July 24, 2025 • 28 mins
Welcome to another episode of the Resilient Retail Game Plan podcast, hosted by me, retail expert Catherine Erdly. In this episode, I'm getting right to the heart of one of the biggest challenges for independent product business owners: pricing your products with confidence.
Whether you’re creating your own products or reselling others’, pricing often brings up tricky questions, self-doubt, and even a touch of money mindset drama.
I'll be explaining why undercharging is so common and why your customer’s wallet isn’t your business.
I'll also walk you through the concept of the value triangle—covering price, quality, and desirability—to help you feel empowered to set prices that are sustainable for your business and resonate with your customers.
If you want to grow a profitable retail business, feel more confident about your pricing decisions, and learn how to explain your value in a way that truly connects, you’re in exactly the right place.
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Timestamped summary
00:00 "Pricing Challenges for Small Businesses"
06:06 The Risks of Underpricing Products
07:20 Retail Pricing Indicator for Undervaluation
10:39 "Wholesale Pricing Strategy Essentials"
15:55 "Understanding Your Ideal Customer"
17:55 Reducing Costs Without Compromise
22:33 "Impactful Story Elevates Bag's Value"
25:38 Maximizing Product Pricing Strategy
This title captures the dual focus of the text: encouraging bravery in trying new strategies and encouraging listeners to engage with the podcast by following, subscribing, and reviewing.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
If you want to build a resilient retail business, then you need to
start pricing your products like a business and not like a hobbyist.
In this episode, we're going to be talking through pricing, step by
step, discussing why it's so difficult and how the value
triangle, which covers price, quality and desirability,
can help you feel really confident charging what you and your products are
(00:22):
worth. Welcome to the Resilient Retail Game
Plan. I'm Catherine Edley and in the next few minutes you're about to get
powerful real world retail strategies from insights shared both
from my guests and myself, backed up by my 25 years
in the retail industry. Keep listening to learn how to grow a
thriving, profitable product business. Let's jump in with this latest
(00:44):
episode. Now,
pricing is an absolutely fascinating topic and one that I love
to dig into. And one of the reasons that it's so
interesting is that it stirs up a lot of feelings for a lot of
people, which is why I sometimes feel like starting your own business can
be a bit like a crash course in therapy. But
(01:06):
pricing is really something that cuts to the heart of all of
those questions around money mindset. It can make what should be a very
objective business decision into something that is quite
difficult. So there are different pricing
conundrums based on your business model. For example, if you are a
reseller so you mostly sell products that other people send you,
(01:29):
or that you mostly sell products from other retailers, retail businesses
or brands, then you will be given ARRP
recommended retail price by your suppliers. Now just
a quick note on that. Remember that the R, the extra R is there for
a reason. The recommended Nobody can actually tell you what you have to
set your prices at, that there has to be a recommendation only to
(01:51):
avoid things like price fixing. So no one can legally enforce
and make you sell your products for a particular price. However, it is
often a little bit easier for you if you are a reseller because
you are effectively given a product and you're given an indication of what the
price should be. Most of the time, product creators, whether it's something
that you're making yourself or manufacturing, they face a different
(02:14):
challenge. You've got to set your own pricing from scratch and that is
what this episode is going to focus on. Now, there's lots of concepts in
this episode that will be really relevant for you if you are a reseller as
well. If you're somebody who is communicating to your customers
about your products and their prices, there's going to be lots that you'll take away.
(02:36):
Ultimately, the heart of this is about what do you do when you
know that you need to set your prices and you're not already given something
to work from? One of the issues that I see come up a lot, and
one of the reasons that I wanted to address this in this episode, is
that undercharging is a real epidemic
amongst small business owners. So what is undercharging?
(02:57):
Undercharging is when you consistently charge
lower than what the market rate suggests for your products.
And it is something that a lot of small businesses do. And
there's a few key reasons why it happens. One, simply speaking,
undercharging often comes from lack of confidence and lack
of confidence either in yourself or. Or in your product. So people might
(03:20):
say, oh yes, I know that people do spend
£90 on the Diptyque candle, but this is just my
candle, so why would somebody pay that? Or perhaps
you're looking at it thinking, well, you can get other handmade brands for this price,
but I think because it's mine, would people really spend that much on my candle?
So if there's an issue about belief in yourself and your product, that can often
(03:41):
lead people to end up undercharging to. The second thing
that often people talk to me about is they'll say,
I want to create a product that is affordable for my customer.
And therefore they feel like what they're doing is effectively kind of a
mission to keep their prices lower. And what I'd love to say to this,
which is said with much love, is that what your customer can and
(04:04):
can't afford is none of your business. Now, somebody said this to me
way back at the beginning of the my business, and it's actually really quite liberating
if you think about it, because if you're going to be insistent that
your customer can't afford something unless you keep it a certain price,
you can end up fighting with yourself and feeling like, oh, I can't increase
my prices. But actually, the truth is, you don't know what your
(04:27):
customer can afford. And it's not really your business to know. It's your
business to create a business that is going to
be sustainable for you financially in the long term. A
sustainable business has to support you financially. And if you don't get your pricing right,
if they can't charge enough money for their products, then they can't make enough profit
and they can't make enough profit, then they can't pay themselves. And I can
(04:48):
guarantee that if you can't pay yourself from your business in the next three to
five years, you will make a decision that this is just
something that you can't keep going with. If you really want to help your customers,
be around for the long haul and don't let yourself fall into
that trap of feeling like, oh, I can't charge more because my
customer can't afford it. The question of affordability is something
(05:09):
that I find really fascinating because we often tell ourselves these
stories about what people can and can't afford. The truth is, if people really
want something, they will find the money for it. And you only need
to look at the Latest tech fad, AirPods or things like that that you
just think, reasonably speaking, you wouldn't expect people to be able to afford, but
somehow they do. So I think affordability can sometimes be something
(05:32):
that we tell ourselves that is maybe a story that we tell
ourselves that keeps ourselves feeling stuck. Three and the final reason
that people tend to underprice is that
they believe that low prices are more appealing. And of
course, yes, there are psychological price barriers. I'm not saying that price isn't
important, but people will often say, oh, I can't
(05:54):
charge more because I just won't sell anything.
