Could someone please explain...

[JerrySambrook]

Smitty, to a point, NewLondon is correct.
I remember when we could buy used Shaker furniture around here for a couple grand a piece.
Oprah came by, wanted a chest, got into a bidding war with another, and paid $100,000.00 (yes one hundred thou), and now everyone thinks there pieces are five and six digit figure pieces.

Same with cars, people see a pedigree 67 Mustang driven by Parnelli Jones in some races, and it sells for 75,000 to a collector. Now the guys with a floors missing 67 mustang six cylinder think theirs is worth 1/2 that.

Thanks for all the varied answers gentlement and ladies.

Jerry

 

[beck3906]

Hmmmm.....
Then question of buying at the asking prices raises thoughts I've experienced recently.

Did you ever look into buying a Saturn vehicle when they were around? Or what about a Tempurpedic mattress?

I bought both and paid the asking price because that is what their business model was based on. No bargaining allowed.

 

[alphageek]

Hmmmm.....
Then question of buying at the asking prices raises thoughts I've experienced recently.

Did you ever look into buying a Saturn vehicle when they were around? Or what about a Tempurpedic mattress?

I bought both and paid the asking price because that is what their business model was based on. No bargaining allowed.

I would use retail as a better example of no bargaining allowed (most of the time). I've bought 2 Saturns and didn't pay asking price exactly on either. Yes, there is no 'bargaining' on the sticker price according to the way they sell, but there was bargaining, both on trade in and on accessories that were included. And one of them even had dickering on the actual price because of the time of year.

The only thing consistent about buying and selling is the inconsistancy.

 

[nativewooder]

NO!

 

[BKelley]

I try to price fairly. I figure the cost of materials, shop supplies, my electricty is not free and of course I figure a little labor. I do not dicker prices with the grocery store or the shoe store. I expect to be treated the same. If a person likes my work and buys, good. If he thinks my work is bad or prices too high, he is free to seek out some one who has work and prices to his satisfaction, no hard feelings.

Ben

 

[Smitty37]

THINK is right---

Smitty, to a point, NewLondon is correct.
I remember when we could buy used Shaker furniture around here for a couple grand a piece.
Oprah came by, wanted a chest, got into a bidding war with another, and paid $100,000.00 (yes one hundred thou), and now everyone thinks there pieces are five and six digit figure pieces.

Same with cars, people see a pedigree 67 Mustang driven by Parnelli Jones in some races, and it sells for 75,000 to a collector. Now the guys with a floors missing 67 mustang six cylinder think theirs is worth 1/2 that.

Thanks for all the varied answers gentlement and ladies.

Jerry

Think is the operative word - regardless of what they think unless they find a buyer who thinks the same thing they have a potentially classic car for sale.

In fact, when Oprah paid $100,000 for that chest - just the fact that she bought it probably DID (at least for a while) make shaker furniture (I assume this was an original antique piece) worth more. There are a lot of people who will buy something just because Oprah did. I don't know why that is but it is a fact.

Copy cat is what made people pay a couple of thousand dollars for rag dolls [cabbage patch kids] when my kids were young. Ours got theirs the next year for 10 bucks.

 

[sbell111]

This pricing theory does not put pricing at the will of the most ignorant consumer. It puts pricing at a point where profits are maximized. If the price is lowered, then more people buy, but at a reduced overall profit. If prices are raised, a higher profit is made per unit, but the reduced number of buyers yields a lower overall profit.

Another benefit of pricing with this method rather than pure costing is that cost efficiencies are a reward to the seller, not the buyer.

I guess the litmus test would be for the manufacturer to ask himself:
"Would I pay this much for this product?" If not, then they have placed
themselves in an adversarial position with the consumer.

We sell pens for eighty dollars that have total costs of about ten dollars and an hour of our time. Personally, I won't pay that much for a pen. Still, plenty of the buying public are happy to do so. That's not a bad thing.

And when I say 'the most ignorant consumer' I mean uninformed. There
are people who will pay unrealistic prices for products. Those people are
part of the market, and if they will pay an unrealistic price, then this is
what the market will bear. Ergo, the pricing (what the market will bear)
is at the will (actions) of the most ignorant (uninformed) consumer.

