Pricing Your Product: Interview with Barbara Carey
Our Guest Blogger, Ashton Udall, is a partner at Global Sourcing Specialists, a product development and sourcing firm that assists businesses, inventors, and start-ups tap overseas resources to succeed in the global economy.
Ashton recently interviewed Barbara Carey for his blog product-global.com. Barbara has written articles for us as a Guest Blogger for us in the past. She is the inventor of Hairgami® and dittieTM feminine protection brand, as well as over 100 other products. He wanted to share the interview with the readers of InventorSpot.com.
Here's Part II of his 3 part interview. Part I was published last week. Part III will be published next week:
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Pricing Your Product
A: Touching on the point of selling your product before you manufacture it, I have worked with several people that have taken orders from customers but were not aware of the time it was going to take to develop and manufacture the product, and they realized they promised on something they couldn't deliver.
B: Hey, the article you wrote for our newsletter on obtaining manufacturing quotes and schedules is an excellent remedy for that. Reference it here (Thanks Barbara, I will: Obtaining Cost Estimates From Manufacturers).
And in thinking about manufacturing, getting quotes, and setting your price points, it all starts with the perceived value of your product. You want to get that up as high as possible and you use your packaging to help with that. You have a product. It delivers a promise. What is that promise's value? In terms of Hairagami, it was great because it wasn't a hair clip that you look at and think "this is a piece of plastic made for a dollar and then some". Hairagami makes a new hair style which saved you a trip to the hair salon. That's worth fifty dollars. So then, when I can sell it at $14.95, it doesn't just save you fifty dollars once, but each time you might go to the salon. And, it saves you time because you don't have to go to the salon. It saves you time and money! So, start with your perceived value of your product and your packaging should convey all those key messages that bring your perceived value up. Talk to a few manufacturers or experts to get some cost feedback for your analysis. Then, do a marketing survey to see if your target customers would buy at this price or that price. And, ask the likelihood that they would buy it?
I ask these questions many different ways until I hit what I think might fit with the key price points. Retail has price points $14.99, $7.99, $9.99, etc. You don't price your product at $16.75. You have to think about where your product fits into one of these categories where a potential customer will see that at that price, the perceived value is much higher and the ‘cup runneth over'. Rich Jr.'s item was very inexpensive to make, approximately $2. I don't remember exactly. He sold it for approximately $6.50, and there was a nice sized margin in between. Size matters! And we thought, "gee, we sell it at $6.25, they could price it at $12.50. But the retail price point that's going to move a lot is at the under-$10 threshold, or $9.95. So we tried a couple of different price points at retail and the $9.95 point sold three times as much, just because of that little change below $10.
A: When you test different price points, how do you make sure you aren't cannibalizing sales of your product in another channel?
B: You guard against that by doing a small test with somebody who might be in a different channel. You might keep your main channel at the optimal price point, but you might experiment a little at a specialty retail store or a resort. You can try different price points that way and still protect your channels.
A: So you're always testing, surveying, etc.?
B: Even when your product is more mature in it's life cycle, you still are going to want to test your price points.
A: How do you deal with deciding whether to go with your perfect vision of the best product you can possibly design or to go with something that is just good enough to sell at your chosen price point? Many inventors fall in love with their products and develop the most amazing, high-quality item they can conceive of. Then, they go get manufacturing quotes and realize that they are way out of the ballpark when it comes to making their margins.
B: That's not good...
A: Right, so how do you make sure you don't run into that problem?
B: That's why you need to start with the perceived value and then you need to make a product that you can make a big margin with and give the retailer a margin they can make money on. You have to ask what price the end user will buy it for. Ask the retailer what price they need to buy it for to make money. And, find a price you can have it made for so that you can make money. That's why I look for products that have a high-perceived value and are relatively low in cost.
A: So when you thought of Hairagami and had to decide what kind of fabric to use, how did you decide what would be cost effective and still deliver?
B: I didn't have the money to afford velvet to hit the margin that I needed. So I used stretch velveteen and that was good enough and didn't change my margin either. Also, this was a product that I needed a large packaging insert to explain what the product could do. But I didn't have the retail shelf space to accomplish that. So I created a package in which there was a pop-out map concept. The paper unfolded, opened up, and gave a great display of "let me tell you about my product". So you have to think of creative ways to accomplish what you need cost-effectively.
Read Part III next week on pricing and testing your product.
You can reach Ashton at:Ashton Udall
Global Sourcing Specialists