But don't forget, there is also this idea of being reassuringly expensive.
And ironically, I've actually seen people increase their prices and see their
sales go up. Because before there was this disconnect in the
customer's mind, they were naturally a bit suspicious, thinking,
wow, if this product is really as good as they're saying it is, then why
(06:15):
is it this price? It just doesn't make any sense. Pricing too low
can backfire. It can lead people to believe that quality is not as
good as you're claiming. So if you're ever tempted to just keep your prices really
low because you're convinced that's the only thing that's driving your sales, then I would
challenge you to really have a listen to everything else that
I'm saying in this episode about how you actually go about setting your prices in
(06:37):
a logical way. Ask yourself, is it true that I have to keep my
prices at this point? And sometimes, you know, I will absolutely put my hands up
and say, sometimes there are people whose businesses the customer has a really,
really clear price point in their mind for that particular product and it is hard
to increase it. So I'm not saying that's never the case, but I've also seen
lots and lots cases of where people have told me categorically they can't sell
(06:59):
it for more, and they've actually gone on to increase their prices. And either seen
no impact on their sales, but a big impact on their bottom line or
actually seen their sales increase.
So how do you know if you're undercharging? Well, partly, as
we come on to talk about later, we'll have a look at how your products
(07:19):
are priced compared to your competitors. That's a really interesting and obvious
sign. If you wholesale your products into a retailer,
they are quite happily pricing it up and selling it at more
than what you're selling your products for, then that is a really, really clear indicator
that actually your products could be sold for a higher price.
So for example, I worked with a baby
(07:42):
skincare brand and they were selling, they had
small batch production, they were selling it into a retailer. They weren't really offering the
retailer full retail margin, but the
retailer was happy to take it in anyway. And I said to them,
they seem happy with this pricing, just check what they're actually selling it for. And
when we looked on that company's website, they were selling it for quite a lot
(08:04):
more than the person supplying the retailer was selling it for. And that is a
really good indicator that somebody else believes that your product can be and is selling
your product at more than you're selling it for. Another way that
you can tell if you're underpricing is how you actually feel. And this,
it may sound like an odd thing to say. One of the biggest indicators about
underpricing is that you just feel really resentful. You think, I put all of
(08:26):
this time and effort into this product and after I've sold it to the customer,
this is how much I'm left with. And it just doesn't seem right. It just
doesn't seem like it's enough. And I think if you're feeling resentful about the
amount of money people are getting your products for, then that's a really good sign
that you need to look at increasing your prices.
So how do you actually go about setting your prices?
(08:54):
So how do you actually go about setting your prices if you
are struggling with this? If you find it really difficult, get somebody
who's not as close to the business, who's not in the day to day, a
friend, a partner, family member who can help you be a little bit more
objective. Make sure that they get what you're doing. They're not going to
tell you, oh, do you know what you've got to match as the prices or
(09:15):
something like that. Make sure that they get the mission and what you're doing, but
preferably someone who's a little bit removed. So they can help you be more logical.
What I recommend in terms of the approach to setting your prices is
that you start by setting your retail price, the price
that you intend to sell to the end customer.
Now, the reason I say that is that there is a school of thought that
(09:36):
what you need to do is you get the cost price or the amount that
you're spending on creating the product, and you multiply it by two
or four or whatever number people come up with in order to get your retail
price. But I'm not a fan of that approach for several different
reasons. First off, I think it's not rounded in reality.
I mean, you could do that. I did actually meet a team once from
(09:58):
Christian Labuta, and they were able to
do that. That's how they priced all their shoes. But that was Louboutin, you know,
I mean, they could set those prices because they could say it's going to be
800 pounds for a pair of shoes and somebody out there would pay it. But
most of us don't have that luxury. Most of us need to work within the
parameters, the marketplace in which we're operating. So
(10:19):
therefore, we don't just start by saying, these are my costs and therefore I'm going
to multiply it by four and get my retail price. The other reason we don't
do that is because if your prices go up, then the only option you've got
is to try and increase your retail price, which doesn't feel right either.
So I would suggest that you start by setting your price
that you would sell to the end consumer. If you're somebody who sells a lot
(10:40):
at wholesale, I still think you start with the price that goes to the end
consumer, because ultimately the person who's
selling your product at the end, the retailer, they're going to have to sell your
product in that marketplace. So you've got to make sure that your retail
price is grounded in reality. And this may sound obvious,
but I cannot tell you the number of people who, when I asked them how
(11:02):
they set their prices, they basically pulled it out of thin air, which
for some people works, they go with that approach. But for most of us, we
want to start by having something to pin our price on.
So how do we actually set our retail price? Well, the first step
I would suggest is that you find three similar brands to you
in terms of materials, sourcing and production, not necessarily
(11:25):
aesthetics. So, for example, if you
are a baby clothing brand, then if you are
making it in the UK with organic cotton, try and find
other people who are doing the Same thing in the same way.
There's no point in you comparing your UK made
organic cotton baby clothes to the Primark baby clothes, for example,
(11:47):
because you're just not even looking at anything similar in terms of
the production method or the materials used. So try and find
three people who are similar to you. As I said, aesthetic is irrelevant.
