sale prices and discounts are added in to the formula.   Three. In the case of sublimated products, which are available only online, the low prices must be softened by the shipping costs that are added to them. When both are considered, the margins may be narrow but they can usually be competed with. Four. What is interesting is, in most cases, you don’t have to compete with their prices for several reasons: One, surveys have proven that people are not influenced by price nearly as much as Wal-Mart wants you to think – that’s how they put their competition out of business. People want more than just a cheap price: A. They want quality. Stores that push low prices all the time get a backlash – products with low prices are usually perceived to be of poor quality. Although this may not be the case with their sublimated products, the perception is still there. B. People want personal attention. Try finding that at Wal-Mart. Even more, there is no personal attention online which is how you must order sublimated products. Wal-Mart would kill to be able to solve the personal contact problem but they are just too big. They promote themselves as part of the community and involved in all kinds of community projects but in reality, they rarely are. C. It’s a “pig in a poke”. Pictures online can be deceiving. Even though we dealers might be able to discern what product the online supplier is actually providing to the customer, the customer has no idea what it is; the quality of the workmanship or the speed of delivery. We can capitalize on all these points by showing the customer exactly what products we use, the quality of our work and the promise of delivery? You bet we can. D. People like “added value”. The business buzz-word from the 90’s is still valid today. Wal-Mart and dealers like them can’t offer added value that the customer really cares about. They can offer free gifts that might entice a purchase or free shipping which definitely entices a purchase but it is also very expensive and can make the difference between their making a profit and a loss. Without shipping as a concern to us, we can add value that the customer really cares about: A free gift box, the inclusion of an extra logo or photo, a rush on the order or an extra discount for quantity. E. People are not stupid. They know that Wal-Mart’s money doesn’t stay in their community. They have heard about all the shenanigans in the news about the lack of health care and telling their employees to “just go to the ER, they have to take care of you” stories. Even if these are exaggerated, they are in people’s minds. They know there is some value to buying from locally owned companies where the money stays in the community and shop owners can’t cut deals or find loopholes to avoid paying their fair share in taxes, etc. Don’t be bashful about reminding customers you are locally owned and operated but DON’T bad mouth your competition – not even Wal-Mart. We are our own worst enemies because we know what it costs to make our products. Most gift shops mark their products up 100%. It is called key-stoning and it has been done for decades. It doesn’t require any thought, they just do it. With the economy as it is, many are actually increasing that margin to 110 or 120% to offset the high cost of shipping and theft. Sublimation dealers are unique. We may look like a gift shop and act like a gift shop but we, by the very act of personalizing our items, add several significant variables to the price equation: A. One, we have waste. Anyone who has ever personalized a product has learned that mistakes are expensive. Be it your fault, the customer’s fault, the equipment’s fault, the product’s fault or just dumb luck, mistakes, breakage and misprints do happen and they do happen. These mistakes are expensive and our prices must reflect this. B. Two, we have variables gift shops don’t. We have to spend time generating the graphic. To do that, we need computers, software, clipart packages and an operator capable of generating the images we need. C. Three, we have to have specialized equipment. Heat presses, printers and all the assorted gadgets we use to produce products are expensive. They not only have to be purchased, they must be maintained and periodically replaced. Then there is the ink – probably more expensive that gold when compared ounce to ounce. It all counts up and it all must be factored in if we are going to be successful. When we see a price of $1 for a name badge, the gift shop minded person is going to thing he can sell that for $2 or even $2.50 and make a profit but the sublimator who must decorate that badge, cover the cost of equipment, design time and waste should be thinking differently. This is what I mean by “we are our own worst enemies”. We too often think we are pricing things too high because the margin is larger than we are accustomed to seeing or more than we perceive other retailers, like Wal-Mart, are getting for their products. (I don’t know what Wal-Mart’s markups really are but the little experience I have had on that side of the fence lead me to think they are at least 100% - just like any other retailer. The only difference is they pay less for the product because of their buying power and clout. Their majority stock holders are among the richest people in the world. They didn’t get that way charging a 10% margin.)   