Posts tagged ‘Pricing’

Tips From the Grocery Store

In this weekend’s Sunday business section of the NYTimes there was an interesting article on Heinen’s Fine Foods, a 17-store grocery chain in the Cleveland area. While Tom Heinen, who runs the business with his twin brother Jeff was certainly hearing complaints from customers on rising prices, so far most of his clients are sticking with him. The article goes on to note:

“Their loyalty suggests a couple of things about the kind of middle-and upper-class shoppers Heinen’s tends to attract. While they are concerned about price, they’re increasingly thinking about their foods’ origins and quality. So they would just as soon not trade down from a store like Heinen’s that offers handsome local radishes and an excellent stir-fry station.

And they almost certainly don’t want to drive around to six different stores cherry-picking deals. “With two adults working and the kids going to soccer, I defy you to show me how they can do it,” Mr. Heinen said.”

Heinen’s is facing competition for those customers, Whole Foods entered the Cleveland market last year, and of course, there’s price competition from other regional grocery chains. Even at the best of times, running a grocery store sounds like a tough way to make a living. Margins are incredibly low, the stores are both labor- and logistic-intensive and just think about how gets tossed out from every store, every day. 

Heinen offered a couple of suggestion for savings, some of the same ideas he’s been mentioning to his customers. Not all of them are applicable to the design business, (but they’re certainly good for your grocery bill, so check them out here) however a couple can immediately be put to use. 

  1. Offer Artisan-Quality Deals
    Heinen’s had won Cleveland Magazine’s “best cheese selection” award
    for several years running as was determined to keep the honor. But
    with diary prices up 14% and the drop of the dollar against the Euro,
    they knew they needed to make bigger changes. So they went to their
    vendors and asked for help in finding artisan-quality products at
    reasonable prices. The result has been a new in-store focus on
    “Heinen’s Great Value Cheeses”. 
    Lesson: Ask your vendors for assistance in finding unique resources
    that fit the needs of your clientele. And then make sure to package,
    brand and promote those unique resources.
     
  2.  Is It Local
    Deb and I have spoken for several years on the need to develop a
    network of local resources that can provide unique products and
    services to the design trade. It started out as a way to move yourself
    out of the head-to-head price comparisons with big-box stores and
    direct competition. But with increased fuel costs, which means increased
    shipping fees, plus the spillover of the “locavore” movement, people are
    more than interested in this kind of shopping experience.
    Lesson: Become the “resident expert” for all types of artists and crafts-
    people in your area. Remember 10-years ago when every designer needed
    to have a least one faux-finisher in the rolodex? Well it’s time to expand
    your resource list once again!

The article wraps up with a series of questions that are great to have in your arsenal for your next price shopper

“So this is what you have to ask yourself: If you are patronizing a grocer
that doubles your coupons, discounts your gasoline or runs other expensive
promotions, how exactly are they staying in business? Are they gouging you
on the second most popular brand when the most popular one goes on sale?
Do prices bounce around so frequently that it’s impossible to keep the baseline
in your head?

Shoppers can play the discount game and win by shopping six different stores,
buying only the sale items and products they have coupons for, buying in bulk
and then cooking from the pantry and freezer. But is that really the live most
of them want to live?”

Switch a few words and you’ve got a great defense for why you’re not the cheapest, why you don’t need to discount and what the real value of working with a design professional is.

As always, let us know what happens when you put any of these ideas into practice in your business.

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30 June 2008 at 6:08 pm Leave a comment

Design & Our Marketing Assumptions

Sorry for the long break between posts. Things got busy with ICFF and NeoCon and several tight deadlines and then some family issues…but I am going to sincerely try to drop the ball for that long again! 

During my time away from posting I’ve been having some very interesting conversations about the design business. Talking with designers, manufacturers, product developers, etc. I’ve been told over and over again that at “the high end” the market is doing fine. But when it comes to custom design, what is “the high end”? Is it based on your hourly rates? The materials you use? The type of work that you do? And this is where we start to get into the murky and often uncomfortable muddle of emotions and justifications that often passes as analysis among many designers. Take a look at the statements below and see if you recognize yourself in any:

1. My designs are more valuable because… Fill in the blank: I use couture methods, my work is better designed and better constructed, I only use the best fabrics, linings, etc. 

2. Unique, custom designs should command a higher price in the marketplace. (Command? Who are you talking to? Or trying to convince?)

3. My work is valuable because of how much care, effort, concern, detail, etc. I put into it.

4. I should be fairly compensated for doing what(ever) I love to do.

The main theme: It’s all about you. You want to get paid because you’re proud of what you do, you believe you do it well and you work hard doing it. But how much value does that have to your customers?

