Price and Perceived Value

Looking From Both Sides

The phone call came. We can all predict them. It was the Friday afternoon before Father’s Day.

“I know I’m late—not very organized, you could say. But, could you decorate a shirt for my Dad for Father’s Day? He’s the world’s best Dad…I feel so awful to have left this to the last minute. I know what I want…can you help me?”

 She had no idea what a nerve she had hit—I had the world’s best Dad, too, and this was just my second Father’s Day with no one to hug—no one to gift.

We determined that she would have to buy the shirt. I had none in the color she preferred or the size she needed. “How much will it be?” she asked after telling me what she wanted on it. Then, “Never mind…whatever is fine.”

 Whatever?

 Whenever two or more are gathered in the name of embroidery, the war stories fly…and the ones we hear the most—and laugh until we cry—are the ones where the customer squeezes every penny until Lincoln’s face is bruised. We bat around opinions about rush fees. We discuss what we are worth—in talent and ability—preaching to the choir, for it’s the customer who needs to hear about our value…or see it.

 Price and value are cousins, and they go everywhere together. When the price is high, the value may be high as well. When the price is low, the value may be high—that’s called a bargain. On a lucky day you can find something with a high value and a low price…and an unlucky day brings nothing but low value and high price.

 Price is determined by the wholesale cost paid and the suggested retail—a suggestion we can take—or not. It is driven by all the components that go into the embellishment of the goods: the payments on the machine; the hourly wage; the cost of the thread, needles, and backing; the rent on the building and the utilities to keep it all humming along.

 Value is determined by other factors. What construction points or extra touches does the product have that makes it seem worth even more? What price do we put on the education needed to embroider it—in classes or in the school of experience—in which we have invested time and money? And…what can and will we do to that shirt to make it worth more than our competitor’s …and worth what the market will bear instead of just a total of hours and merchandise.

 I was watching the news coverage of Ronald Reagan’s funeral when Peter Jennings said, “Ronald Reagan is still embroidered into the fabric of California." He didn’t say stitched or written; he didn’t say printed orwoven.

 He said embroidered.

 Perceived value…an insight or intuition that enables the viewer to use more than basic knowledge to determine value. Perception takes into account the senses of sight, hearing, touch, taste and smell to make an empirical value judgment that is more than the sum of its parts—and more than the idea of embroidery plus shirt.

 START WITH THE PRICE

 Embroiderers find pricing to be one of the toughest challenges they face. When I first started in business I had no earthly idea how to price. I knew, from everyday experience, that stores bought things wholesale, doubled their costs, and called that retail. I knew that even when they discounted things at the end of the season, they were still making money.

Much of what I have learned about pricing has come from personal trial and error experience—not always the best learning institution—and discussing the subject with trusted colleagues that have studied pricing philosophies of different industries, markets and companies. While I’ve concluded that pricing is not an exact science, the foundation of your pricing strategy should be kept as simple as possible for the benefit of you and your customer.

 Some embroiderers are afraid to out price the competition lest they lose the job, others don’t have the confidence in their abilities to recognize the valuable quality of what they create—while too many just don’t know where to start.

 But sometimes the embroiderer will succumb to a customer’s plea for a price concession similar to one they’ve seen elsewhere, or use a competitor’s price list to determine what to charge. While that may be a good starting point, your competitor’s business may be totally different from yours. He may have 12 heads and do wholesale work, which does not compare to a single head shop. You may do only work for corporations and sports store, while the competition does towels and one-of-a-kind gifts. You can’t compare apples to oranges—and you shouldn’t try. It is a false comparison and cannot benefit you in any way. Unless your competitor’s business is exactly the same as yours—and it never will be—there is no reason to compare.

 The kiss of death is to set your prices according to someone else’s figures—friend or competitor. They have different costs or may be offering “loss leader” price on some items to stimulate sales activity and “inflated” prices on other products or services to make up for any loss. You will never know which ones are being sold at a loss or which of many pricing approaches they’ve applied to set their prices.

 Still, you should periodically survey the pricing landscape to see what others are fetching for their wares. Always uphold the highest ethics in obtaining competitive pricing. Acquiring a published price list from the Internet or a loyal customer is acceptable, but avoid engaging in direct communications with a competitor. You never want to be accused of being involved in price fixing, collusion or pretending to be a customer asking for a quote. There is nothing positive that can come of it. Your “perceived value” will surely suffer.

