The Price Is Right

I love, actually I need to start the working day with a coffee. To be precise, a latte from Costa. And every day I can’t believe I’m paying £2 for a takeaway coffee. How did the coffee houses persuade us to pay such an outrageous price which appears to bear no relation to cost?

To be fair, when we price products for our gift shop Your Life Your Style, it’s not as simple as taking the cost and applying a standard percentage mark up. There are a number of factors we take into account. As I always tell businesses who consult me, you first must consider the market and set a price appropriate to it.

As retailers, we have little say over the product’s position in the market, so we move straight on to how many we expect to sell and how much customers are willing to pay. At Your Life Your Style, we rarely expect to sell products on a mass scale because we offer special gifts and accessories.

However, if we can sell a reasonable number, we can afford a lower margin and make the profit we need through scale. Going back to my old theatre marketing days, I think of the example of Christmas pantomime where the type of audience and the numbers who attend allow for lower prices than for, say, a musical.

On the other hand, if the market is more niche, it is necessary to charge more. Opera comes to mind as a case where, at least when I was trying to sell it, no matter how cheap you made the tickets, there were only so many people interested in buying. At Your Life Your Style, we may go for a higher than average profit margin if we know a product is unique and may take some time to shift.

Of course, how people themselves value the product will have a big influence. And this is where it gets more complicated. Marketing, word-of-mouth and the intrinsic qualities of the product will potentially affect a consumer’s attitude to a product. They may have an emotional attachment to it or make a rational decision about its quality or simply want to show off that they have the taste or money to purchase it. Whatever the reason, if a customer believes the product to be exceptional or life enhancing, they will pay a premium for it.

This is why we don’t automatically charge the lowest price we can afford based on cost. A cheap price means to many people an inferior product because that is what they’ve learned from experience. No doubt Chanel could charge less but their customers want to buy an expensive perfume. In fact, perfume manufacturers and other fashion brands like Levi have fought hard to stop their products being discounted and thereby ‘cheapened’.

Back to coffee (and I am beginning to feel like another latte), Starbucks managed to persuade us that we were getting something special. Special beans, specially roasted, freshly ground, customised to your taste and in a social club atmosphere. Hence the special price. Then everybody started imitating it but the strange thing is, the more popular premium coffee became, the more the price should have come down. Yet it didn’t.

Initially Costa and the rest wanted to show they were the same quality as Starbucks, so they matched the prices. Even so, in all the years since, no-one has broken ranks and reduced prices. I read that at a blind tasting people preferred McDonalds coffee to Starbucks but it will take some persuading people that you don’t always get what you pay for.

Knowing the price people will pay forces Your Life Your Style reluctantly to turn down some excellent products where the cost is too high, taking into account all our overheads. For example, we have found that some (not all) products hand crafted in Britain are so expensive to produce that the retail price looks hugely expensive when compared with either something handcrafted in the third world or something mass produced. Every product must earn the time and space it takes up.

There is always an element of trial and error in pricing. We know there is a tipping point at which a product sells, so it’s easier to start with a higher price first and, if the product doesn’t sell, lower it. This then gives us the opportunity to employ the other great pricing tool- the bargain. Some more cynical businesses deliberately charge a high price to establish that something has a value, not expecting the product to sell, then cut the price. This way, people don’t see it as ‘cheap’ but rather a ‘bargain’.

We prefer to price fairly from the start, because we know that customers have no respect for cynical businesses. Their spend with a gift-cum-lifestyle shop like ours is entirely discretionary so we need their respect. To me, getting the price right is a constantly challenging element of running a business. There is no easy formula but if you get it wrong, all your other good work goes out the window.

Funny Marketing

I was interested to read in the ClickZ newsletter that the late US comedian Red Skelton used to collect the addresses of members of his audience, then write to them next time he was due in town. A simple but very cost effective tool for selling tickets and building a fan base that most acts fail to exploit to this day.

The Curse Of Booking Fees

In times of recession, customers look for value. So I wouldn’t be at all surprised to find people balking at paying a booking or processing fee for something they reasonably expected to be part of the price. (You don't pay Sainsbury's an extra fee for putting your can of cat food through the till.)

Even if we pay the fee, our opinion (and therefore our loyalty) of the company goes down.

I’m aware from my own experience that contracts between theatres and producers are often based on a percentage of box office. Naturally theatres and agencies are reluctant to let promoters have a percentage of the 'fee'. Even so, they must find a way to introduce a clause that allows them to deduct a processing fee from the money owed. Companies like airlines and theme parks who own the entire process have no excuse at all.

Is Newspaper Advertising Worth The Paper It's Printed On?

The question in today’s digital world is, how much do you need print?

Is advertising in newspapers anything more than an expensive habit? With readerships are dropping faster than Russell Brand's trousers, the return on investment is increasingly poor. Concentrate instead on competitions, giveaways and PR, which are low cost and have more impact.

Then there are fliers and season brochures. No doubt some customers pick one up and buy a ticket but many are consigned unread to the recycling bin. The one kind of print worth sticking with is the targeted postal mailing. Research suggests that a brochure or letter in people’s hands at home stimulates both phone and online sales.

Print also means posters. These are another questionable use of a limited budget because only a handful of theatre posters obey the two golden rules for this form of advertising- use emotive visuals accompanied by seven words or less. The exception that proves the rule is the current campaign for David Pugh’s production of Calendar Girls- a row of apparently naked women with their naughty bits covered and the tag line ‘All will be revealed on…’