The Art of Marketing
For the last three months I’ve covered the topic of advertising. Now it’s time to change gears and move on to another very complex topic—pricing.
Someone once said, “An item is worth whatever someone is willing to pay for it.” I’ve found that in the antiques business this statement is even truer. How do you price your inventory of unique items? Many dealers simply add their standard margin to what they paid for the item and feel they are done. But is this really an effective pricing strategy?
Pricing your inventory is probably the toughest thing there is to do in your business. Setting the right price is not easy for antiques; almost every item is unique. Items could be completely original with a ton of wear, have a little wear, or have some restoration, be in different colors, and be different rarities. A finely cut molding on the edge of an interesting piece of furniture might make all the difference when it comes to price. Maybe this makes the item really rare, therefore it might command a higher price. Sometimes rarity in the antiques and art business isn’t good, because it’s outside of the norm for the artist or form, and therefore the item may actually be worth far less. A Shaker oval fingered box with fingers pointing left (versus right) is rare and therefore potentially less desirable and less expensive to acquire.
One of the keys to business success is pricing your products properly. Do this correctly and you’ll sell more and create the foundation for a business that will prosper. Get your pricing strategy incorrect and you may create problems that your business may never be able to overcome.
Setting the right price has been described as “equal parts art and science.” There are a variety of pricing strategies you can utilize in your business. There’s no one magic formula approach that works for all types of products, businesses, or markets. Pricing your products usually involves considering certain key factors, including pinpointing your target customer, tracking auction price histories, knowing how much competitors are charging, and understanding the relationship between quality and the price you can expect to get. The good news is that you have a great deal of flexibility in setting your prices.
There are three key pricing strategies I’ve seen used by a variety of different dealers: pricing low, pricing high, and pricing right! I’ve seen two of these three used very successfully. One hardly ever works, but which one? The strategy that never works is pricing too low.
Pricing your products too low can potentially have a disastrous impact on your bottom line, even though many business owners may believe this is what they ought to do in a down economy. Many businesses mistakenly take a major discount on their products in an attempt to drive up volume. Even if you could drive additional volume that way, you need to be very careful that you are fully covering all of your carrying costs when pricing your products.
Pricing your products too high can also be a major problem. Being too aggressive and pricing beyond the customer’s desire to pay can also decrease sales. I have seen dealers inflate prices and then offer a big discount. Many times this can work by motivating someone to buy. Just be careful. If the item is priced too high to start with, people may be too intimidated to ask, “What’s the best you can do?”
The advantage of overpricing can be that if you can at least engage a customer, you always have the option to come down. Pricing it just right is the best strategy but many times is the hardest goal to achieve. Pricing it right in the antiques business means you need to leave yourself at least a 10% play factor for the discount, which many customers or dealers are already expecting. I have not seen many dealers holding their prices (not discounting) and still having success. I have seen my wife pass on what I would say were good deals simply because the dealers didn’t offer a discount. It’s just what people expect in this business.
A basic fundamental pricing strategy is to cover all business costs and then factor in a reasonable profit on top. Remember that the cost of a product is more than the literal cost of the item; it has to include all of your overhead, selling, travel, and marketing costs. Overhead costs should include all fixed costs, such as labor and rent, along with variable costs, such as marketing, travel, and shipping. You have to include all of these costs in your estimate of the real cost of your product. A good rule of thumb is to make a spreadsheet of all the costs that you need to cover every month.
You may all agree that the right price is what someone is willing to pay for an item (ideally over and above the price you paid for it), but the story doesn’t end there. In order to keep the cash flow coming, you’ll also need to sell your items in a reasonable time frame, which means as short as possible from the time the item is acquired.
The most successful businesses realize they can make more money by turning their inventory fast. The longer you have an item, the more it costs you to hold it, and the less profit you actually make. From a customer’s perspective, for example, when I see the same painting prominently displayed at the same price (or even escalating) in one dealer’s booth for five shows in a row, I think to myself, “That dealer must be asking too much.” It can give a negative impression to potential buyers to see the same item over and over again at shows where the expectation is to see fresh merchandise. Buyers go to each show to see “new to market” merchandise that they didn’t see at the last show. It’s important to rotate most of the merchandise you are displaying show by show.
For many leading businesses “turning” your inventory is equally as important as the artificial margin it seems to generate. These businesses have a calculated formula, including all overhead and opportunity costs for each week they have an item on the shelf. If they get an offer for less than the asking price, they do the calculation to see what the item would cost them if they had it another month or two, and then make an informed decision on whether to sell it. If an item is sitting for a long while, the business owner needs to seriously consider reducing the price to get it sold (even at a loss). Then the acquisition process can start all over again. Remember no one knows the price you sold the item for, only that it sold.
Another thing you might try, if you have an “item of prominence” and really need to get it sold at a certain price, is to remove the item from the market for a period of time (usually a year or more). This can actually help because when you bring the item back it appears “market fresh,” and this may generate additional interest.
Did you know that many years ago Walmart was one of the first to implement a then-new retail strategy called the “market basket?” Walmart combined it with a so-called “loss leader” strategy. The two strategies together proved to be very effective and are still used 30 years later! A market basket strategy involves the idea that it doesn’t matter what you make on each individual item, rather it’s what you make on all the combined items in total that each customer buys on that buying trip. Walmart tracks its ability to increase the market basket of its customers year after year.
Going hand in hand with its market basket strategy is its loss leader strategy. This means the company actually sells certain items at a loss. Yes! It actually sells some products for less than it pays for them. Usually the items are well-known staple items that a consumer is familiar with and buys often (e.g., toilet paper, eggs, or milk). Walmart does this because it knows that when consumers buy something frequently and are familiar with the price, they will recognize a great deal. They then carry that memory with them while shopping in the store and wrongly assume that everything in the store is also really cheap. They wind up buying more. This helps increase total purchases and works right into the retailer’s market basket strategy.
I realize the loss leader strategy would not work in the antiques business where nearly every item is unique, because consumers can’t make a price comparison with the same item at the dealer across the street. This means they may never recognize the really great deal you just gave them. How can you use this knowledge? Just remember the importance of turning your inventory constantly—it may be more profitable for you to sell quickly at a slightly reduced price than to hold an item for a year hoping to sell it at your targeted margin. When will that next interested customer with cash in hand come by?
Let the right customers know about the items you are selling through effective marketing. Know your inventory—the more you know about the item you have and how it compares to other similar items, the easier it will be to correctly price and sell it. I can’t tell you how many times I’ve seen items marked as a genuine something or other, when I know they aren’t. One item that comes to mind recently was a market basket labeled “Nantucket,” along with a Nantucket basket price of about $1800. It wasn’t a Nantucket basket, which is pretty easy to identify. When I asked the dealer why he thought it was a Nantucket basket, I received the answer I hate most, which is “because the dealer I bought it from said it was.” Obviously if this were true, he was sold a bill of goods on an item he was not familiar with. I’m pretty sure he didn’t make any money on that basket because he was not familiar with the item he purchased.
Feel free to e-mail me if you have potential topics you want me to cover or if you have comments. I can be reached at <firstname.lastname@example.org>, and I’d love to hear from you.
Originally published in the November 2013 issue of Maine Antique Digest. © 2013 Maine Antique Digest