Some multi-head owners think increased capacity should benefit their customers, representing a way in which they can beat their competitors’ prices. I disagree, believing that, if I can do those dozen shirts in one-third the time, it’s my business; and my business depends on making a profit. If my customer agrees to $25 per unit and I execute the job in faster producing multiple runs, why would I leave the money saved on the table by discounting the work to my customer? All increased production speed allows is “maneuvering room”—just like the mark-up on the shirt.

 You can encourage the commonly offered sliding-scale discount for volume. I start at five percent beginning at a quantity of 36 pieces. But if it’s a special one-of-a-kind gift item I charge for it. Sinclair Lewis said: “People will buy anything that’s one to a customer.” If it’s custom—a designed-and-executed original—charge accordingly. They call that wearable art.

 If they want it, they’ll pay for it. If they don’t want to pay for it, they can go elsewhere. I would rather do nothing than work for nothing.

 ADD THE PERCEPTION

 On top of the extras, I sell my expertise, my embroidery education, my service and the digitizing skills that can make their logo look great. We talk a lot about this perceived value in the embroidery business. Our customers think nothing of going into the local department store and paying $45.00 for a shirt with someone else’s logo on it. But, they seem to balk at spending that for a custom embroidered shirt.

 The first thing to do is learn why some shirts cost more, and how to sell those shirts at their fair value. A shirt with special topstitching, a high-end placket and wooden buttons has a higher perceived value a plain T-shirt. Add to that a well digitized and executed design and you should have a high-dollar shirt. You ought to be able to get at least what the department store charged for that shirt, right?

 Figure up the cost of the shirt, double it, add the embroidery fee…then figure in how many you can do in an hour (determining that the end result is well above your cost of doing business) and then quote it to the customer with no apologies. An unsure attitude invites argument.

 What if the customer decides to buy two dozen of those shirts? Do you offer a discount even if you have a single head and every job is “one of a kind”? I discount the shirt, but I never discount the embroidery. Sometimes the customer will ask you for a quote, and then bring in the shirts. If you never discount the fee for the embroidery, the origin of the shirts doesn’t matter.

 Figure your costs…and then charge what the market will bear. You will find that you are far above the “cost of doing business” and that makes for less work and more profit.

Take a look at your margins in your business. Consider this. If you working on a 40 percent margin, and you revamp your pricing to realize 60 percent, you will make more money for the same amount of work.

 Conduct business so you never have to apologize—for your product, your service or your price—to anyone, or to yourself.

 TAKE THE HIGH ROAD

 If you are unsure of where to start with your prices, make your mistake on the high road, not the low one. It is a lot easier to lower the price than to raise it, and if your sales are less than expected, you can make an adjustment. If you set your prices for what the market will bear and not your competitor’s price, remain aware of your competitor’s price points, know your cost of goods (and cost of doing business), set your prices with a healthy gross margin and create quality goods with good turnaround time, you are on your way to learning pricing while your pricing makes you money.

 As you grow and learn pricing, you will also learn what customers are “keepers.” The customer you want is the one who truly appreciates your creativity, talent, quality, service, and any conveniences you offer. Let the price shoppers go somewhere else. Cultivate your customers like a garden…watering them with reminders, offers, specials, birthday greetings and more—and keep it convenient for them to do business with you.

 When price isn’t the consideration, you can be sure that “consideration” is what drives—and gets—the asking price.

 Embroidery speaks of class and quality, and because of that—and our professional knowledge and service—we can and should charge well for the work we do. Voltaire said that love is a canvas finished by nature and embroidered by imagination. The word imagination speaks to the possibilities of embroidery. These possibilities are enhanced by our hard-won education, which guides us to the right stuff—the products with their own perceived value demonstrated by points of construction and quality textiles—that are the perfect canvas for our embroidery.

 Our imaginations can add the perception of value to the basic product—and that’s when the magic of perceived value carries the customer to a place where price is no longer the object—or the subject.

 SOMETIMES WE BREAK OUR OWN RULES

 Remember the Father’s Day shirt? It was for the owner of a nursery/landscaping business. I put the name of his business on one side and “GOT MULCH?” on the other. I charged her $20.00 and she wanted to pay more.

 “Are you sure?” she asked several times. Her perception of that shirt was high. The lettering was crisp and full and straight, it was done in quick time, she had a present for her father—just what she had wanted. She would have paid…whatever.

 Ordinarily I would charge $12.00 for the first side as it was two colors and three lines and $8.00 for the second hooping—plus $10.00 minimum set-up fee. And a rush charge? Sometimes.

 Why only $20.00? It was enough—and the rest was a gift.

 “Wish your Dad Happy Father’s Day from me,” I called after her.

 Sometimes the perceived value goes both ways.