Personalized Products Are Unique: One. Personalization makes it special. Buying a new coffee cup from a store with something printed on it is no big deal. $5, $10 or even $15 is determined by the amount of “I want it” generated by the cup and its decoration. We do this all the time. If we really want it, we will probably buy it. Your customers are no different. But personalization takes that ordinary coffee cup, or any other product, into a completely new realm. Personalized items are not just utilitarian in nature, they create an immediate emotional attachment as well. I once had a customer who was squabbling over the cost of a coffee cup with pictures of her children on it. It was a gift for her father so it had little or no emotional attachment to her. I asked her what she thought her father would take for the cup with his grandchildren’s picture on it once it was given to him. She quickly responded, “Why, nothing on earth”! She bought the cup without further discussion – I should have charged more. That’s the difference. Our products may be utilitarian but they also stir emotion, pride, joy, warmth, appreciation, etc. Two. Personalized products can become heirlooms. The sublimation market in Europe was a tough market to break into. Europeans think differently than we do. We fill our homes with all kinds of “stuff”. It comes and it goes. Europeans don’t do that. They are very selective. They try to buy items that will become heirlooms – keepsakes that can be handed down from one generation to another. Once sublimation dealers understood this difference, the market began to open up. Many of our products should be seen in the same light: Baby blankets, keepsake boxes, photo frames, ChromaLuxeâ„¢ wall hangings, etc. Anything can become an heirloom with enough emotional attachment. I have my father’s watch – it hasn’t worked in 40 years so it’s really not a watch, it’s more of a paperweight and dust collector. It isn’t work a nickel to anyone else. Yet, it has emotional value to me and thus is kept securely in a place of honor. Three. Perceived Value is what a customer sees a product to be worth. If a product has a perceived value of $20 and it costs $1 to make it, sell it for $20. If the product has a perceived value of $20 and costs $15 to make it, you have a problem. A product that is offered for what the customer perceives it to be worth, will sell itself. A product that is offered for more than its perceived value has to be sold. We don’t want to have to “sell” anything. We want our products to sell themselves. Unfortunately, that just doesn’t always happen. There can be many reasons but so far as we are concerned, we just need to understand what the perceived value of a given product is to most people and then determine if we can make it for that amount or not. If we can, all is well. If we can’t, we will have to make a choice to: A. Offer it anyway. Even if we don’t make as much margin as we would like. We feel the product is worth the effort and popular enough to make up the difference in quantity, super easy to make or we just want to. All are valid reasons – it’s your business and you can make these choices any way you want. B. Decide the margin is too thin and just don’t offer it. This is especially valid for products that are unusually difficult to make. Plates (9” dinner style plates) are one of those products for me. I can make them but I just don’t – at least not with sublimation. The reason? The last batch I made had a 3:1 failure rate – that means I threw out three for every one I sold. I just don’t need the hassle. It’s my choice. C. Find some middle ground. In order to make plates, I found a method other than sublimation. In the case of other products that aren’t difficult to make but just don’t have the profit margin I’m looking for, I try to find another way to offer them like offering a “Two fer”. Although I may not be able to justify making a single item because of low perceived value, competition, etc., but still want to offer it, I might offer it only in lots of two. By adding the second item, the design and production costs are cut in half. Perhaps a minimum of six is needed – that’s ok, just determine what the numbers are and stick with them. Three. Each area of the country is different. The area of the country you work in may need to be factored into your pricing. If you are in Alaska, the cost of shipping product must be incredible while a shop in New York City probably pays huge amounts for rent. These have to be factored into the cost of doing business and thus pricing products. The one thing that always remains a reliable guide is perceived value. The perceived value of an item in Alaska might be far higher than in Ohio just because everyone is accustomed to paying for higher shipping. Regardless of where you are, you must offer products within a reasonable perceived value as seen by the customer – not by you! Don’t make the mistake of thinking you are a good judge of determining perceived value – you are not! Just knowing the initial cost of an item will influence your perspective. Ask your customers, in a roundabout way of course, what they would pay for a product. Say, “I have a new product that I need to sell for $xxx. Do you think that’s too much?”