When pricing is talked about in the flower business, and it doesn't happen all that frequently, the "cost plus" model is mentioned most often.
Cost Plus: relating to or denoting a method of pricing a service or product in which a fixed profit factor is added to the costs.
This approach has been around forever, and it's safe in that you won't lose money as long as you get the "fixed profit factor" right.
It has also been made largely obsolete by what has come to be known as psychological pricing.
It all starts with the realization that the customer has no interest in your costs. What matters to them is how they value the product. For example almost all of us resent paying $3 or more for a gallon of gas, even though the costs with finding, extracting, transporting and refining it are enormous, and it provides us with incredible value. At the same time most people think nothing of going into the gas station and paying almost $16 a gallon for tap water in a bottle.
Better pricing better aligns product prices with the value customers place on the product. It also looks at how pricing affects the way customers perceive the quality and desirability of a product.
For example – the organic section of your grocery store began with the realization that some people really valued the idea of organic food, and would happily pay a lot more for it. Profits in the organic section are often ten times what is realized on non-organic products.
Price also sends a powerful message about quality. In fact research shows that price is the most important indicator of quality, especially when people don't really know much about what they are buying. Sounds a little like flowers, doesn't it? Many customers don't know very much about them, and will look at price as an indicator of quality. More specifically sometimes pricing too low can hurt you.
Sellers of luxury and discretionary goods have been some of the most successful at using pricing to influence the way customers look at their products. They are masters at using something called anchor pricing to bring cachet to their brands. They might not sell many $25,000 handbags or million dollar watches, but they'll sell at lot more product at the lower end because of what those anchor prices imply about their brand.
Again this is relevant to flowers – most often flowers are a discretionary, indulgent purchase, and pricing offers florists some powerful opportunities.
The most successful companies have realized that pricing isn't just about covering costs. It's tied in with marketing and branding, and plays a huge part in creating demand and driving sales. They use accountants, behavioral economists and psychologists to craft pricing strategies that increase their sales and their profits.
The good news is that we can examine their pricing models, and apply what is relevant and effective to increase sales and profits in real local flower shops. That is what the Beyond Cost Plus website is all about – helping retail florists understand and apply highly sophisticated and very effective pricing strategies to the retail flower business.
It looks at real world examples of the most current and sophisticated pricing strategies, breaks down how and why it works, and then shows how it can be applied to the retail flower business. This is great information for retail florists and FloristWare is happy to sponsor it.