First, it should be noted that the market is what determines whether prices are realistic. If profits are maximized, then the price is realistic.

Second, it is not the 'most ignorant customer who determines sales price because are pricing methods are not customized to each specific buyer. Instead, prices are set at a level to maximize profits.

Look at it this way: Most everyone will buy a nice pen at a price of $5. A few will buy the same pen at a price of $500. At neither price point is profits maximized. In fact, at both extreme price points, you will not even make breakeven.

In general, as prices increase, number of sales drop until it reaches a point where no one will buy. At the same time, profits per sale increase. At both extremes (pen for a penny or the same pen for $1000), profits are not maximized. However, there is a price at which the number of sales maximizes overall profits. That's the sweet spot that we strive to find.

Cost efficiencies SHOULD be a reward to the seller (manfacturer) but
first we need to define 'efficiencies'. Are we talking about finding better
ways of containing costs? Great. Streamlining the manufacturing process?
Wonderful. But if we're talking about lowering the quality of the product
and keeping the price the same (or more likely, raising it anyway) then
this is where the consumer is likely to talk with their wallet. It is one of
the reasons companies are losing what used to be known as 'brand
loyalty' .. and archaic term, now. And the business climate has changed
so drastically in the last several decades that many companies do not
consider the customer .. only the consumer. There is a much greater
remove than there used to be.. so much so that when a company really
DOES take care of their customers, it stands out as being unusual.

And often these kinds of 'efficiency' decisions are made my people who
know it's a bad move, but they'll make their quarterly numbers, get their
bonus and move onto the next company before anyone catches on .. but
that's a whole different discussion..

You are getting away from the topic. In the context of this conversation, efficiencies are the ability to make the same exact pen at a reduced cost.

 

[NewLondon88]

Perhaps I just don't understand the phrase 'maximize profit' because nothing
in that post made any sense to me.. it might as well have been in a different
language, except that I recognize the words.

 

[Smitty37]

Profit

Perhaps I just don't understand the phrase 'maximize profit' because nothing
in that post made any sense to me.. it might as well have been in a different
language, except that I recognize the words.

In any free market, supply and demand will control where the price is set.

If I am a producer and am seeing a demand for my product that I can't work fast enough to meet, my price is too low.

If my finished inventory keeps piling up because I can produce the product faster than I can sell it my price is too high.

In neither case will my company make the maximum profit when total sales are considered.

Somewhere between those too extremes there exists a price where my enterprise will be able to satisfy the demand without creating excess inventory - that is the correct price.

IF that price does not exceed costs and produce a profit - I should get out of the business.

 

[Smitty37]

Good if you're selling.

I try to price fairly. I figure the cost of materials, shop supplies, my electricty is not free and of course I figure a little labor. I do not dicker prices with the grocery store or the shoe store. I expect to be treated the same. If a person likes my work and buys, good. If he thinks my work is bad or prices too high, he is free to seek out some one who has work and prices to his satisfaction, no hard feelings.

Ben

Whether that's good or bad depends on whether or not you're selling enough and making a satisfactory return on your business -if you are - great, you've found the right pricing model.

If you're not - and you just keep having more and more pens to sell piling up, then you don't have the right model - you need to lower your price.

If you find that you can't make pens fast enough - you ought to raise your prices some.

A fair price is one where both the buyer and seller are satisfied.

One thing though, unless you are operating a retail outlet, you are in a business where "dickering" is the norm in most venues. You don't dicker at the grocery store because fixed pricing is the norm there and you are not dealing with someone who can change a price. But, if you go to a furniture store and don't dicker you're gonna get hosed.

 

[butchf18a]

When the subject comes up educate them. Let them know how many years you've practiced your craft to get it to a point where you can sell your wares. Let them know all the steps involved. While I rarely get that inquiry, when I do I ask them what do they feel a fair compensation per hour would be? Ask them what they, in their profession get on an hourly basis, would they compromise on their efforts? I have not found one yet that would.

 

[PenPal]

Jerry,

I accept your challenge and say this:

My philosophy is approach situations such as making or selling with respect and try to understand the truth of all dealings.

I try to leave having bought or sold feeling fairness has been at the root of all sales or purchases.

Sure as night follows day every deal or purchase requires considered thought as best we can.

