I am of course talking about MONEY. I was at a meeting tonight of people thinking about starting up their own business. It was run by a lovely lady called Amanda Carlin. Although it was only a small group, it was really interesting to see and hear their aspirations and plans.
One of the discussions was on pricing. This is always a difficult subject, even for people who are successful. The reason is always the same and it has nothing to do with figuring out how much something is worth. Yeah, shocking, I know!
I want to look at an example from tonight’s talk. The entrepreneur concerned is thinking of starting up a cushion business. People love cushions so you hardly need any research to know this is a market you can sell to. But just in case you have any doubt, do a quick check using Google Trends on the main keywords for the niche.
It appears that ‘cushions’ peak early Summer and dies a death in Winter (so no one buys cushions for Christmas!). However, historically, demand is pretty constant year on year (I was looking at the UK market here by the way). Now take a look at what comes up for the main keyword on Google Search. You will see it is crammed full of ads. This is just more proof that people buy cushions.
The downside (if you use Google Keywords Tool) is that the CPC (Cost Per Click) for advertisers is very low (less than 50p GBP – or less than a $1 US). This means the general market for cushions is so low that unless you can manufacture them for next to nothing you have no hope of starting a business in that niche (but don’t let that put you off – read on).
This is where the most important factor of all comes in. Your target audience. It’s always all about your target audience. If you are making hand made cushions, it takes a lot of work (your time). Let’s say 4 hours if you already have the design in mind.
As a full time self-employed person you will need to value your time at around 25 GBP ($40) an hour if you want a decent living. That means you are going to have to charge 100 GBP ($160) per cushion (and that’s not including materials).
At this point alarm bells should be ringing very loudly. Who is going to pay that much for a cushion! But wait. The reason ‘most’ people would now run a mile is because they have not targeted their audience. What type of person can afford that sort of cost?
The answer: people with money! And that is the lesson. If you have a luxury product, then you absolutely MUST put yourself in the mindset of the sort of person who buys luxury items. The first word that comes to my mind is exclusivity. You are going to target the type of person who is materially minded, but does not want what everyone else has.
But exclusivity is not hard. Exclusive designers are only exclusive because they sell a few very expensive items to the rich. If that is your market, get under their skin. Buy the types of magazine that person reads (look at the ads to see if the market is your market – Rolex don’t pay out all that money for full page ads for no reason).
Take a look at the sort of sites your market may look at. Now check out those sites on Compete.com or Quantcast.com. You can then get the demographics of your likely audience.
As soon as you are really into the way that market thinks, you can come up with an ‘avatar’ for your target person. This is a complete description including age, gender, social status, wealth, geo location etc. etc.
So how do we target this audience? Build a website (unless you live in Beverley Hills or Monte Carlo of course!). The whole site must be geared precisely at your audience. And remember this is really about YOU and your exclusive designs.
When people are looking for Quality (see my article on quality) they are either looking for an investment or a person/thing to believe in. This is not a purchase of some utility. It is a life-style purchase.
This means your site is not simply a gallery of 100 cushions. You need to get their contact details so you can communicate directly with them (don’t worry, email is fine). That means you need your front page to get them to give you their contact details (I will cover exactly how to do this in a later article – see the sidebar in case it is already up).
What you will be doing is creating a list. You are developing your own buyers market. And it is exclusive to you. This method of marketing is without doubt the best form. But you do need to communicate with them on a regular basis. Part of the allure is that they feel they are being treated as VIP’s, and that is precisely what exclusivity is about.
And the best bit is that once they buy, they will continue to buy almost everything you produce. And because you know your market, price in this example is almost meaningless, with one exception. If you start to discount or reduce your prices, you will go from bad to worse. If that happens (eg. because your sales start to decline) it is because you don’t have a marketing plan. So, if you haven’t got one, get one (thanks to Toy Story for the brilliant quote).