Should you cut prices to match a competitor?

[BILL WARD]

via usatoday/NFIB

read the article here

 

[Puppiesonacid]

ill just say what the article says. not if it puts you out of business.

M's is running a 55% off sale now... not 50, not 60.. but 55% off sale.

i know my prices and service are better then theirs... and im sticking with them. Now if everyone goes goes to M's cause they think they are getting a value... hopefully ill stay in buisness fixing what they did And yes out of the 15 people ive met at the BNI group I am joining. 3 of them went to M's... one feels she got a VERY good deal... needless to say.. i almost told her she didn't... but held off. why make her mad.

 

[jim_p]

And yes out of the 15 people ive met at the BNI group I am joining. 3 of them went to M's... one feels she got a VERY good deal... needless to say.. i almost told her she didn't... but held off. why make her mad.

Why not tell them, "Next time you have something to frame let me do a quote for you... I think you'll be pleasantly surprised!" I've found that my "regular" pricing is about on par with M's "50% off" pricing.

 

[artfolio]

It is all a matter of faith in your pricelist and the quality of your product. I have had several people try and haggle me down with the line that "XYZ said they'd do it for $X". Mental arithmetic is usually enough to tell me that the materials I am quoting on simply cannot be sold at that price without losing money.

This approach also tells me that they are shopping around for the cheapest job they can get in which case I am wasting my time with them as I am not the cheapest, nor do I want to be.This type of customer will never let up on the haggle and will show me no loyalty - the first time someone bids a lower price they will be gone.

My response is to stick to my price and insist that, although the other job is cheaper, they are probably not getting "the same thing" in terms of quality. If I lose them well, so be it.

 

[Puppiesonacid]

Why not tell them, "Next time you have something to frame let me do a quote for you... I think you'll be pleasantly surprised!" I've found that my "regular" pricing is about on par with M's "50% off" pricing.

the other 2 i did because they were a bit nicer and didn't mind me telling them... but that one lady was not the kind of person to talk to about it. esp with her response of how much she loved m's. cause im about right with you on the pricing after their 50% off.

 

[Framing Queen]

the other 2 i did because they were a bit nicer and didn't mind me telling them... but that one lady was not the kind of person to talk to about it. esp with her response of how much she loved m's. cause im about right with you on the pricing after their 50% off.

Isn't the object of BMI to refer business to EACH OTHER? If so, then she clearly doesn't expect to send you business. I do not match competitors as their overhead and mine may be substantially different AND that customer is gonna tell everyone that I match. Soon enough, I will have to match every coupon, estimate and heresay from everyone in town.

Unless your store is super hungry for business, set the price you need to make a living and hold. Assure the customer that your workmanship is top quality. If they walk, simply say you'd like to serve them in the future.

:kaffeetrinker_2:

 

[Paul Cascio]

Matching/beating a price makes sense; matching discount percentages is a fultile shell game. I would do whatever is necessary to capture a customer when you have the chance, because you probably won't get a second bite of the apple. In our industry, customer loyalty is very high. If a customer buys from your competitor, they stay with your competitor. And if you get 'em, you keep. Unless someone really screws up, then all bets are off.

One question to ask yourself is, what do I have more of: time or work? If you have more time, then capture the customer; with markups of 400%-500%, you'd have to almost give a job away to lose money.

 

[Warren Tucker]

In a market economy (as in the US so far) the market doesn't care about how much you have to charge for a product in order to stay in business (that's an issue of whether you should be in business at all). There are distortions, I realize, but I think it's safe to say that if your prices are higher than your competition's, you're not going to last long.

We'd lower our prices in a heart beat to meet competition, and if we couldn't, we'd seriously consider another line of work. Price competition is what forces efficiency in free markets. Sure you can compete on terms other than prices but it's much more difficult to do which is why the biggest retailers choose price first as well as quality and service. Price is objective while quality and service are subjective.

My guess is that highly competitive prices lead to higher volume which enables high quality service and products. A busy frame shop makes more frames over a period of time and becomes better at frame making (as well as all other aspects of a retail frame shop operation).

As I've mentioned before, the main thrust of our business from the beginning has been to lower the price of custom framing in general and to offer prices lower than our competitors in particular. So far, the latter has been fairly easy as M's, too, has come to realize. Fortunately our business model is more efficient than M's and our prices are lower than theirs. Actually a lot lower for the same services and a whole lot better and faster.

As we've striven to lower the cost of custom framing over the last 32 years, the industry as a whole has gone in the other direction ("I'd rather frame one $400 job than 4 $100 ones") with the pushing of coated glass and conservation framing as prime examples. There were a lot more framers around when we started than there are now and I suspect I've put my finger on the cause. Generally, with rare exceptions, the efficient will squeeze out the inefficient.

Then, too, general market conditions should determine how much you expect to make; in a tough market (like, now) maybe we should lower our expectations in order to survive. Believe me, survival is the name of the game now, and we are in a tough market that isn't going to get better soon. There's going to be a price to pay for the anti business policies and atmosphere that's current and depending on the damage, we may not see an economy that we enjoyed in the first half of this decade any time soon. It's time to hunker down and if you need to lower prices to compete, you'd be smart to do it even if it means a smaller slice of the pie. Depending on the November election results, we could be heading into a zero sum economy and it ain't going to be pretty.