So if they're bright neon and you're scandi paired
back, that's absolutely fine. But we're just trying to get a sense of the
actual way that products are made and then have a look
(12:11):
at how they are priced. Now, big retailers have software that scans
all of their competitors and tells them what all the price comparisons are. But back
in the day, we used to have to go out to the shops and go
around with a notepad and make notes as to what all of the competitors were
doing in terms of pricing. And it wasn't about copying, it was about
understanding the reality in which your customer operates.
(12:31):
So that's what you're trying to do here. You're just trying to understand if you're
in the market for a pair of organic baby leggings, how much
might you pay or how much might you be able to get them from somewhere
else. So once you've done that, you
effectively work out by product type what their pricing
structure looks like, where it starts at, where it ends at, what the kind
(12:53):
of range is, the products that they seem to sell the most of, where
do they sit? And you get a really good sense of what's going
on. And once you've done that, you then decide your pricing
in comparison. Now, there is no need for you to match it
exactly if you don't want to, you can do, you can say, right, everyone's
selling their leggings for £28. I'm going to pitch my leggings
(13:16):
at that price. But also you might say, do you know what? Ours
are hand finished, ours are reversible. For example,
they're all at 28, but I think we could go at 32. Whatever you
feel is appropriate, you can do it, but
you just need to benchmark it somewhere. So you either go in at the same
parity, you go in above, which is the premium
(13:37):
pricing model, or you might go below, which would
be a value pricing model. In other words, everyone's at 28. I think we can
bring ours in at 24 and still make an okay margin. So we're going to
go there. Now, I don't generally recommend a value model for
small businesses because before you know it, we'll all be trying to undercut each
other and that's not good for anybody. And most small business owners are not
(13:58):
going to ever be able to compete on price, especially when you compare it to
big retailers. So don't try the value model unless you've
really got a compelling reason that you feel that you can come in under your
competitors. Don't do if it's just a confidence thing. If you're like, oh
well, maybe their leggings are nicer than mine, I don't think I can
charge that now. That's not okay. You want to pick your
(14:19):
pricing position based on your competitors, but it doesn't have to be the same as
theirs if you don't want it to be. After you've done that,
then you want to sense check with your customer. Customers. Now the
most important thing is that do not go to your customers and ask them, would
you pay 28 pounds for this pair of leggings? Because most people
are aspirational. In other words, they'd like to think that they would spend 28 pounds
(14:41):
on a pair of leggings or they're trying to be nice so they'd say, yes,
of course I would. But what you really want to understand is what their past
behavior has been. You want to understand, for
example, you could ask them when you've bought baby leggings and in the
past, how much have you paid for them? And get an understanding
of what they actually paid their actual real world behavior.
(15:04):
This gives you an anchor in real world insight into your prices.
If everyone comes back and it's a much lower than you expected, which often is
the case because ultimately most small business owners
are operating in effectively kind of a premium pricing model already.
Most people are not competing on price. Ask them how much they paid when
they bought it for a special occasion or for a gift. Because again,
(15:27):
most small businesses, we tend to sit in that gifting price
bracket because it's not the cheapest that you're going to get something, but
it's always the nicest. So make sure that you're getting
an insight not just into what they would pay on an everyday basis, but what
they would pay in the case of something that they were gifting. And that will
help give you some confidence around your, your pricing and
(15:48):
where you're sitting. Now, if you're first starting out or you don't have access
to your ideal customers, have a think about somebody. Do you know someone in the
real world who would fit your ideal customer profile? Even if they'd never bought from
you before, could you do a bit of research that way. In fact, I remember
being told once when I very first started my business, before you start your business,
you should talk to 100 potential customers and ask them what they
(16:09):
want and ask them about their buying habits before you even get started started. So
if you're early on in your journey, how many people can you find and how
many people can you ask about your pricing? So there you've
set yourself your pricing, you've given it a bit of a check with some real
world customer feedback, and then once you've done that, you can actually
go back and check your margins. So last week's episode was all
(16:31):
about profit margins. So if you want a bit of a refresher on that, then
go listen to episode 259. I'm not going to get into
margins too much now. But even though profit's really important, you always have to
start with the final retail price and then at the end of that, work out
whether or not it's making you enough profit. This is the best way to do
it because you've set your price in reality and now you're going to
(16:53):
check the profitability. And the question is, what do you do if you do all
of this and then all of a sudden you work out? Well, actually, I'm
not making enough profit. I really can only sell these for 25,
but it's going to cost me £18 to produce.
It's much better to know about this now than to figure it out 612
(17:14):
months down the line or even several years into the business. And
then I would encourage you to think about, are there any ways that you can
tweak your costs? Can you simplify production? Can you use a different material,
a different way of producing things? Can you negotiate with
your supplier? Especially, especially if they've been supplying you for a while and you've got
a good track record. Can you see if there's anything they can do on their
(17:35):
pricing? This is what big retailers do every single day. The number of
meetings that I was in where effectively we'd be starting with a product,
working out what the ideal price was for it, and then working backwards to get
an ideal cost price. That is something that happens all the time.
So if you're working with a supplier, they will 100% be used to having this
kind of conversation. How can we make this cheaper? How can we bring the costs
(17:57):
in down for me? The thing is, is you mustn't compromise on
something that is core and essential to your business. So, for example, if
we're saying, can you make it with cheaper materials? If you have a certain
fabric that you use that is absolutely your calling card, do not
change that. But is there something else that you can do? The supplier
also will be able to help you. If it's not something you're making yourself and
(18:19):
you're having it manufactured for you, then ask them what would it take to bring
it in at this point, this price? They may be able to help you come
up with some answers. Because often the things that cost
money in the manufacturing process, they're usually related to time.