I know design is important. I know it can change lives. I know that good design improves our lives and that poor design can be harmful. But design does not, can not, exist in a vacuum. It has to be put out there in the world and experienced; because if design is just put on display and not used, it’s merely style.  

Follow this train of thought and you begin to see that a designer’s job is not just about creating; but about making work that is functional, practical, usable and real. It’s about stating the case not just for your designs but for DESIGN, good design, as a worthwhile, valuable practice. 

Designers face many real challenges when it comes to setting a price on their work and finding the language with which to promote it, but don’t add your own emotions about why you do what you do to the mix. Instead become an advocate for the design values that matter to you and brought you to this work. It’s often a tricky balance––we get into the design business because of our passion to create, but you can’t let that passion overwhelm the dollars & cents of being in business.

17 June 2008 at 4:39 pm Leave a comment

Demystifying Fees: A pricing panel recap

I attended a pricing panel discussion today that was part of the Brooklyn Designs show. I wasn’t able to stay for all the Q&A at the end, but still managed to jot down some interesting notes. To see who was on the panel check out the description here. 

Following are some the comments I found to be most interesting. I’ve put the comments into quotes, but these are all really paraphrases of the notes I took!

“I used to bill Net 30 for purchases, but I realized my customers didn’t really 
get that. They couldn’t tell if that was a good deal for them, or a good deal
for me. Customers understand retail, so I now do my purchase pricing
in a Less Retail format. It’s actually more profitable for me and makes them
happier because they can immediately quantify the value.” 

“I can’t remember what seminar I it was, but several years ago I went to
a pricing presentation and one of the notes I took was that everyone
should go back and raise their fees 3%. Main reason: it’s not a big increase
but by the end of the year it will add up.”

“Fixed fees may seem cut and dried, but often become problematic. No
matter how well you think you’ve defined your scope of services, detailed
the project in a letter of agreement or contract, it’s 99% certain there will
be changes, revisions, delays, or other issues that will mean additional
non-projected work. Which means you have to go back to your client for
more money. That’s a situation which is never good for the relationship.”

“In commercial work, a common fee structure is a percentage of the build-
out costs. I’ve moved away from this because it causes trouble. There are
always going to be cost overruns and now the client is faced with having to
pay more to complete the job and pay you more based that…to them it feel
like they’re paying twice for other people’s problems. Again, a good way to
damage a client relationship.”

All in all, it was a pretty interesting discussion. One of the panel members has a current rate of $300/hr and charges overseas clients $350/hr! Of course, the old line about “not even a surgeon charges that much” came up, but I was thinking about that on my subway ride to the office. Most designers are independent practitioners, that hourly fees goes to cover all types of overhead that most surgeons (and many high-paid lawyers) do not directly have to account for. Meaning, the rate a lawyer at a leading law firm charges includes overhead charges, yes, but those costs are also disbursed in the rates of the jr. lawyers, the research assistants, etc. The fees are all there, but the shock of one $300/hr individual is spread out over the billable hours of several $75/hr and $150/hr other players.

And let’s face it: It costs a lot to run a business these days. Deb and I were just commiserating on the high costs of workman’s comp (not to mention all the other necessary business insurance policies) AND the fact that insurance audits seem to have become ever-more frequent.

When you look at it that way, $300/hr isn’t that much to charge to cover all the overhead (office rent, utilities, software, insurances, sampling, etc. for the main expenses) plus have enough to re-invest in your business, plus enough to pay your vendors, contract workers, etc. PLUS and most importantly, pay yourself! Because how many hours in a day or a week do you have available to bill? Certainly not eight hours a day, five days a week.

It was definitely an interesting hour! What do you think? Is $300/hr crazy or wonderful?

Note: I know I wrote yesterday that I would follow up with the second part of The New Yorker innovation piece, but I thought the pricing info was too good to sit on. I’ll get to the innovation piece next week.

9 May 2008 at 4:26 pm 1 comment

Perception and Pricing

Earlier this year researchers from the Stanford Graduate School of Business and the California Institute of Technology published the results of a study on the effect of price relative to preference in the Proceedings of the National Academy of Sciences. Not typically a widely reported on publication, but the outcome of the study caused many in the mainstream media to sit up and take notice. As covered in the New York Times, The Economist, CNet and others, Antonio Rangel, along with Baba Shiv and John O’Doherty conducted a very interesting wine-tasting.

Participants in the study were presented with two glasses of wine and given no other information other than that one wine was $5/glass and the other was $45/glass. Using functional magnetic resonance imaging (fMRI) they documented that the part of the brain that experiences pleasure becomes more active when the drinker thinks he/she is enjoying the more expensive wine. Of course, both glasses of wine were from the same bottle.

“What we documented,” said Shiv, “is that price is not just about inferences of quality…but that price changes a person’s experience with a product.”