 

[Framing Queen]

The mistaken assumption seems to be that 100% of the people walking in the frame shop door are shopping prices. I find that 80% of the customers walking in my door are more interested in good craftsmanship, excellent selection and knowledge of product. For the 20% that are shopping, fully 80% of those pay my price even after asking about discounts etc. I let the remaining 20% simply walk because I realize that there's no way in the world I'm performing 100% of the framing in my area.

Maybe I'm just lucky. But, the fact remains that custom framing isn't inexpensive to begin with. So, if you find that 80% of your customers are price shopping, then you have to determine whether being known as the discount framer is a good thing.

But, while market forces do, to some degree, regulate price it isn't the only factor. That's why there are Chevrolets AND Bentley's for sale in the market place at vastly different prices. Both will get you to the same location. HMMM... is YUGO still in business? Just sayin` !

:kaffeetrinker_2:

 

[PaulSF]

When M's offers 55% off (THIS WEEK ONLY!!!), aren't they lowering their prices to match their competitors?

 

[Framing Queen]

When M's offers 55% off (THIS WEEK ONLY!!!), aren't they lowering their prices to match their competitors?

Well, if they are - and I'm directly across the street from M - they aren't doing it to draw the "shopping around" customers from me as my normal price is usually less than theirs.

An artificial discount off an unnamed retail price doesn't necessarily match a competitor.

:kaffeetrinker_2:

 

[Dave]

Good point, Paul...

I'll have to remember that approach when discussing their sales tactics.

They are lowering their prices to compete with me!

 

[Framing Queen]

Good point, Paul...

I'll have to remember that approach when discussing their sales tactics.

They are lowering their prices to compete with me!

SHEESH, I'm a little slow today!

I'm gonna steal that line next time a customer mentions the M coupon!

 

[Puppiesonacid]

When M's offers 55% off (THIS WEEK ONLY!!!), aren't they lowering their prices to match their competitors?

i like it!!!!

 

[Paul Cascio]

Warren's post should be required reading for anyone going into business. Any business.

We can't ignore the economy and we can't allow ourselves to believe that customers will be so much happier with our framing, than with Michaels'.

If you're a better framer than Michaels, good for you. But if you let the customer buy from Michaels, your skills will remain a secret.

For too long, framers have taken the approach that Michaels is "bottom fishing." They're not; they're fishing at the front door. Once you let a customer go to a Michaels, or any competitor, the chance you will ever see them again are near zero.

And if you want to sell Bentley's, you'd better have a store that looks the part, and in a location that has Bentley buyers. Just having Bentley prices doesn't mean you're Bentley.

 

[Puppiesonacid]

Best Service
Lowest Prices
Sales not needed


thats what im thinking of sticking out on my sign.... unless people think actual sales ie.. 20% off would be better?

what do you all think. i just see the hole M's is in cause they have to keep having "sales" to get customers... and still rip them off...

is that the way of the future Paul?


or something like

"bring your framing quotes to us so we can beat them"?...

Ive always been bad at coming up with something good for the signs out side.. have had success with certain things during different times of year.

Ill give to to M's though... the company that bought out the M's stores and all for 3 billion or so, owes about 30 million intrest a month on their loan... thats at the 10.5 percent or so that they got. so they got to make money somehow.

 

[Framing Queen]

:kaffeetrinker_2:

Warren's post should be required reading for anyone going into business. Any business.

We can't ignore the economy and we can't allow ourselves to believe that customers will be so much happier with our framing, than with Michaels'.

If you're a better framer than Michaels, good for you. But if you let the customer buy from Michaels, your skills will remain a secret.

For too long, framers taken the approach that Michaels is "bottom fishing." They're not; they're fishing at the front door. Once you let a customer go to a Michaels, or any competitor, the chance you will ever see them again are near zero.

And if you want to sell Bentley's, you'd better have a store that looks the part, and in a location that has Bentley buyers. Just having Bentley prices doesn't mean you're Bentley.

Well Paul, you apparently feel it is necessary to degrade your workmanship by discounting your prices. If that's the case, why don't you just reduce your prices across the board and become the "cheap frame shop?" Advertise it as such! Go as low as you can! Take every customer coming in the door that wants that "cheap black frame."

Soon enough you will be out of business because you're predicating your price structure on another shops' costs. I had a limousine company many years ago. Everytime someone opened in the county, they'd outprice me by $2 - $3 per head for airport van runs. I would always hold my price. No discounts. Ten years, and 4 competitors later, I sold my business for quite a nice sum. OH, did I mention that I purchased the assets of the other 4 at the inevitable fire sale?

You must have a lot of "shopper" walk-in traffic. I don't. And, because I keep a sharp eye on how many customers walk - knowing I can't do every single frame job in town (nor do I want to) - I charge Cadillac prices. Not Bentley, mind you, but more to the top end than the bottom. Guess who's still in business after 8 years while 17 collegues are now closed?

:kaffeetrinker_2:

 

[Dave]

I thought I'd post a copy the story I told in the thread "It's always amusing when you get shopped" to spur some thoughts. This is a true story.



"...What I'm stating is that I believe price, within reason, is not the deciding factor for my clientele of where they go to get things framed.

Quick story...

