Some of the biggest and most successful companies in the world owe their staggering profits to refinements in their pricing – specifically the switch from the traditional "cost plus" model to what has become known as psychological or value pricing. The underlying theme is that what something costs to make is much less relevant than what the customer is willing to pay.
Sometimes the customer is willing to pay less than a cost-plus formula would dictate. Sales can be increased by selling at a lower, but still profitable price to these customers, but that would cannibalize more profitable sales to the customers happy to pay full price. And then there are other customers that would cheerfully pay more for products they really value.
The cost plus model does not work very well. The price-sensitive customers that would be willing to buy at a lower (but still profitable) price just don't buy, hunting sales and profits. The customers that would happily more aren't given the chance, and they spend less than they were prepared to – referred to as leaving money on the table.
Value pricing aims to fix this problem, by aligning price with the value the customer places on the product and charging accordingly. The end result? More customers spending more money.
But it's tricky – we're really talking about selling the same thing at different prices. As crazy as it sounds the rest of the world is already doing it and reaping huge rewards.
The biggest and most profitable companies have an advantage. They employ teams of accountants, data analysts, behavioral economists, psychologists and pricing consultants to refine their strategies. The typical retail florist simply does not have access to resources like these.
But we can see these pricing strategies all around us, and Beyond Cost Plus helps deconstruct them and look at how they can be applied to retail floral.
The site includes a number of pricing resources of interest to retail florists:
The terms and concepts that come up most often when discussing pricing. Includes terms from accounting, economics, and psychology. Even a quick review will help make the most advanced value pricing concepts more approachable.
This section looks at real-world examples of the most advanced pricing strategies and breaks them down. What can be applied to selling flowers?
For example – there is no difference in pricing on gasoline, whether you buy one gallon or a hundred. Meanwhile movie theatres discount additional units of popcorn and soda by 90% or more. Most other products fall somewhere in the middle.
What about flowers? Are flowers like gasoline or popcorn? It all starts with an understanding of diminishing marginal utility, and an honest look at the diminishing marginal utility of flowers. Once we see where flowers fit in on the spectrum we can look at how other vendors, with similar products, use value pricing to increase both sales and profits.
The pricing information contained on this website is very different from any other pricing information you are likely to see in the floral industry and is something all florists should check out.
Do you know of a resource we should include in our directory? If so we hope you will share it with us!