I agree with this. It is easy to fall into the trap of charging what the market will bear thinking that this is maximising your profit. You see people buying your product at £5 so you raise it to £6, not much difference, raise it to £7, still buying how about £8, oops, there you go, sales level off and so drop it to £7.50 - and you have your price.
That is grand, and definitely not wrong, but it is dreadfully wasteful. You have eliminated everybody that would have bought it at £1…6 and £7.
A much better strategy is to focus on costs, not price. Drive down the costs, relentlessly pursue every last penny in your cost chain, and pass it all on to the customer. Down, down you go. But as long as you costs are following you you still make margin. The two good things happen:
The competition reacts or dies. Maybe they are as efficient as you, in which case good for them; otherwise they die under the relentless price pressure and more fool them.
You total addressable market grows. As you get cheaper more and more people can afford your product, the margins are lower but the product flow is higher and product flow is always a good thing. Fresh product, fast capital reallocation, nimble reflexive purchasing because the product is in then it is out.
My goal is to raise the throughput of product, and if that means lower prices then my customers are just going to have to suck that up
However; there is a counter argument. Whilst accepting all of the above, there is a point below which people don’t care, or the super low price starts to act as a disincentive (what’s wrong with this stuff, maybe its old and stale). Then you are just leaving money on the table.
It does, as in future purchasing decisions (not sure if that is what you meant). We have recently implemented a two strike and you are out rule. It works like this:
When we identify a product is overstock, and we have two meetings a month to look at just this, where we examine supporting sales analytics and draw up the hit list, then it goes into the overstock sale to convert it back into worked capital as quickly as possible.
Once that is done we assume that the product fell on hard times through no fault of its own, bad luck, bad timing, incorrect pricing, who knows. So we order it again and give it a second chance. It gets a back in stock boost, maybe we lower its price a little to give it the best chance.
If it then reappears back in overstock we basically give it away to convert it back into capital then we strike it off the inventory.
We deliberately constrain the number of inventory slots to 1000. That way the products have to compete with each other to stay on sale. Appearing as overstock twice means death to that product, but life to another.
This is a bit tricky. The problem is that, right now, I can only associate one brand name with each product. So if I swap to Dr. Rumney’s then that may be better but it creates the opposite problem of people not being able to find it when they are looking at F & T.
What is really needed is the ability of each product to have more than one brand, that way they can belong to multiple brand lists, and people who know it one way or the other will still be able to find it.
Then… Following this principle (although I suspect I didn’t get it right…) wouldn’t you end grouping everything produced by Wilsons & Co - F&T, Hedges, Singleton’s (bar Van Erkoms Singletons, this should fall under South African / Van Erkoms), J&H Wilson, Viking, Dr. Rumney’s, Mullins & Westley and Wilsons of Sharrow - together?
Speaking of Dr. Rumney, no one associates it with F&T.
OK, I take your point. So I really just need to correctly separate out the Wilsons sub-brands as primary brands. I have done this for most of them but there are a few I got wrong, like Dr. Rumney’s and Van Erkoms Singleton
I have pulled out the Wilsons sub-brands and in fact we don’t have a Wilsons brand anymore, instead we have Wilsons of Sharrow, plus the other brands you mentioned.
Feels appropriate to follow up on Jonny’s response to the overstock discussion. Overstock tub of Persica arrived today and production date is March 24. 11 months old is basically fresh from the mill and no older than I’d expect the average tin to be from an online order - maybe half a decade fresher than a lot of stock sitting in many tobacconists.