About 25 years ago we were doing almost 200K in framing alone within our art supply/framing business with 2 full time framers and 3 part timers. A fair volume for a shop back then. The perception to many was that we were a quality shop but very expensive. I even heard people say that if you had framing done by us you must be rich.

I did a seat of the pants accounting on a yellow pad (this was before we had computers) and figured we had lost about 20K in our framing department that year. Thank God the art supply business was much bigger and profitable!

I pulled out Decor's Annual Survey which was broken down by region back then. Within our region our pricing was actually about 25-30% below the average. I pondered budgeting $ 5000.00 for an ad campaign touting quality and inexpensive... then said to heck with that! Why throw good money after bad??? I decided right then and there that I was going to raise prices by 50% because if people thought we were expensive then we, by golly, I was going to be expensive!

If this didn't work then I would seriously considered closing down the framing operation. Overnight I raised prices by 50%. A $ 200.00 frame job now ran $ 300.00.

I did not have one customer notice or at least mention that we raised our prices!

At the end of the year I pulled out the same yellow pad accounting sheet and plugged in the same numbers from the same sources. During the prior twelve months I figured the framing department made 20K and and had an increase of about 10% in unit output! I had also given several raises to the existing framers on staff and also increased our institutional advertising.

It was much easier to change my prices than to change my customers perceptions of our price."

 

[Jay H]

I think that Paul was saying that unless your a very very special type of shop, price matters.

We could use 100 different industries as examples. You can get a steak at the Sizzler for 9.99 with buffet or you can get one at Ruths Chris. My wife dropped $70 just last night there for one meal (Jay is unhappy about that).

Both do well so the argument that everybody must do __________ its completely inaccurate. I read Paul's advice, and Warren although me may not realize it, to mean that shops should focus on the path of least resistance. That can mean a lot of things.

Dave you leave out one critical bit of information. What were your competitors charging? That is far more telling than your spread sheet. Any shop doing 200k in sales and not even breaking even has some serious issues. Unless your costs were crazy out of wack, clearly your prices were way low to begin with. Would the experiment been a winner if you were already say 20% higher than all your competitors? If you think so, I'm packing my bags and moving to Spendthriftville and get some of that! Would you say the East or the West end of town is where the money is?

 

[Framing Queen]

Dave you leave out one critical bit of information. What were your competitors charging?

MY GOSH !!!! Don't you get it??? THAT'S THE POINT !! It didn't (doesn't) matter what the competitors are charging!

Competition ALL AROUND me charged (charges) less than I do. I'm STILL HERE! The "cheap black frame shop" down the block who always undercut my prices is closed. I bought his inventory.

The one three miles away, closed. I bought his stuff, too.

Unless you know FOR CERTAIN your competitor cost basis, you will never be able to compete on any level other than retail price. THAT, my friend, is a bad position to be in.

:kaffeetrinker_2:

 

[jim_p]

Instead of being known as the "cheap frame shop" or the "expensive frame shop", I like to tell customers that I have a variety of offerings at different price points. I can do cheap black, yes... and by the way, we have a number of equally inexpensive options in a variety of styles and finishes. Or if you want to spend a bit more, we have THESE offerings. And if you have to have the very best and price is no object, we'd be more than happy to help you

I sent someone to shop a couple of BBs just for comparison's sake (and to see what their "50% off" prices were like). One problem with comparing shops is that different shops have different things to offer. I don't have LJ in my shop; if another shop is primarily LJ then we can't do an apples to apples comparison anyway...

 

[Jay H]

MY GOSH !!!! Don't you get it??? THAT'S THE POINT !! It didn't (doesn't) matter what the competitors are charging!

You seem a bit tense about the discussion. I don't understand why. I have to read alot into your situation but you seem to be suggesting that you have packaged your shop differently than those around you. Is that fair? The experience is different and that resonates with your community. They also must expect this better experience to cost more. Perhaps you have found the path of least resistance and your cohorts didn't? That's great. To say that pricing doesn't matter requires one to ignore a mountain of evidence to the contrary.

To Dave's suggestion of raising prices 50% it absolutely matters where a shop is on the price hierarchy before the increase. If not just raise your prices 50%. Then do it again Thursday. If price simply doesn't matter why not?

 

[Framing Queen]

To Dave's suggestion of raising prices 50% it absolutely matters where a shop is on the price hierarchy before the increase. If not just raise your prices 50%. Then do it again Thursday. If price simply doesn't matter why not?

Unfortunately you still don't get it. You apparently think that your retail price should mirror your competition. Good luck with that. OH, and you should take an Economics 101 course. It might help!

 

[Jay H]

It matters to the extent that one already at the upper end of the pricing scheme is not free to explore to the tune of 50% more if other factors are equal.

I do not think he was already at the top or they would be doing better than -$20,000. It seems to me that his increase may have put him more inline with what others were charging.

The question still stands. Why not raise your prices again and again if it doesn't matter.

I do not think it's any more possible for a frame shop to mirror prices of all others than it is for restaurants. But I do think that shops could be divided up into 2 or 3 catagories and customers will expect the prices in those catagories to be somewhat consistant.

 

[Dave]

My "little experiment" was a long time ago and at that time there were far fewer competitors in the market and no big boxes. We were way below where we should have been priced and that is why we were experiencing losses.

