Tuesday, November 25, 2008

listen to Buffett--don't underprice yourself

Like a lot of people who make handmade items, I have often struggled with pricing. Sometimes I'm afraid to charge what I'd earn if I made minimum wage, let alone what I think the item is really worth, for fear of scaring off potential customers.

Last year, I read the best pricing advice I've ever heard. I can't find the link, but the basic concept was to never go for the bargain-minded shopper as your principal sales strategy. There will always be someone new who's willing to sell at a lower price than you--and boom, there go your customers. The bargain hunter is not a loyal customer, and isn't the kind of steady long-term clientele that you want for your business.

I found affirmation of this idea from a surprising source--Warren Buffett. Earlier this month, I read a Wall Street Journal story that interviewed Buffett. This paragraph jumped out at me:

"We do try to buy our businesses like we buy our stocks," Mr. Buffett told me, "and buy our stocks like we buy our businesses." By that he means, among other things, that he wants to understand how the enterprise generates cash, how well-managed it is and whether its customers would stay loyal even if it raised the prices of its goods or services.

There you have it. Unless you're able to make it up on sales volume, you'll never make it in any line of business, handmade or not, if you try to compete on a pricing basis--there are too many other sellers who are willing to take less than you. Go for quality, customer service, honing your own unique style, and figuring out other ways to build customer loyalty--and maybe someday Buffett will invest in you. Hey, you never know.
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