So if you want a particular effect or a particular stitch or a particular
type of construction, but it's taking a really, really long time, then
(18:40):
that is usually going to be adding cost in. So if you're trying to bring
your cost down with the manufacturer, make sure that you are
asking them to run through ways that you could bring the cost down and some
of them will be acceptable. They might say, well we could try
changing the placement of this item and actually you don't really mind, but it makes
the production that much quicker. But other times they might say, well, you'd need to
(19:01):
switch out this for this and that's just not acceptable. So know
what your non negotiables are, but don't be afraid to have
that conversation with your supplier because they will be used to it. Big retailers do
this all the time. They say, okay, how can we make this work? And if
you're making it yourself, have a think about the supply. Same thing is, are there
any elements that you can switch out, other ways of producing
(19:22):
things that take less time? The other thing that I would say as well
is really importantly, you must make sure that when you're checking your
margins, if it's a handmade item, that you're factoring in your time as
well to make sure that you have that cost covered.
So once we've set our prices, then we've checked our margins, we're
(19:43):
happy that they are where they need to be. How do
you communicate your price to the customer? Now that might sound like an odd
question because obviously your customer could go onto your website and they can see your
price. But I think one of the most important elements of pricing is
understanding that customers don't buy based on price
alone. Customers buy based on value.
(20:05):
So that is effectively whether or not they
consider the item that you're selling to represent good value.
If they believe it represents good value, they will buy it. And if they don't
think it's good value, they won't buy it. This is what I call the
value triangle. The value is made up of three things. The price of a product,
the quality of the product and the desirability.
(20:27):
So to dive into that in a little bit more detail, all three of those
have to be aligned for something to sell. So if we take an example
of two pens, back in the day, I worked at
Paperchase and we had two pens that were best selling
for different reasons. The number one unit seller was the Bic
Biro, a black Bic Biro for £1 50. It was
(20:49):
great value for the customer because they knew that it wasn't super
high quality, but they knew it would write it was the right price.
And therefore it was what you'd call a commodity product
because it was all about low price and acceptable quality.
And we sold lots of those. That was our number one unit bestseller. It did
the job, it got things done and people were happy to pay
(21:13):
£1 50 for that. But then we also had a 65 pound fountain
pen that was one of our best sellers in terms of sales value.
Now this had desirability, it looked beautiful,
it was high quality, well made, would be long
lasting. And therefore the price of
65 pounds felt like it was good value because everything else
(21:35):
was aligned and they did a lot of around desirability, limited
edition colors and that kind of thing as well to really kind of trigger that.
But ultimately it was about having a beautiful pen that was well
made, that felt like that £65 represented good value.
So the word value is not synonymous with cheap. It's about,
do you think that the money that you're paying for this is worth it? If
(21:58):
you find that you're struggling to set your prices at the right level,
if you feel like, I know that this needs to be 60 pounds, but
I'm really struggling to get people to understand that it
should be £60 and everyone thinks it should be cheaper. The question you
have to ask yourself is, am I doing enough to
communicate the quality of this product?
(22:26):
Let's take another example. We've got two black bags. We've got one is
15 pounds and one is 250 pounds. And if
you just had them side by side, no explanation as to the two
bags, then yes, obviously one you could tell one would be better quality
than another. But you would have to really love
the 251 to say, right, this is definitely the one I want to go for.
(22:48):
But imagine that instead of just it being
£250, there was a whole story around this bag,
that it was made from leather off Cuts from the
leather industry. Therefore it was reducing waste.
The interior had a lining made out of recycled
polyester from bottles that would otherwise go into the
(23:10):
ocean. So recycled ocean plastics to make the
polyester for the inside. The bag itself was made
in an East London atelier by women
who had been stitching bags for high end fashion houses
for the last 40 years. And as you can see, the
storytelling element of this, the story of the production, the
(23:32):
story of the quality of the materials
used, the purpose behind it, that all of a sudden
starts to become a lot more interesting and a lot
more desirable and the value starts to make
sense. So the great thing about this is it makes great
content, it's great storytelling content and it can really, really help you
(23:54):
illustrate your customer why they need to spend that money with your brand
as opposed to picking up the 15 pound mass produced tote instead.
This is really the value triangle in action. And I would
suggest that if you do not feel that you're able to charge the
prices that you know that your products deserve, really look at the way that
you communicate that value to your customer and see if there's
(24:17):
ways that you can illustrate it in more depth. Can you show behind the
scenes footage? Can you show the people who are making the product? Can you show
the process? For example, Indian block printing, it's
such a labor intensive technique and it's absolutely fascinating.
If you have block printed products, are you explaining to people what that
means? Because people don't know. And it's always
(24:40):
useful for you to remember that you
have to explain this to your customer. You are in the weeds all the time
in your business. You know why it costs, but your customers don't until you
tell them. So if you're struggling to get the prices that you need,
make sure you're communicating it. One of my mantras is if
it's worth more, charge more. But explain why that
(25:02):
explanation piece is absolutely crucial and
desirability is the final piece as well. So desirability,
it's completely subjective. I've worked in lots of different businesses and worked
with hundreds of different businesses and I can tell you that their number
one bestseller is often extremely different ones to the other.
But the thing that unites all of them is that they are something
(25:24):
that the ideal customer really wants. It is really
tuned into the ideal customer and it's getting an emotional
response from them. So this is something
that it's hard to manufacture. Exactly. But you've got to
keep going. Got to remember that the more your product is
completely attuned to what your ideal customer wants, the easier it will be
(25:46):
to sell. And also it gives you what I call price elasticity.
So it's not like you can charge twice as much for something that somebody really
loves, but you want them to have an emotional response to it. You want them
to just really want this item because then they don't ask
as many questions about the price. So if you're struggling with pricing,
ask yourself, is this the best product for my ideal customer?