At the time I believe there were maybe four other framers in town. Another quality shop priced about the same or slightly higher than us, a DIY shop that ran maybe 10% less than us and a couple home based framers.

I didn't tell the story to imply that price has no bearing but to illustrate that quite possibly it has less bearing than what many might ascribe to it.

I still say that price is further down the hierarchy of reasons that customers choose a framer than many other factors.

No denying... there is a clientele that will move price higher up the hierarchy as long as design is decent and selection is reasonable. These are customers I can serve also and have value priced mouldings to satisfy any budget.

The customer I prefer to cater to has a perception that they will pay more and will get more for their money in the form of outstanding design, quality craftsmanship, unparalleled selection and friendly service by a locally owned business. They are more often an educated consumer who knows the difference and is willing to pay for that difference.

 

[Puppiesonacid]

The question still stands. Why not raise your prices again and again if it doesn't matter.

I do not think it's any more possible for a frame shop to mirror prices of all others than it is for restaurants. But I do think that shops could be divided up into 2 or 3 catagories and customers will expect the prices in those catagories to be somewhat consistant.

sounds like the old minimum wage battle. why not make it 20 bucks an hour if you "really" want to help someone. price increases have to end somewhere....

and i kind of agree with Jay in the catagory section... people think they are getting cheap at 50% off places.. so it makes them feel good... if it works then it works. If your prices are the same as them without a "sale" and you lose customers because of somone elses "marketing scheme"... then what can you do to fix it?

to the average joe 50% off sounds great, but they have nothing to compare it to. when they do compare i win...but its those words that work for them most the time. why does it keep working???

just imagine how much business we lose because people think they are still to expensive with 50% off. no way they will try the place down the street... though i wish they would... when people call for a price. they go by price... not by what you are really offering or by how good you are... if they come in.. then you can win more then less with better products.

ive been trying to figure out what to market to get more people in the door... its not easy when you frame anything, and don't want to be stuck in one catagory... ie... sports/ military stuff...

just over all things are down across the board in the country... except APPLE... there may not be a way to get more people in the door right now unless i sell I phones.

 

[Jay H]

I still say that price is further down the hierarchy of reasons that customers choose a framer than many other factors.

Yes as long as precieved value is still there. People don't just decide to eat a $70 steak unless it represents substantially more value than the $10 steak. There is no way for a steak to taste 7 times better. The whole package can make the experiance worth the price. So even then price is not completely flexable with no limitations other than the owners whims.

 

[pwalters]

just over all things are down across the board in the country... except APPLE... there may not be a way to get more people in the door right now unless i sell I phones.

Ah.... you forget about the death grip. Everyone has issues. The grass might be greener but it's got carp in it too. I think what each of us has to realize is that there are varying levels of customer and businesses are smart to understand how each of them react and respond to varying factors. To do this, you have to understand their needs. I propose that there are essentially 6 different types of customers. I'm sure that we can come up with many more, but this is our list.

1. The loyalists - they come to you because you are "their" framer. Not much beyond you royally screwing up something of theirs and to be fair, some of them still wouldn't leave. Not terribly concerned about price, but probably have varying levels of accepted expense based upon the project
2. The homing pigeon - these are the folks who come to your location whenever they have something to frame. If you moved, you would potentially lose them. If you moved and someone opened back up in your space, they would likely continue to do business with them. Likely have different expectations on price based upon the project
3. The new people - these are folks that haven't ever framed before and you have an opportunity to turn them into one of the other types of clients, if handled appropriately. Then again, remember, this is a "first date" and in the end they might only be interested in the best price, you don't really know them. Often can be cost adverse since they have no expectation. Often respond to coupons as entry into something unknown
4. Shoppers - you all know who these are. Price is the priority
5. The framing mime - they are the ones that come in asking questions while moving their hands in the air as if they are trying to break free of an invisible box or perhaps trying to indicate size (usually, if they are a male, they are lying) ALL LIARS!!!!!!
6. The limitless - there were more of these years ago, but they still exist. Not price adverse at all. I love them, but they are doing the way of the dodo bird.

The truth is that if given a hard copy, indisputable estimate I would most likely "beat" that price to gain a customer. In another thread it was assumed that I adjusted my pricing in response to competitive shopping. I don't, but to me, this is different. In essence a customer has come in with a price and said that they are going to buy x for $y unless I can provide the same product for the same or less. To me, this is not only someone trying to save money or be cheap, it's potentially someone who obviously didn't like something about the other situation. I would enter that quote into my system and viola, I can almost bet I would be slightly below them with my regular price. It's like magic.

Now, why would I do that?
1. I don't ever believe my shop it too busy to make more money.
2. It's an opportunity to really impress someone and potentially have them walk out of my store to spread the gospel.
3. I know my margins and if I can still make enough money to make me happy (and I do have a line in my head) then I'll do it.
4. I do this every week with corporate orders/commercial bids. Many of us cut our prices to compete on those, don't we?

and the final reason that I would likely beat that quote....

5. I don't buy the assumption that this customer will always do this. They might, but then again, once they know my pricing is less they may grow into another type of customer if treated correctly.

 

[pwalters]

There is no way for a steak to taste 7 times better.

Disagree. Waffle house steak (and eggs) versus Daileys (Atlanta anyone?) and I believe that there could be a percieved difference that one might quantify with a multiplier.