. If five out of ten say it will sell, you are probably right on target. If they all say it is too high, you need to lower it. If they all say it is about right, the price is actually too low and you need to increase it.     Ways to Determine Prices: There are a number of ways to determine your prices. Here are three: One. Look at the perceived value and work backward. If I’m pretty sure the perceived value is $15.95 (a coffee cup for example) and it costs me $3 to buy and ship the cup to my location, I have to decide if it is worth the time and trouble to offer that product. If I have to buy them by the case of 36 and only sell one or two a year, that too must enter into my decision. Assuming I will sell a case in a reasonable time and breakage isn’t too high and they aren’t too difficult to make, $15.95 for a cup would be reasonable. If the margin is a little thinner than I want, I might consider offering a “Two fer” which reduces the cost of design and production time and increases the actual amount of money I put in my pocket. Regardless of what method of pricing you use, perceived value has to be a part of the decision making process since a product priced too high just won’t sell.   Two. In my shop, the ideal product fetches a 600% markup. There isn’t anything magical about that number. It happens to be what manufacturers often use to determine their suggested retail price based on what it costs to manufacturer a given product, but that really isn’t the reason for the number – I just decided that was the number I was going to use. You can choose something lower or higher for your “ideal margin” if you like. Of course, anytime we use the term “ideal” we immediately know we aren’t always going to get that amount. It is a baseline – something to shoot at. It can’t be carved in stone – it has to be flexible. Still, I often look how a product shapes up based on a 600% markup. Name badges, for instance are an easy 600%. Even the coffee cup we considered in the previous paragraph is close ($3x6=$18). It’s not 600%, but it’s pretty close. One of the reasons for insisting on such a high percentage, other than making money, is waste. The higher the price, the more it usually costs when something goes wrong. For instance, let’s take a product that costs $14 and sell it for $29.95. Not a bad profit, right? Well, it may be if nothing goes wrong but what if you misprint that $14 product? If you do, and have to make another, you barely break even. And if you mess up two of them? Well, you’re in trouble. There are always going to be mistakes and they are usually expensive. Another consideration is for products like laptop cases that have the removable flap. In these, the product is expensive but can’t be marked up much more than 100% or 150%. But they are easy to make; rarely should you throw one away and most importantly, when you do mess one up, the only thing you throw away is a $3 flap because you never put the actual laptop pouch at risk.   Three. Always keep your prices high enough you can drop them 20% for quantity. The first question many people will ask is, “what if I buy 10 or 20 or 100?”. They expect and deserve a discount but if your prices are too low, you won’t be able to accommodate them and will likely lose a good sale. By the same note, don’t be too quick to cut too deep into your prices. Think ahead on products that may afford themselves to larger quantities and price them accordingly. Seeing a quantity price for two or six or ten items may spark a thought of who else they could buy this product for and thus increase your sale. It often doesn’t take very much to push someone into buying two rather than one if there is a price cut.   Always sell UP, never down. When a customer comes in and says they only have a certain amount to spend, they are usually lying. Often, they have more, even much more. They just think you will bend to their budget and that makes them a “good haggler”. That may work with some people but if you accept the number they give as Gospel, you are probably going to leave money on the table that should rightly be yours. I suggest you find out what price range they say they want to be in and then bump them up at least one level. There have been times when I took a customer from $20 to $100 in one fell swoop. The one that comes to mind is the lady who wanted a retirement plaque for someone who had served the public for 30 years. She said her budget was $20. Needless to say, there is no profit in a $20 plaque so I threw caution to the wind and said, “you mean you are going to give a guy who slaved for 30 years a lousy $20 plaque?”. It caught her so off-guard, she said, “what would you recommend?” I sold her a $100 clock with a $70 profit margin. What’s more, I sold her a number more of them over the years that followed. Always sell UP.     