Thursday, March 15, 2012

Pricing and Undercutting the Competition

It's March, and time to talk about pricing and, yes, price increases.  Over the past year, we again have seen the cost of the raw materials for our yarns and their production rise.  Superwash Merino has risen almost $6 per kilo.  Cost of transportation has risen.  Silk, Cashmere, and nylon have all gone up in price.

So, we have to make some decisions around here, and eventually they will be passed to our customers who will go through the process, too, of deciding if or how much of a price increase they will institute; or, why they will not and how that will affect their business.

First, here's what we are doing.  We are absorbing some of the materials costs and not passing all of the increases to our customer base for the third year in a row.

Now, what will my customers do with the new prices?  I am going to guess that the larger customers will raise prices, the smaller ones will dig in and stay at the same price.  The reason I say this is because the larger customers are able to stay large because they operate within the parameters of acceptable business practice, they understand profit, and they know about how to run their handdye business with solid business principals.  Some of the smaller ones may know this and are purposefully controlling the size of their businesses, but many of them do not understand business or profit.  I hear it every day.  Many of my small customers are desperately trying to create a home business and to wring out every penny to contribute to the household earnings.

What is their approach?  They price low, in hopes of snagging sales.  And when they price their yarns at too low a point, they hurt us all.  Why?  Because they undervalue the product.

Let's face the fact that lots of people buy our yarns, dye them up, and put them on Etsy, or sell the at fiber festivals, or at their local yarn shops.  The yarn bases may be the same, but the end products differ enormously depending on the ability of the dyers, their sense of color, their sense of current color trends, packaging and labelling, and the price put on the yarns.

When people price out of fear, they are not doing anyone favors.  Yes, they'll get a few sales from knitters looking for a bargain, but they devalue our wonderful yarns by pricing them down with yarns of lesser quality.  I am talking about the poorer quality of many of the commercial yarns, too.

My advice is to take a good look at the prices the competition is charging in the market where you sell.  If it is on Etsy, look at all the handdyed yarns, see if you can spot our yarns there and start a careful list of prices, and note the dyers' names beside the prices.  Then move to the big sites which sell mosty handdyed yarns.  (You know them; I just cannot say their names here in the blog.)  Go through those sites carefully and make the same kinds of notes.  I will tell you what the timid pricers will find through this exercise.  They'll find that they are undercutting the experienced and professional dyers.  They are debasing the quality of our yarn lines by doing so, and they are pinching themselves into a corner and the only way out will be to give up.  They will never make a profit if they price in to stingy a manner.  They will lose their enjoyment of the craft, and they will get depressed and yell at their children. 

Here is my business advice:
Don't under price.
Research the market and know the prices that are being charged for equal product.
Price accordingly.


Lorena said...

Thank you for this. True, honest, and encouraging! (I feel like a spammer writing that, LOL "thank you for this blog post! I am intrigued by your ideas and would like to subscribe to your newsletter!" Heh. But seriously, this is true, and hopefully encouraging to new dyers interested in making a living wage!

lollipop yarn said...

Right on! As a business major years ago, we spent many hours studying how profitability works. But my favorite quote was from a Marketing 101 class:

"if everyone is happy with your price, then you aren't charging enough!"