 

[Grey Owl]

I have found that price difference is an important part of the decision making, only when there are no perceived differences in quality.

If many customers believe that a frame from you or xyz or a big box is basically the same, then price is important in making the decision of where to buy.

Think of milk. Go to one of the larger grocery stores, and you will probably have 3 or 4 different brands and pricing for the same type of milk. In Colorado, a gallon of non-fat can range from $1.99 to $3.49, in the same store. Most people will purchase the cheaper, unless they have some belief that the more expensive is better [in quality, taste, purity, etc.]. But they still sell lots of the higher priced milk.

I have been in a lot of dairy processing plants throughout the country, and in some instances the more expensive milk is better in quality. In other cases the least expensive is the best in quality. Quality being defined on internal quality control, freshness, and including how well the plant does on the FDA inspections. [A score of 100 is a lot better than 70]. But if you are selling the higher priced milk, you need to be able to convince your customers you are indeed much better, or they will go for the cheaper [or less expensive] brand.

 

[Paul Cascio]

:kaffeetrinker_2:

Well Paul, you apparently feel it is necessary to degrade your workmanship by discounting your prices. If that's the case, why don't you just reduce your prices across the board and become the "cheap frame shop?" Advertise it as such! Go as low as you can! Take every customer coming in the door that wants that "cheap black frame."

Soon enough you will be out of business because you're predicating your price structure on another shops' costs. I had a limousine company many years ago. Everytime someone opened in the county, they'd outprice me by $2 - $3 per head for airport van runs. I would always hold my price. No discounts. Ten years, and 4 competitors later, I sold my business for quite a nice sum. OH, did I mention that I purchased the assets of the other 4 at the inevitable fire sale?

You must have a lot of "shopper" walk-in traffic. I don't. And, because I keep a sharp eye on how many customers walk - knowing I can't do every single frame job in town (nor do I want to) - I charge Cadillac prices. Not Bentley, mind you, but more to the top end than the bottom. Guess who's still in business after 8 years while 17 collegues are now closed?

:kaffeetrinker_2:

Quite a leaping ability you have there.

You have a habit of misquoting/mistinterpreting posts you don't agree with. You're welcome to disagree with me, and to argue your position, but please do it without twisting my words, or reaching outrageous conclusions.

I'm glad what you are doing is working for you. I also think it's great that you are tracking how many people walk without buying. That's good and no one can close every deal.

But what about the people who never came in? What do you know about them; what are you doing to attract them?

 

[Framing Queen]

Quite a leaping ability you have there.

You have a habit of misquoting/mistinterpreting posts you don't agree with. You're welcome to disagree with me, and to argue your position, but please do it without twisting my words, or reaching outrageous conclusions.

I'm glad what you are doing is working for you. I also think it's great that you are tracking how many people walk without buying. That's good and no one can close every deal.

But what about the people who never came in? What do you know about them; what are you doing to attract them?

A little thin skinned, there, eh Paul? I have never misquoted anyone here. And, just for the record, my conclusions are based on my perceptions. So, if you believe I'm twisting your words, maybe you should be more clear of your intent.

My original point stands. You can't possibly be successful in a competitive environment by simply matching someone's retail price. If your costs are more than your competition and you match a retail price that is below your cost basis, you are losing money on each job. Is that sound financial practice? Maybe for you as my perception of your post is that you think you have to match someone's retail price to keep the customer as a future client. I strongly disagree.

I know what my cost basis is and how much I need to make a tidy profit and a reasonable living. If my business can't support that formula, then I need to close and find work elsewhere.

AND, as far as the people who never walk in the door to begin with, there are thousands of those people in my county. I'm more concerned with the people that DO walk in my shop. THOSE people are my potential sale, not the ones walking past.

 

[Rob Markoff]

FQ -

I think you may be overlooking something -

And, I am in no means suggesting that a successful operating strategy is to offer things below cost -

However, a slight increase in volume due to intake of additional work (by price matching or otherwise) MAY mean a change in buying habits (i.e 5 chops = free freight and you didn't have the volume to order 5 chops and offer a reasonable turn around) - getting to a 100' mix on length to get a different pricing structure from a vendor - the ability to reach a "partner" threshold and better pricing - or switching from chop to length at an even "better" price.

In addition, if one captures data from the "new" clients (and old ones for that matter) and markets effectively, the increased volume may more than pay for a temporary offset in price by a significant return.

 

[JWB9999999]

I decided right then and there that I was going to raise prices by 50% because if people thought we were expensive then we, by golly, I was going to be expensive!

If this didn't work then I would seriously considered closing down the framing operation. Overnight I raised prices by 50%. A $ 200.00 frame job now ran $ 300.00.

It was much easier to change my prices than to change my customers perceptions of our price."

You know, in the very first framing class I took, that was essentially the first advice that they gave. They said everyone is charging too little and should go home and double their prices. Of course they knew that most would not, but it gave people something to think about when the discussion went further into the values that frame shops wish to have and to communicate to customers, and what customers are actually looking for.

I came back from that show and discussed it with my staff. While I did not change any moulding, mat or glass prices, I did take another look at all of our labor related charges and ended up raising them about 20%.