40 yrs ago in New York City on my own I travelled most of Fifth Avenue buying from wholesalers who had minimums of maybe hundreds of rolls buying 1/2 a yard of this and that to take home for my Quilter wife. In every case I put forward my request up front there were no refusals. Prices were fair and yes having been the shadow in so many Quilt
Exhibitions etc I had a working knowledge of materials, I knew my wifes preferences.

With Pen Turning it is my passion profit does not control or motivate me because I live within my means, my observations during my membership in this forum is that I am in the minority by observing the Avatars and advertising of product and materials.

On this fishing expedition of yours I do trust you succeed in your quest maintaining your dignity and preserving mine and others who choose to answer in their own way.

Love a challenge.

Kind regards Peter.

 

[Glenn McCullough]

I have been in retail sales for 32 years, and I know a couple of things. The price asked is given its value by the salesperson. Most people who dont want to pay the price for something dont understand it's value, many dont care because they have no interest in it. Some would love one, simply cant afford it (these are the ONLY people I may adjust the price for). If you dont explain what goes into making a handmade pen, it isn't worth squat. Celebrate the fact they wont buy your pen and throw it out or trash it, then thank them for not purchasing, they dont deserve it...but save yourself the aggravation of stewing over it, it will always be like that.

 

[sbell111]

Perhaps I just don't understand the phrase 'maximize profit' because nothing
in that post made any sense to me.. it might as well have been in a different
language, except that I recognize the words.

When I say 'maximize profit', I am not referring to the profit that you make on one pen sale. I am talking about your overall profit for all sales, say at a show. You could price your pens at a penny each and sell out, but you won't make any profit. You could price the very same pens at $200 and perhaps sell one or two, but not even cover your booth fee.

As you increase your price along the continuum between one penny and $200, your sales volume will drop, but your profit contribution per item sold will increase. The thing is to find the sweet spot where overall profit is maximized.

Check out this graph that I found online. I think that it depicts the concept pretty well:

In this graph, you can see how changing your sales price affects your overall profit:

I think that one of the things that confuses people is the idea that price is set by the market. The fact is, that's an oversimplification of the concept. The price is set by the seller and the market reacts to it. An experienced seller understands this market reaction and sets the price to maximize revenue.

 

[Smitty37]

Good picture....

Economics 101....

I agree except for a minor disagreement about who sets the price. You are correct that it is NOT the market. In and of itself the market is simply a place to buy and sell things.

I don't think it is just the seller who establishes the price either. It is both rational buyers and rational sellers who establish the market price.

True that the seller puts a price on and the buyer reacts but the buyer's reaction (which might be just not buying) can cause the seller to react by changing his price or withdrawing his product from the market. It really is a two way street.

 

[NewLondon88]

ok.. I understand what you're saying. The words were going in, but
not making any sense.
It still isn't the way I'd want to price my own products, but now I
know what you meant by 'maximize profits'

 

[jedgerton]

I think I can answer your question. People don't care about what costs are, nor should they! None of us know what goes into everything that we buy and for the most part, we don't care.

What we do care about is getting what we perceive to be the best value for our resources (money, time, effort, expertise, etc.). If a company started selling steaks just like we find at our grocery stores for even 20% more, we would abandon them and not listen for one second to their complaints about their costs.

It's incumbent upon all businesses to convince people their goods and services are worth what they charge. There are no entitlements!

If the issue is about what people are willing to pay for our pens, just consider that most of us will be competing with other hobbyists who consider materials to be their only cost. Some will even be willing to lose money on materials just to pursue their hobby. To me this means you have to have something extraordinary to make it profitable.

I'm still trying to figure out how to get from where I am today to something that approaches extraordinary!

John

 

[SCR0LL3R]

A hairdresser charges $80-$100+ an hour to cut hair... and people often feel inclined to tip on top of this price. But try to get $25/hour for any woodworking of any sort and these same people will think you are nuts.

People feel they need a 7 Liter, 400 Horsepower, $60,000 pickup to go to the grocery store but look at a $100 pen and think you are nuts.

It takes all kinds i guess.

 

[Smitty37]

Watch it.....