The researchers ran different variations of the test, for example, when one wines was said to cost $10 a bottle it was rated less than half as good as when people were told it cost $90 a bottle, its true retail price. Moreover, when the team carried out a follow-up blind tasting without price information they got different results. The volunteers reported differences between the three “real” wines but not between the same wines when served twice.

Rangel, having only studied consumer reactions to wine pricing, is hesitant to extrapolate too much, but says he believes that the bias toward higher prices occurs in many areas. And history has certainly shown that conspicuous consumption and waste are an important part of many societies.

There are many instances of this price-placebo effect, and many companies throughout the years have used it to their advantage. One my favorite, all-time examples is the L’Oréal slogan “Because I’m Worth It”: The L’Oréal products cost more than the other haircare and make-up options on the shelves, but extra cost was rendered incidental by the branding. And while there are many considerations to keep in mind when pricing a product or service–your local market, demand, profit and revenue goals, etc.-it important to realize the additional information and now, clearly, experience value, that pricing plays in terms of branding and positioning.

What’s your take on this? Do you think you’re in a position to bump your prices and improve your customers’ experience?

6 May 2008 at 6:34 pm 1 comment

The Likeability Factor

The current close race to secure the Democratic presidential nomination has lead to a focus on electability. And if any of you follow any of the late-night talk shows, especially The Colbert Report and The Daily Show, you also know the issue of electability has become many comedy writer’s favorite go-to joke.

Why? Because how do you define the state of being electable as president, unless it has already occurred? The only people who know for sure who have presidential electability are those who have already served as president. And what bothers many people about politicians, across the political spectrum, is their willingness, indeed, their seeming compulsion, to change characteristics and beliefs in their desire to become more electable.

Which brings us to the Likeability issue many of us in the industry grapple with. To work effectively with a client, there has to been some level of mutual respect and understanding. A good client will appreciate your skills, insight, and talents, and value your ability to improve their surroundings. To deliver this type of service, we must be open, understanding and patient, remembering that we have the rare gift of being invited into someone’s home, someone’s life, in order to make a positive change. 

But, as we’ve discussed previously, projects can often become more than just about the design…we become part psychologist, part therapist. And this is where the things become murky. Too often we allow ourselves to let the Likeability Issue to become overly important, to the detriment of business.

1. You don’t bill for all your time, because she’s a “good client”

2. You don’t bill for all your time because she’s a new client and you’re trying to establish a good relationship

3. You don’t bill for all your time because it seems like she’ll be a good client and you don’t want to “scare” her off

4. You don’t bill for all your time because it seems like she’s going through a lot right now and you just want to make things a bit easier for her.

Recognize yourself in any of these? If so, you’re letting the Likeability Issue get in the way of your business. When people pay you money to make, do or provide something for them, that’s a business relationship, not a friendship. Don’t let your very real human desire to be liked get in the way of building a profitable business.

5 May 2008 at 6:26 pm 1 comment

Raising Rates

There was a recent article in the NYTimes online about the tricky process of raising your rates in a soft economic climate. The most straightforward approach was given by a small business consultant, Marc S. Jacobs:

There is a simple formula to calculate a minimum hourly rate, he said,
but it cannot be done in a vacuum. It is imperative, he said, for these
entrepreneurs to write a business plan first that states clearly what
they want to do, how they intend to do it, and foresees revenues,
expenses and profits for the first several years.

Once they have done that, Mr. Jacobs said, they should add up weekly
living costs and business outlays and divide by 20, which is the number
of billable hours to shoot for. “Now you have what you need to charge
per hour, and you can compare that to the marketplace rate,” he said.

But for the business with existing clients that wants to raise its fees the recommendation is:

First, he said, increase them for new clients only, and use the exercise to explore how high you can push the rates.

Then, he said, the consultant should inform existing customers in
person — not in writing — that he plans to raise rates by 5 to 10
percent. “Have a conversation as part of a regular visit,” he said.
“Make it casual. Tell them why you’re doing it. Say something like
‘I hope we can work out an agreement.’ ”

Some customers will say there is no way they can afford to pay
more, he said. In that case, the consultant have to decide whether
to let them go.

It’s a short but interesting article, you can check out the whole thing here.

28 April 2008 at 8:14 pm Leave a comment

Window Shopping and the Wall St. Journal

A recent article in the Real Estate section of the Wall Street Journal Online provided interesting insight into the mind of “semi-typical” (quotes mine) consumer when it comes to buying custom window treatments. The writer test-shopped five different options, four shop-at-home brand name services and one online service.

There are two things that really stick with me about this piece: First, the appreciation the writer feels for the non-window design suggestions she was given and two, her seemingly instinctive price resistance to the actual window treatment suggestions.

Take a look and let us know what you think.

9 April 2008 at 2:59 pm Leave a comment

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