I know that I offer inexpensive framing. I never discount anything "extra", though I offer my stock mouldings at discounted prices every day. My services and products have a value. If someone doesn't see the value being at least what I charge, they can go somewhere else. About 10% of those that go elsewhere end up coming back. As for the rest, I assume they decide that a plastic Walmart frame of the wrong size is good enough for them, or they just don't frame the item at all. But I have no fear of my competitors underpricing me. They can't if they wish to stay in business. My costs are lower than theirs are.

 

[Jim Miller]

It is interesting that after 34 posts in this thread about pricing, these words have not yet been mentioned:

PERCEIVED VALUE

If there is anything more important to a customer than price, it is value. When a customer perceives that a higher price is "worth it", then the customer will pay the higher price.

The fraud of mass marketers' deep discounts on inflated "reference prices" is that potential customers perceive that they would receive a product for half of its rightful price.

Most framers do not have a problem with pricing. They have a problem with perceived value.

 

[Paul Cascio]

:kaffeetrinker_2:

Well Paul, you apparently feel it is necessary to degrade your workmanship by discounting your prices. If that's the case, why don't you just reduce your prices across the board and become the "cheap frame shop?" Advertise it as such! Go as low as you can! Take every customer coming in the door that wants that "cheap black frame."

...
:kaffeetrinker_2:

Where did I say that? Children can argue with more logic than that. Stick to the facts.

Also,

You said, "You can't possibly be successful in a competitive environment by simply matching someone's retail price. If your costs are more than your competition and you match a retail price that is below your cost basis, you are losing money on each job. Is that sound financial practice? Maybe for you as my perception of your post is that you think you have to match someone's retail price to keep the customer as a future client. I strongly disagree."



WRONG - You can be successsful. Let's say your Cost of Materials is 20%. Even if Michaels Cost of Materials is only 1%, if they charge $100 for an order, you can too, and you still have a healthy profit margin; and a customer. There's no framer in this industry whose costs are so low that you can't beat a bonifed quote.

Again, I never said anything about losing money, only making somewhat less on a job in order to capture a customer, rather than losing that person to a competitor.

 

[Jay H]

It is interesting that after 34 posts in this thread about pricing, these words have not yet been mentioned:

PERCEIVED VALUE

Yes as long as precieved value is still there.

I guess that depends on where you're looking. I did misspell it though. I should have remembered "I before E except after C". DANG!

 

[pwalters]

My original point stands. You can't possibly be successful in a competitive environment by simply matching someone's retail price. If your costs are more than your competition and you match a retail price that is below your cost basis, you are losing money on each job. Is that sound financial practice?

I know what my cost basis is and how much I need to make a tidy profit and a reasonable living. If my business can't support that formula, then I need to close and find work elsewhere.

Queen - I can absolutely agree with your statement of competing against your cost basis. I think that should be clear to everyone, unless someone chooses a particular moulding or package that works for them as a "loss leader", which I don't believe makes sense. However, what if we look at this in a more realistic way. You know your costs, so apply them in this scenario -

A customer comes in with a quote from Framer X down the street. They have two pieces that they want framed the same. Let's say Framer X was going to charge them $170 each and your normal price would be $205. We're talking a reduction of $35 each to gain this business. Now, applying your cost structure, if you did this job, would you be losing money? If one were to look at just the materials and labor cost, I would assume not. Let's say that you normally work with a 30% COG, that would put your materials cost at $61.50 (30% of your original selling price) for each piece. Let's also assume that your going to put a total of 3 hours into each piece (design, order, build materials, final assembly, etc). Let's price it as if your highest paid employee (other than yourself - you are your highest paid employee I hope) is the one to do all of the work. Say you pay them $12 per hour. Add a generous 30% employer burden to that and you get $15.60 per hour. Multiplied by 3 hours and the total labor on that piece (and I believe I'm way up there on this number) would be $46.80. Add that to your COG and you would get a total materials and labor cost of $108.30. Or approximately 64% of the retail price that your potentially going to match. Translated into $61.70 in "Gross Profit" (used loosely) per piece or a total of $123.40 for the order.

Would you match that price and take that work? Remember, this is a customer who has never done business with you before and have shown up on your doorstep (without dime one of marketing driving them in, so your customer acquisition cost is pretty much $0) giving you the chance to make them a long term client.

 

[Dave]

Paul... I wouldn't match that price. I would probably bend a bit justifying that there are two identical pieces but I wouldn't match the price.

Matching the price reduces custom framing to a mere commodity and in my book it isn't. If anyone thinks it is then they should run their business that way and be a low price framing operation and probably be very successful with it too. I don't operate that way but do not belittle those that do. Just two ways to run a business...both valid.

Matching the price also encourages the customer to want a deal every time they come in the door. If a person is shopping on price alone they are not my customer and never will be my customer long term.

Why is that customer standing at my counter? They are looking for an even better price??? I'll offer a better design and probably better craftsmanship (at least I like to hope so), but not a better price simply because someone else is cheaper.

They are standing at my counter because they want me to do the work. I'll happily do the work but at the price I need to be profitable.

Someone else will always be cheaper. It is the nature of business but more go out of business for being to cheap than for being too expensive.