A hairdresser charges $80-$100+ an hour to cut hair... and people often feel inclined to tip on top of this price. But try to get $25/hour for any woodworking of any sort and these same people will think you are nuts.

People feel they need a 7 Liter, 400 Horsepower, $60,000 pickup to go to the grocery store but look at a $100 pen and think you are nuts.

It takes all kinds i guess.

Careful there, that is mighty thin ice you are skating on....us pickup truck owners consider our pickup to be an appendage, just like an arm or a leg. Besides mine only cost $18,500 and only has a 3.7L V6.

 

[sbell111]

Economics 101....

I agree except for a minor disagreement about who sets the price. You are correct that it is NOT the market. In and of itself the market is simply a place to buy and sell things.

I don't think it is just the seller who establishes the price either. It is both rational buyers and rational sellers who establish the market price.

True that the seller puts a price on and the buyer reacts but the buyer's reaction (which might be just not buying) can cause the seller to react by changing his price or withdrawing his product from the market. It really is a two way street.

So basically, you are agreeing with the last two sentences of my previous post.

Unless you are selling at auction, the buyers do not set the price. The seller always sets the price with an understanding of how the market will react to it.

 

[glycerine]

You guys are saying the same thing. Saying that the seller sets the price according to the "market reaction" is basically the same thing as saying the buyer sets the price. The "market reaction" is the buyer...
If the seller actually wants to sell their product, then yes, the buyer does set the price, "indirectly". They "set" the price by either buying the product or not at the currently requested price. If no-one buys, the seller lowers the price, if too many people are buying, then the seller may raise the price.

 

[Smitty37]

True

That's true, there is only a minor disagreement.

We probably had different Economics 101 professors.....although we might have had the same text book. Economics by Paul A Samuelson...I believe I had the 8th edition....as of 2010 it was up to the 19th.

 

[sbell111]

That is not the book that I taught from, but no doubt the concepts are the same.

 

[Smitty37]

Hmmm

That is not the book that I taught from, but no doubt the concepts are the same.

I thought that was the Bible of Economics 101/102. It is the most successful economics text book of all times first published in 1948 it's 19th edition came out in 2010 the year after Samuelson died. That text has sold over 40,000,000 copies and has been published in 40 languages.

 

[sbell111]

That is not the book that I taught from, but no doubt the concepts are the same.

I thought that was the Bible of Economics 101/102. It is the most successful economics text book of all times first published in 1948 it's 19th edition came out in 2010 the year after Samuelson died. That text has sold over 40,000,000 copies and has been published in 40 languages.

You know a crazy wierd amount about a textbook.

Personally, I have never taken nor taught a 100 level Economics course as those would generally be just an Intro to Econ course that is offered to non-business majors. Business majors generally jump in at 200 level Macro- and Microeconomics courses. The pricing theories discussed in this thread would, of course, be taught in a Microeconomics course.

 

[sbell111]

That is not the book that I taught from, but no doubt the concepts are the same.

I thought that was the Bible of Economics 101/102. It is the most successful economics text book of all times first published in 1948 it's 19th edition came out in 2010 the year after Samuelson died. That text has sold over 40,000,000 copies and has been published in 40 languages.

Just for giggles, I just checked the websites of four local colleges: Vanderbilt, Belmont, MTSU, and UT. None appear to use the text that you referenced.

 

[Smitty37]

That is not the book that I taught from, but no doubt the concepts are the same.

I thought that was the Bible of Economics 101/102. It is the most successful economics text book of all times first published in 1948 it's 19th edition came out in 2010 the year after Samuelson died. That text has sold over 40,000,000 copies and has been published in 40 languages.

You know a crazy wierd amount about a textbook.

Personally, I have never taken nor taught a 100 level Economics course as those would generally be just an Intro to Econ course that is offered to non-business majors. Business majors generally jump in at 200 level Macro- and Microeconomics courses. The pricing theories discussed in this thread would, of course, be taught in a Microeconomics course.

Actually it was Paul Samuelson that I had the interest in. I read about his death a year and a half ago and read about his book then. I just happened to read an economics article on Yahoo last week or the week before that mentioned in passing that the 19th edition of his book was published after he had died.

Macro and micro Economics had not been invented yet when I first took Economics in 1966 and 1967.