Question

Topic: Customer Behavior

How To Convince A Client His Pricing Structure May Be Unreasonable.

Posted by Blaine Wilkerson on 1/21/2004 at 7:19 AM ET 125 Points
I have a big client who manufactures an electronic saftey device.

The client is adamant to reach the masses through the mall kiosk owner/operaters. He is equally as adamant on "forcing" an MSRP on these retailers by raising his wholesale costs. On the same note, to wholesale distributors (industrial supply companies, etc) he is willing to offer almost half the wholesale cost offered to retailers.

His reasoning is not so much based on quantity, but rather "retail image". IF his product is going to be on a shelf, he beleives a high price will be the deciding factor of a quality product in the eyes of a consumer. This is based on similar products with reasonable prices that have failed.

On the flip side, he doesn't care what price the wholesalers establish for resell since this will not be "public".

He wants his product to be the "Rolex" of his niche, yet his wholesale pricing for his target retailers leaves them little room for return. For example, a kiosk owner would have to invest almost $100K just to get a 50% return!

He won't budge unless I can "prove" to him his reasoning is inaccurate. I believe this simple fact is setting him up for failure, but he will not listen.

Any input, data, or articles I can utilize? Or is he right?
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RESPONSES

  • Posted by ReadCopy on 1/21/2004 at 8:59 AM Accepted
    I guess its too easy to suggest that you have sat him down with a pricing model to show what can happen with with different prices, suggesting different volumes of sales and popping ROI out of the bottom ?

    I tried it once when our pricing team suggested premium pricing on a piece of kit and the model was powerful in suggesting a lower cost, equated to higher volumes, equated to better overall profitability.

    You oviously just need to work on the link between price and volume :-)
  • Posted on 1/21/2004 at 10:26 AM Accepted
    Good day,

    Correct pricing is based on competition, product and company positioning, overhead costs, inventory turn and cost of goods. Instead of working from a place of what the product price should be, sit down with your client and focus on what the financial and marketing goals are. Let their answers drive the price point.

    1)Ask what revenue goals he has for sales per day by location

    2)Calculate the units sold per day at different prices needed to hit the number he wants

    3)Test market different price points based on his perception of what the price should be

    4)Develop a matrix of his pricing compared to his competition

    Use this data to discuss from a business point based on factual data not your client''s emotional observations.

  • Posted by Blaine Wilkerson on 1/22/2004 at 3:35 AM Author
    Thanks guys. So far everyone has hit home with either tactics I have already tried or ways of thinking and approaching.

    Unfortunately, he still will not budge on pricing. I discovered he is not a marketeer, but rather an engineer with a mareting director title working on commission. I fear his own "greed" for increased income may be at play.

    Anyway, I will think of a way to hit this from a different angle. Thanks for the input!
  • Posted by Blaine Wilkerson on 1/22/2004 at 5:52 PM Author
    Thanks sbalch! You read my mind!
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