 

[Framing Queen]

FQ -

I think you may be overlooking something -

And, I am in no means suggesting that a successful operating strategy is to offer things below cost -

Rob, that was my EXACT point. If you don't know your cost basis, you can't possibly "match" someone's retail price and show a profit. If you simply "match" price - and it's a loser - there's no way any amount of "volume" makes up for it.

My costs are lower than theirs are.

AND, here we have someone who understands cost basis. So, JWB is satisfied with his markup as it seems to bring the income necessary for his level of living. No discounts and allowing the "wal-mart" crowd to walk.

I actually send some people to wal-mart. They are not interested in spending $200.00 on a poster they bought at the ball game for the kid's room. No need in wasting time with them. Instead, I tell them to keep me in mind for that special memory they might need framed.

Cost basis is the necessary formula no matter what business you're in. Loss leaders are used in stores with a variety of products where they can make up the loss of one product for the sale of others where the profit margin makes up for the deficit.

In most cases, frame shops do not have that type of extensive product line for loss leader sales or "match" pricing.

 

[HB]

A little thin skinned, there, eh Paul? I have never misquoted anyone here. And, just for the record, my conclusions are based on my perceptions. So, if you believe I'm twisting your words, maybe you should be more clear of your intent...

Wouldn't it be better if we asked what a persons' intent was prior to telling them!

 

[Paul N]

Yes as long as precieved value is still there. People don't just decide to eat a $70 steak unless it represents substantially more value than the $10 steak. There is no way for a steak to taste 7 times better.

I would say even 10x better!

The cuts that certain steak houses buy are either too expensive (for say, Sizzler) or are not available to the average consumer.

Plus the aging process plus the cooking method = Superior steak in every sense.

Morton's, Palm, Peter Luger and other legendary steak houses don't lower their prices to match the competition (even same level competition). They believe and act like they're better.

And so does the customer.

 

[Puppiesonacid]

I would say even 10x better!

Morton's, Palm, Peter Luger and other legendary steak houses don't lower their prices to match the competition (even same level competition). They believe and act like they're better.

And so does the customer.

I agree other than the 10x better.... I ate at a Morton's just to try it out because ive always wanted to.. and because they actually had a special deal... not sure if its every day, but of course they don't advertise it.. basically 50 a person and you get to choose from a smaller menu, but get appetizer, dinner, dessert.

I also feel people will eat out 10 times more, and at semi expensive places then get something framed for life.

i think everything was 10x better than the average place, but not the steak... i order medium rare cause places usually over cook, and to me it was good, but i guess i didn't like the style of how it was cooked... i much prefer my own steaks i cook on my grill.

guess all this to say... I do act like the Morton's in my area... but i guess i want to try to reach out to everyone as well with the "speicals" if they ask. since there are always more average people then Morton's people out there. non advertised lower cost framing ways.

 

[Jay H]

If you don't know your cost basis, you can't possibly "match" someone's retail price and show a profit. If you simply "match" price - and it's a loser - there's no way any amount of "volume" makes up for it.

Costs can be an indicator of other problems but doesn't drive retail price much.

For example, lets say I wish to sell Dodge Challengers (I love that car). Dodge will sell them to me starting at $19,000. All the other lots in town prices them at $23,000. How much I need to make off each car is insignificant to the customer. If I desire to move cars I have two real options. One I can price them at $25,000 and offer an amazing buying experience (assuming that is satisfactory with the business) or I can find a way to buy them cheaper.

This is what I believe Warren was describing when he said “the market doesn't care about how much you have to charge for a product in order to stay in business...We'd lower our prices in a heart beat to meet competition, and if we couldn't, we'd seriously consider another line of work.” So I guess Warren would offer my car lot another option. Don't sell cars!

I understand and agree that one cannot simply “match” a competitors price. That's one side of the coin but the other is the market. I believe Bob C called that “pricing inside a bubble.” Warren describes pricing as being “elastic” and the higher the price the more resistance you get. To an extreme the public will quit buying. I like both descriptions. I do not think it important to match or beat the competition's price. It's fool-hearty to ignore it as if it has no impact on people's buying decision.

 

[pwalters]

Paul... I wouldn't match that price. I would probably bend a bit justifying that there are two identical pieces but I wouldn't match the price.

Matching the price reduces custom framing to a mere commodity and in my book it isn't. If anyone thinks it is then they should run their business that way and be a low price framing operation and probably be very successful with it too. I don't operate that way but do not belittle those that do. Just two ways to run a business...both valid.

Matching the price also encourages the customer to want a deal every time they come in the door. If a person is shopping on price alone they are not my customer and never will be my customer long term.

Why is that customer standing at my counter? They are looking for an even better price??? I'll offer a better design and probably better craftsmanship (at least I like to hope so), but not a better price simply because someone else is cheaper.

Someone else will always be cheaper. It is the nature of business but more go out of business for being to cheap than for being too expensive.

Interesting. As we all should be aware (and considerate of), many different and valid viewpoints. So let me ask either you or Queen (or anyone else who wouldn't match) this. Have you ever competed with another frame shop on a commercial order? Ever lowered your price due to quantity, frequency, etc to secure that job? I realize that these situations are different than one person walking in your door, but in my 18 years of being in this business, I've found that in reality the long term benefits of that one consumer continuing to do business with me far outweighs the one time shot of an office project or hotel job in terms of net revenue. Disagree? Also, I think the section in bold is an awfully dangerous assumption that I wouldn't qualify my staff to make. You know what they say when one assumes. And for the record, I'm not trying to incite, rather I am trying to understand the perspective because it's so different from mine and those that I compete against here. So if I've offended anyone here, I apologize.