(26:11):
And also, are you doing enough to explain to the customer the
ins and outs and the why behind why something needs to be the price that
it is? If you think your prices are too low, then
why not take a minute to go back over the process that I
outlined in this episode, Reassess where you sit in the market, talk to your
customers, and then once you've done all of that and you've assessed, do you need
(26:34):
to change them? Do you need to tweak them? Then check your profitability. And
if you're struggling to get the prices that, that you know that your products deserve,
then make sure you use the value triangle concept to help guide
your messaging. And the other thing I would say as well is that if you
haven't checked your prices against your competitors in the last three to six months,
check them again. Because it used to be something that we could do once a
(26:55):
year, but in the era of rising prices all the time it
stabilized a little bit. But still you need to be double checking that the
whole market hasn't moved. And I've had this conversation with a few people where they
say, well, I can't charge more than that this for a T shirt because that's
what everyone else charges. And then we've double checked and everyone else has been putting
their prices up. So make sure that you can, hand on your heart, say that
(27:16):
you've got the most up to date information. And just remember that
customers don't pay for products, they pay for perceived
value. So if it's worth more, charge more. But make sure you
explain why. And if it feels really hard, then help bring somebody
objective into the process and be brave. You might be
surprised by how well your customers actually end up responding.
(27:38):
Thank you so much for listening. Do take a moment to follow
the podcast or subscribe whatever platform that you're on and
if you have a minute to rate and review it inside Apple Podcast that makes
all the difference. See you next week.
If you want to build a resilient retail business, then you need to
start pricing your products like a business and not like a hobbyist.
In this episode, we're going to be talking through pricing, step by
step, discussing why it's so difficult and how the value
triangle, which covers price, quality and desirability,
can help you feel really confident charging what you and your products are
(00:22):
worth. Welcome to the Resilient Retail Game
Plan. I'm Catherine Edley and in the next few minutes you're about to get
powerful real world retail strategies from insights shared both
from my guests and myself, backed up by my 25 years
in the retail industry. Keep listening to learn how to grow a
thriving, profitable product business. Let's jump in with this latest
(00:44):
episode. Now,
pricing is an absolutely fascinating topic and one that I love
to dig into. And one of the reasons that it's so
interesting is that it stirs up a lot of feelings for a lot of
people, which is why I sometimes feel like starting your own business can
be a bit like a crash course in therapy. But
(01:06):
pricing is really something that cuts to the heart of all of
those questions around money mindset. It can make what should be a very
objective business decision into something that is quite
difficult. So there are different pricing
conundrums based on your business model. For example, if you are a
reseller so you mostly sell products that other people send you,
(01:29):
or that you mostly sell products from other retailers, retail businesses
or brands, then you will be given ARRP
recommended retail price by your suppliers. Now just
a quick note on that. Remember that the R, the extra R is there for
a reason. The recommended Nobody can actually tell you what you have to
set your prices at, that there has to be a recommendation only to
(01:51):
avoid things like price fixing. So no one can legally enforce
and make you sell your products for a particular price. However, it is
often a little bit easier for you if you are a reseller because
you are effectively given a product and you're given an indication of what the
price should be. Most of the time, product creators, whether it's something
that you're making yourself or manufacturing, they face a different
(02:14):
challenge. You've got to set your own pricing from scratch and that is
what this episode is going to focus on. Now, there's lots of concepts in
this episode that will be really relevant for you if you are a reseller as
well. If you're somebody who is communicating to your customers
about your products and their prices, there's going to be lots that you'll take away.
(02:36):
Ultimately, the heart of this is about what do you do when you
know that you need to set your prices and you're not already given something
to work from? One of the issues that I see come up a lot, and
one of the reasons that I wanted to address this in this episode, is
that undercharging is a real epidemic
amongst small business owners. So what is undercharging?
(02:57):
Undercharging is when you consistently charge
lower than what the market rate suggests for your products.
And it is something that a lot of small businesses do. And
there's a few key reasons why it happens. One, simply speaking,
undercharging often comes from lack of confidence and lack
of confidence either in yourself or. Or in your product. So people might
(03:20):
say, oh yes, I know that people do spend
£90 on the Diptyque candle, but this is just my
candle, so why would somebody pay that? Or perhaps
you're looking at it thinking, well, you can get other handmade brands for this price,
but I think because it's mine, would people really spend that much on my candle?
So if there's an issue about belief in yourself and your product, that can often
(03:41):
lead people to end up undercharging to. The second thing
that often people talk to me about is they'll say,
I want to create a product that is affordable for my customer.
And therefore they feel like what they're doing is effectively kind of a
mission to keep their prices lower. And what I'd love to say to this,
which is said with much love, is that what your customer can and
(04:04):
can't afford is none of your business. Now, somebody said this to me
way back at the beginning of the my business, and it's actually really quite liberating
if you think about it, because if you're going to be insistent that
your customer can't afford something unless you keep it a certain price,
you can end up fighting with yourself and feeling like, oh, I can't increase
my prices. But actually, the truth is, you don't know what your
(04:27):
customer can afford. And it's not really your business to know. It's your
business to create a business that is going to
be sustainable for you financially in the long term. A
sustainable business has to support you financially. And if you don't get your pricing right,
if they can't charge enough money for their products, then they can't make enough profit
and they can't make enough profit, then they can't pay themselves. And I can
(04:48):
guarantee that if you can't pay yourself from your business in the next three to
five years, you will make a decision that this is just
something that you can't keep going with. If you really want to help your customers,
be around for the long haul and don't let yourself fall into
that trap of feeling like, oh, I can't charge more because my
customer can't afford it. The question of affordability is something
(05:09):
that I find really fascinating because we often tell ourselves these
stories about what people can and can't afford. The truth is, if people really
want something, they will find the money for it. And you only need
to look at the Latest tech fad, AirPods or things like that that you
just think, reasonably speaking, you wouldn't expect people to be able to afford, but
somehow they do. So I think affordability can sometimes be something
(05:32):
that we tell ourselves that is maybe a story that we tell
ourselves that keeps ourselves feeling stuck. Three and the final reason
that people tend to underprice is that
they believe that low prices are more appealing. And of
course, yes, there are psychological price barriers. I'm not saying that price isn't
important, but people will often say, oh, I can't
(05:54):
charge more because I just won't sell anything.