Added Value: We have already talked about added value. The biggest added value you can give your customer is your attention. LISTEN to what they are saying, then guide them in the direction you think is best for them – not you. Consider yourself to be there to solve their problem (what to buy or give or whatever), not just to sell a product. When possible, always throw something in for free or offer a discount for buying two. It doesn’t have to be much. A free logo or an extra photograph on their product or even a 5% Off coupon for their next purchase. A free pen or key chain or donating a percentage of your profits to charity. These are all “added value” items and some don’t cost you a dime. Most important of all, is the added value of a big smile, recognizing them when they come in and shaking their hand. These are things Wal-Mart, or even your competitor down the street, probably don’t do which makes them “added value”.   Low Balling the Competition: I try never to low ball the competition. It is a game no one wins. I try not to sell by price. I sell by quality and on-time delivery, selection and personal service. Those are really the only tools I have to compete with, especially when going up again stores like Wal-Mart. If I am competing with another sublimator, I think that if I can’t beat his quality, he deserves the job. If he is doing an equal job and wants to sell with little or no margin, he will eventually go out of business – so, I just let him go. I’ll eventually get his business anyway.   The problem comes when it involves a regular customer that is comparing prices. Sometimes an explanation is enough but sometimes, you might choose to meet the low price just because he is a good customer. Never – never – never sell cheap on the promise that a larger order is coming if you sell this one cheap. In thirty years, I am still waiting for the first one to come.   Remember Rule #1. In case you don’t remember, Rule #1 says, “Make money”. This ain’t no hobby we’re in. This is a business and what makes it a business is having a bottom line that is in the black. If you have to make just a little rather than none at all, that’s ok – once in a while but: One, be sure you really are making at least a little profit and two, don’t make it a habit. I once had a very successful businessman tell me, “Anything that adds to the bottom line is a good thing”. And, that’s true so long as it really is adding to the bottom line. More often than not, those little, “I’ll make up for it next time” or “It isn’t anything but my time” ideas pop into our heads to justify a bad business decision and can cause great harm – to everyone! Even the customer suffers in these events because they want to be able to come back next time and buy from you again. If you aren’t in business because of too many bad decisions like this, they suffer too. Rule #1 – Make Money!   What causes people to low ball their (our) prices is fear. We are afraid of losing a job – even a bad job. We see that as a failure. We are afraid if we lose one customer, it will lead to another and then another. These are unreasonable fears. Replace fear with confidence in yourself and your product. People don’t want cheap (at least, most don’t), they want quality and personal service and on-time delivery. They want to buy from a friend, not a salesman. They want you to recognize them when they come in, remember their name and have some kind of relationship with them.   Conclusion:   Pricing is hard, no doubt about it. Most people, by nature, think the lower the price, the more they will sell and in some cases, that may be true but here, it usually isn’t. Think quality, personal care rather than price. Build a relationship, shake their hand. Tell them a funny story. Laugh with them. Drop them a note in the mail. Give them something extra when they pick up their order. When you do consider price, consider the whole price, i.e., remember to add shipping, a wait time, the inconvenience of designing their own product online and not having all the options you can give.   When something goes wrong, fix it – fix it fast and fix it free. Offer to deliver it to their home or business to save them a trip. If it is their mistake, things get a bit trickier, but if at all possible; if the loss isn’t too great, I treat all mistakes the same – even if I did everything right and the mistake is clearly theirs. I fix it – fast and free without debate. The good PR usually far outweighs any cost. Think of the times you have been the one on the other side and how it would made you feel if you had gotten this kind of service. This is only part of the reason I like to work with that 600% margin. It allows me to be overly generous when I need to be and still make money. If you are only making 100% on your investment, it makes it very nearly impossible to do this kind of PR.   Want to beat Wal-Mart or the guy down the street? You will never do it with price – that never works long term. But you can do it with quality, workmanship, and personality. In short, do what’s right and treat others the way you would like to be treated if the roles were reversed.