Friday, April 23, 2010 at 8:03AM The amazing recession lesson of the $200 baseball cap: A high price can still be a plus.
It's a principle most in business don't "get"--but should.
Most people--even those in the business of selling stuff--think that the lower the price of something the more appealing it is to the prospect...and, by extension, the more items will be sold, leading to more money to be made. Indeed, most firms price very inefficiently, based on a chosen "mark-up" percent beyond the average cost of goods sold.
How much can you charge for a simple cap and still a sale?
A few months ago, I received in my mail--in truth, my wife received addressed to her--a copy of the J. L. Powell catalogue [billed as the catalogue for "The Sporting Life"]. In it were items for men, mostly for outdoor wear--all of which I considered tastefully styled but priced deliberately high, for some items amazingly high.
It's perfectly fine for the J.L. Powell people to do that--it's a free country and if they can make money that way, well, more power to them.
What particularly struck me in particular was the price they wanted to charge me for a simple, generic, nondescript baseball cap: $195. It was an ordinary cotton baseball cap. One I've paid up to $20 eslewhere from what I--even at the time--considered pricey vendors.
Three days ago I received their spring catalogue and I was immediate prompted to check out if the baseball cap was still in the catalogue [direct mail pieces are quintessentially amenable to swapping out stuff that doesn't sell well from one issue to another].
Sure enough, it was still in the catalogue! But not at the same price--now the price was even higher...well, three dollars more, at $198! [In fairness to the ad copy, this one was not just a ordinary cotton baseball cap, this one was made from linen material from Estonia! I could tell they were trying to make what was ordinary distinctive!]
Here's the lesson some of my students have a hard time wrapping their minds around:
First, price should be based on perceived value, not given cost. This baseball cap costs the J. L. Powell company very little; I don't really know how much they pay for these caps, but it's likely less than four or five dollars each [if that]--that's why in most places these days you can buy a baseball cap which range in price from $10 to $20, which allows for some reasonable distribution markups to be made. J. L. Powell decided to sell the very same product for literally 10 times the otherwise expected, marketplace cost--all to create perceived value on the part of people who want to believe that to be the case--and who have $200 to spend for expensive baseball caps.
The price must be high in some markets!
The second lesson is that for the right target market, price sometimes ought not be low--but must, instead, be high. Apparently the people who buy from J. L. Powell want to spend this amount of money because they believe that they are getting a special cap--they rationalize: "this must be a very special baseball cap for a price the equivalent of $200"! They have $200 to spend this way, so they do.
They do--and everyone's happy: the consumer thinks he or she just bought an special, valuable baseball cap--all because of the price--and J. L. Powell is happy because...well, for exactly the same reason! I have no doubt, given the target market, the Powell people would likely sell fewer caps if they whacked the price down to ordinary levels.
So there you have in one easy object lesson: Price--indeed, a high price--can be a very positive attribute. And in the wrong market a low price can result in fewer sales. Even in a recessionary period!
On the back cover of the catalogue, the firm describes its sale ambitions, in part, this way: "...We hope that the stories behind our collection add resonance, intrigue, and maybe a chuckle or two."
Well, I did get a chuckle when I first saw the cap in the earlier catalogue; the second time I saw it for $3 more--for virtually $200--I wasn't chuckling quite so much as I was the first time! This time I had a new admiration for J. L. Powell's appreciation of the opportunity--even during a tough economic period--to sell a basic, $15 cap for what amounts to 13 times its' going price everywhere else. They "get" the pricing lesson many never do! Good for them.
_______________________________________________________________
To make sure you get a "tweet" with every new blog, follow "keithmurrayblog" on Twitter! Think others might like to read this? Re-TWEET it to your followers with the SHARE ARTICLE tab below!
Reader Comments (1)
Look at Noka Chocolate (www.nokachocolate.com) for another example. These guys sell small rectangles of chocolate for obscene amounts of cash (they make Godiva's prices resemble those of Wal-Mart). All accompanied by a very nice box and some flowery language using words such as "terroir" and "single origin".
Interestingly, a chocoholic blogger exposed the origins of their expensive product, and it turns out that they melt and re-mold much cheaper chocolate bars into their expensive confections. (See http://www.dallasfood.org/modules.php?name=News&file=article&sid=78).
If you look at Abercrombie and Fitch, they, too, try to use price as a signaling mechanism; this time for an "ivy-league east-coast lifestyle". Shelling out the $100+ for a pair of jeans at A&F is supposed to make you feel as if you were part of east-coast blue blood.