But don't forget, there is also this idea of being reassuringly expensive.
And ironically, I've actually seen people increase their prices and see their
sales go up. Because before there was this disconnect in the
customer's mind, they were naturally a bit suspicious, thinking,
wow, if this product is really as good as they're saying it is, then why
(06:15):
is it this price? It just doesn't make any sense. Pricing too low
can backfire. It can lead people to believe that quality is not as
good as you're claiming. So if you're ever tempted to just keep your prices really
low because you're convinced that's the only thing that's driving your sales, then I would
challenge you to really have a listen to everything else that
I'm saying in this episode about how you actually go about setting your prices in
(06:37):
a logical way. Ask yourself, is it true that I have to keep my
prices at this point? And sometimes, you know, I will absolutely put my hands up
and say, sometimes there are people whose businesses the customer has a really,
really clear price point in their mind for that particular product and it is hard
to increase it. So I'm not saying that's never the case, but I've also seen
lots and lots cases of where people have told me categorically they can't sell
(06:59):
it for more, and they've actually gone on to increase their prices. And either seen
no impact on their sales, but a big impact on their bottom line or
actually seen their sales increase.
So how do you know if you're undercharging? Well, partly, as
we come on to talk about later, we'll have a look at how your products
(07:19):
are priced compared to your competitors. That's a really interesting and obvious
sign. If you wholesale your products into a retailer,
they are quite happily pricing it up and selling it at more
than what you're selling your products for, then that is a really, really clear indicator
that actually your products could be sold for a higher price.
So for example, I worked with a baby
(07:42):
skincare brand and they were selling, they had
small batch production, they were selling it into a retailer. They weren't really offering the
retailer full retail margin, but the
retailer was happy to take it in anyway. And I said to them,
they seem happy with this pricing, just check what they're actually selling it for. And
when we looked on that company's website, they were selling it for quite a lot
(08:04):
more than the person supplying the retailer was selling it for. And that is a
really good indicator that somebody else believes that your product can be and is selling
your product at more than you're selling it for. Another way that
you can tell if you're underpricing is how you actually feel. And this,
it may sound like an odd thing to say. One of the biggest indicators about
underpricing is that you just feel really resentful. You think, I put all of
(08:26):
this time and effort into this product and after I've sold it to the customer,
this is how much I'm left with. And it just doesn't seem right. It just
doesn't seem like it's enough. And I think if you're feeling resentful about the
amount of money people are getting your products for, then that's a really good sign
that you need to look at increasing your prices.
So how do you actually go about setting your prices?
(08:54):
So how do you actually go about setting your prices if you
are struggling with this? If you find it really difficult, get somebody
who's not as close to the business, who's not in the day to day, a
friend, a partner, family member who can help you be a little bit more
objective. Make sure that they get what you're doing. They're not going to
tell you, oh, do you know what you've got to match as the prices or
(09:15):
something like that. Make sure that they get the mission and what you're doing, but
preferably someone who's a little bit removed. So they can help you be more logical.
What I recommend in terms of the approach to setting your prices is
that you start by setting your retail price, the price
that you intend to sell to the end customer.
Now, the reason I say that is that there is a school of thought that
(09:36):
what you need to do is you get the cost price or the amount that
you're spending on creating the product, and you multiply it by two
or four or whatever number people come up with in order to get your retail
price. But I'm not a fan of that approach for several different
reasons. First off, I think it's not rounded in reality.
I mean, you could do that. I did actually meet a team once from
(09:58):
Christian Labuta, and they were able to
do that. That's how they priced all their shoes. But that was Louboutin, you know,
I mean, they could set those prices because they could say it's going to be
800 pounds for a pair of shoes and somebody out there would pay it. But
most of us don't have that luxury. Most of us need to work within the
parameters, the marketplace in which we're operating. So
(10:19):
therefore, we don't just start by saying, these are my costs and therefore I'm going
to multiply it by four and get my retail price. The other reason we don't
do that is because if your prices go up, then the only option you've got
is to try and increase your retail price, which doesn't feel right either.
So I would suggest that you start by setting your price
that you would sell to the end consumer. If you're somebody who sells a lot
(10:40):
at wholesale, I still think you start with the price that goes to the end
consumer, because ultimately the person who's
selling your product at the end, the retailer, they're going to have to sell your
product in that marketplace. So you've got to make sure that your retail
price is grounded in reality. And this may sound obvious,
but I cannot tell you the number of people who, when I asked them how
(11:02):
they set their prices, they basically pulled it out of thin air, which
for some people works, they go with that approach. But for most of us, we
want to start by having something to pin our price on.
So how do we actually set our retail price? Well, the first step
I would suggest is that you find three similar brands to you
in terms of materials, sourcing and production, not necessarily
(11:25):
aesthetics. So, for example, if you
are a baby clothing brand, then if you are
making it in the UK with organic cotton, try and find
other people who are doing the Same thing in the same way.