 

[HB]

Instead of being known as the "cheap frame shop" or the "expensive frame shop", I like to tell customers that I have a variety of offerings at different price points....

Jim P, wouldn't you agree there can be a big difference between what you are known as & what you tell customers? (I am not trying to be funny here)
We are known as what we have developed our business to be thru marketing etc.
What we sell (or attempt to sell) to a client once they are in the store is whatever they need (if available).

I strongly believe if you don't create & maintain a specific "branding" you are not going to be as successful. A brand has to target a certain segment - telling someone you can do everything effectively IN YOUR MARKETING is really just telling them nothing - or worse, telling them that you can't do anything very well.

No business has done very well selling BMW's AND VW's.
(At least not to my knowledge)

I believe you need to take your pick!

 

[Jay H]

What you guys are describing as far as steak is interesting. I disagree completely. A $20 steak is just fine with me. I see no value in a $30 - $40 - or even $50 steak. I never will. If I live to be 1000 and never eat a $50 steak that is just fine with me. Some people have 10 a year though. They see the value where I see it as a complete waste of money! I suspect framing clients are similar.

I wonder who sales more steaks Ruth's Chris or Longhorn? I wonder which has more appeal to the general public? Which is the path of least resistance?

 

[HB]

Yes as long as precieved value is still there. ...

PREceived value - percieving beforehand!

Jim, that's better than your PERceived value!

 

[pwalters]

I wonder who sales more steaks Ruth's Chris or Longhorn? I wonder which has more appeal to the general public? Which is the path of least resistance?

Quite frankly, I would wager that on a per store basis, someplace like Fridays or Applebees would outsell even a longhorn steak house nationally and that even someplace like a Golden Corral or Ponderosa would move more than both. My wife ran marketing a chain of Fridays stores in StL years ago and my best friend was the GM for the Outback chain (bigger than L-horn in StL) here and per store Fridays in STL beat them on this exact topic. Also on AB products sold. It was quite enlightening and surprising.

Doesn't mean I want to be Golden Corral, but I found the Fridays triumph particularly enlightening. I pose that restaurants that offer a range of products/services/prices that can encompass the majority of a market (nobody can service all of them) are positioned best to succeed in it. Simple laws of supply and demand. If you only supply the product that 3% of the population demand (often regardless of which 3% that population is) you likely aren't in a better position than the guy who can supply 10% of the populations demand. Sheer numbers I would suppose.

 

[Kirstie]

Warren's post should be required reading for anyone going into business. Any business.

We can't ignore the economy and we can't allow ourselves to believe that customers will be so much happier with our framing, than with Michaels'.

If you're a better framer than Michaels, good for you. But if you let the customer buy from Michaels, your skills will remain a secret.

For too long, framers have taken the approach that Michaels is "bottom fishing." They're not; they're fishing at the front door. Once you let a customer go to a Michaels, or any competitor, the chance you will ever see them again are near zero.

And if you want to sell Bentley's, you'd better have a store that looks the part, and in a location that has Bentley buyers. Just having Bentley prices doesn't mean you're Bentley.

I have not had time to read this whole thread but Warren's and Paul C's comments that I have read so far are a breath of fresh air. They have said it before, and they are right. You can fool yourself by thinking that customers don't shop price, but they do. And the quality at the bbs is not all that bad. Not always great inside the frame, but the public is sadly not aware of this and often doesn't seem to care.

Our approach is simple, and I outlined it in a recent article. We try to make the shop look as nice as possible with beautiful examples and samples to capture the upper end, and we do--about once a day and a few times each weekend. But the vast majority of our sales are priced on our package specials which are prominently posted on the walls. People walk in the door, get prices with usually two options, normal pricing with Roma, LJ, Nurre, fabrics, etc. and package pricing. They usually go with the package price. We now have customers who walk in knowing what package they want. The same is true for our bread and butter corporate accounts.

These are customers we would have lost to Michael and AB long ago were it not for our aggressive pricing. The beauty of this is that we are still capturing those gorgeous $700 and up framing jobs because we know how to sell them and we have examples on hand and on the web site. The upper end customer who is concerned about style and preservation trusts us. And we are not losing as many sales to the bbs as we used to on the lower end because we are servicing the average customer by giving him what he wants (quote from Bob Carter.)

We are also buying well with good discount levels from all our suppliers by stocking several hundred profiles and buying our package special mouldings in bulk. We buy washed glass and are selling more than we used to. We negotiate discounts on all glass, supplies, and so on. This is the only way to keep prices reasonable for the customer and still make money.

My eyes are wide open and I know we still loose a lot to both the economy, the Internet, and the bbs because of thier advertising budgets and ridiculous discounts that fool some people, but certainly not everyone. We are trying every marketing strategy we can think of to keep the message out there in the public's mind: The Framer's Workshop offers affordable custom and do-it-yourself framing. Not always cheap, but reasonable value for money. Volume is up this year, average tickets are still down, but customers are in the shop spending money and we are still in business. For this I am grateful.