There's no point in you comparing your UK made
organic cotton baby clothes to the Primark baby clothes, for example,
(11:47):
because you're just not even looking at anything similar in terms of
the production method or the materials used. So try and find
three people who are similar to you. As I said, aesthetic is irrelevant.
So if they're bright neon and you're scandi paired
back, that's absolutely fine. But we're just trying to get a sense of the
actual way that products are made and then have a look
(12:11):
at how they are priced. Now, big retailers have software that scans
all of their competitors and tells them what all the price comparisons are. But back
in the day, we used to have to go out to the shops and go
around with a notepad and make notes as to what all of the competitors were
doing in terms of pricing. And it wasn't about copying, it was about
understanding the reality in which your customer operates.
(12:31):
So that's what you're trying to do here. You're just trying to understand if you're
in the market for a pair of organic baby leggings, how much
might you pay or how much might you be able to get them from somewhere
else. So once you've done that, you
effectively work out by product type what their pricing
structure looks like, where it starts at, where it ends at, what the kind
(12:53):
of range is, the products that they seem to sell the most of, where
do they sit? And you get a really good sense of what's going
on. And once you've done that, you then decide your pricing
in comparison. Now, there is no need for you to match it
exactly if you don't want to, you can do, you can say, right, everyone's
selling their leggings for £28. I'm going to pitch my leggings
(13:16):
at that price. But also you might say, do you know what? Ours
are hand finished, ours are reversible. For example,
they're all at 28, but I think we could go at 32. Whatever you
feel is appropriate, you can do it, but
you just need to benchmark it somewhere. So you either go in at the same
parity, you go in above, which is the premium
(13:37):
pricing model, or you might go below, which would
be a value pricing model. In other words, everyone's at 28. I think we can
bring ours in at 24 and still make an okay margin. So we're going to
go there. Now, I don't generally recommend a value model for
small businesses because before you know it, we'll all be trying to undercut each
other and that's not good for anybody. And most small business owners are not
(13:58):
going to ever be able to compete on price, especially when you compare it to
big retailers. So don't try the value model unless you've
really got a compelling reason that you feel that you can come in under your
competitors. Don't do if it's just a confidence thing. If you're like, oh
well, maybe their leggings are nicer than mine, I don't think I can
charge that now. That's not okay. You want to pick your
(14:19):
pricing position based on your competitors, but it doesn't have to be the same as
theirs if you don't want it to be. After you've done that,
then you want to sense check with your customer. Customers. Now the
most important thing is that do not go to your customers and ask them, would
you pay 28 pounds for this pair of leggings? Because most people
are aspirational. In other words, they'd like to think that they would spend 28 pounds
(14:41):
on a pair of leggings or they're trying to be nice so they'd say, yes,
of course I would. But what you really want to understand is what their past
behavior has been. You want to understand, for
example, you could ask them when you've bought baby leggings and in the
past, how much have you paid for them? And get an understanding
of what they actually paid their actual real world behavior.
(15:04):
This gives you an anchor in real world insight into your prices.
If everyone comes back and it's a much lower than you expected, which often is
the case because ultimately most small business owners
are operating in effectively kind of a premium pricing model already.
Most people are not competing on price. Ask them how much they paid when
they bought it for a special occasion or for a gift. Because again,
(15:27):
most small businesses, we tend to sit in that gifting price
bracket because it's not the cheapest that you're going to get something, but
it's always the nicest. So make sure that you're getting
an insight not just into what they would pay on an everyday basis, but what
they would pay in the case of something that they were gifting. And that will
help give you some confidence around your, your pricing and
(15:48):
where you're sitting. Now, if you're first starting out or you don't have access
to your ideal customers, have a think about somebody. Do you know someone in the
real world who would fit your ideal customer profile? Even if they'd never bought from
you before, could you do a bit of research that way. In fact, I remember
being told once when I very first started my business, before you start your business,
you should talk to 100 potential customers and ask them what they
(16:09):
want and ask them about their buying habits before you even get started started. So
if you're early on in your journey, how many people can you find and how
many people can you ask about your pricing? So there you've
set yourself your pricing, you've given it a bit of a check with some real
world customer feedback, and then once you've done that, you can actually
go back and check your margins. So last week's episode was all
(16:31):
about profit margins. So if you want a bit of a refresher on that, then
go listen to episode 259. I'm not going to get into
margins too much now. But even though profit's really important, you always have to
start with the final retail price and then at the end of that, work out
whether or not it's making you enough profit. This is the best way to do
it because you've set your price in reality and now you're going to
(16:53):
check the profitability. And the question is, what do you do if you do all
of this and then all of a sudden you work out? Well, actually, I'm
not making enough profit. I really can only sell these for 25,
but it's going to cost me £18 to produce.
It's much better to know about this now than to figure it out 612
(17:14):
months down the line or even several years into the business. And
then I would encourage you to think about, are there any ways that you can
tweak your costs? Can you simplify production? Can you use a different material,
a different way of producing things? Can you negotiate with
your supplier? Especially, especially if they've been supplying you for a while and you've got
a good track record. Can you see if there's anything they can do on their
(17:35):
pricing? This is what big retailers do every single day. The number of
meetings that I was in where effectively we'd be starting with a product,
working out what the ideal price was for it, and then working backwards to get
an ideal cost price. That is something that happens all the time.
So if you're working with a supplier, they will 100% be used to having this
kind of conversation. How can we make this cheaper? How can we bring the costs
(17:57):
in down for me? The thing is, is you mustn't compromise on
something that is core and essential to your business. So, for example, if
we're saying, can you make it with cheaper materials? If you have a certain
fabric that you use that is absolutely your calling card, do not
change that. But is there something else that you can do? The supplier
also will be able to help you. If it's not something you're making yourself and
(18:19):
you're having it manufactured for you, then ask them what would it take to bring
it in at this point, this price? They may be able to help you come
up with some answers. Because often the things that cost
money in the manufacturing process, they're usually related to time.
So if you want a particular effect or a particular stitch or a particular
type of construction, but it's taking a really, really long time, then
(18:40):
that is usually going to be adding cost in. So if you're trying to bring
your cost down with the manufacturer, make sure that you are
asking them to run through ways that you could bring the cost down and some
of them will be acceptable. They might say, well we could try
changing the placement of this item and actually you don't really mind, but it makes
the production that much quicker. But other times they might say, well, you'd need to
(19:01):
switch out this for this and that's just not acceptable. So know
what your non negotiables are, but don't be afraid to have
that conversation with your supplier because they will be used to it. Big retailers do
this all the time. They say, okay, how can we make this work? And if
you're making it yourself, have a think about the supply. Same thing is, are there
any elements that you can switch out, other ways of producing
(19:22):
things that take less time? The other thing that I would say as well
is really importantly, you must make sure that when you're checking your
margins, if it's a handmade item, that you're factoring in your time as
well to make sure that you have that cost covered.
So once we've set our prices, then we've checked our margins, we're
(19:43):
happy that they are where they need to be. How do
you communicate your price to the customer? Now that might sound like an odd
question because obviously your customer could go onto your website and they can see your
price. But I think one of the most important elements of pricing is
understanding that customers don't buy based on price
alone. Customers buy based on value.
(20:05):
So that is effectively whether or not they
consider the item that you're selling to represent good value.
If they believe it represents good value, they will buy it. And if they don't
think it's good value, they won't buy it. This is what I call the
value triangle. The value is made up of three things. The price of a product,
the quality of the product and the desirability.
(20:27):
So to dive into that in a little bit more detail, all three of those
have to be aligned for something to sell. So if we take an example
of two pens, back in the day, I worked at
Paperchase and we had two pens that were best selling
for different reasons. The number one unit seller was the Bic
Biro, a black Bic Biro for £1 50. It was
(20:49):
great value for the customer because they knew that it wasn't super
high quality, but they knew it would write it was the right price.
And therefore it was what you'd call a commodity product
because it was all about low price and acceptable quality.
And we sold lots of those. That was our number one unit bestseller. It did
the job, it got things done and people were happy to pay
(21:13):
£1 50 for that. But then we also had a 65 pound fountain
pen that was one of our best sellers in terms of sales value.
Now this had desirability, it looked beautiful,
it was high quality, well made, would be long
lasting. And therefore the price of
65 pounds felt like it was good value because everything else
(21:35):
was aligned and they did a lot of around desirability, limited
edition colors and that kind of thing as well to really kind of trigger that.
But ultimately it was about having a beautiful pen that was well
made, that felt like that £65 represented good value.
So the word value is not synonymous with cheap. It's about,
do you think that the money that you're paying for this is worth it? If
(21:58):
you find that you're struggling to set your prices at the right level,
if you feel like, I know that this needs to be 60 pounds, but
I'm really struggling to get people to understand that it
should be £60 and everyone thinks it should be cheaper. The question you
have to ask yourself is, am I doing enough to
communicate the quality of this product?
(22:26):
Let's take another example. We've got two black bags. We've got one is
15 pounds and one is 250 pounds. And if
you just had them side by side, no explanation as to the two
bags, then yes, obviously one you could tell one would be better quality
than another. But you would have to really love
the 251 to say, right, this is definitely the one I want to go for.
(22:48):
But imagine that instead of just it being
£250, there was a whole story around this bag,
that it was made from leather off Cuts from the
leather industry. Therefore it was reducing waste.
The interior had a lining made out of recycled
polyester from bottles that would otherwise go into the
(23:10):
ocean. So recycled ocean plastics to make the
polyester for the inside. The bag itself was made
in an East London atelier by women
who had been stitching bags for high end fashion houses
for the last 40 years. And as you can see, the
storytelling element of this, the story of the production, the
(23:32):
story of the quality of the materials
used, the purpose behind it, that all of a sudden
starts to become a lot more interesting and a lot
more desirable and the value starts to make
sense. So the great thing about this is it makes great
content, it's great storytelling content and it can really, really help you
(23:54):
illustrate your customer why they need to spend that money with your brand
as opposed to picking up the 15 pound mass produced tote instead.
This is really the value triangle in action. And I would
suggest that if you do not feel that you're able to charge the
prices that you know that your products deserve, really look at the way that
you communicate that value to your customer and see if there's
(24:17):
ways that you can illustrate it in more depth. Can you show behind the
scenes footage? Can you show the people who are making the product? Can you show
the process? For example, Indian block printing, it's
such a labor intensive technique and it's absolutely fascinating.
If you have block printed products, are you explaining to people what that
means? Because people don't know. And it's always
(24:40):
useful for you to remember that you
have to explain this to your customer. You are in the weeds all the time
in your business. You know why it costs, but your customers don't until you
tell them. So if you're struggling to get the prices that you need,
make sure you're communicating it. One of my mantras is if
it's worth more, charge more. But explain why that
(25:02):
explanation piece is absolutely crucial and
desirability is the final piece as well. So desirability,
it's completely subjective. I've worked in lots of different businesses and worked
with hundreds of different businesses and I can tell you that their number
one bestseller is often extremely different ones to the other.
But the thing that unites all of them is that they are something
(25:24):
that the ideal customer really wants. It is really
tuned into the ideal customer and it's getting an emotional
response from them. So this is something
that it's hard to manufacture. Exactly. But you've got to
keep going. Got to remember that the more your product is
completely attuned to what your ideal customer wants, the easier it will be
(25:46):
to sell. And also it gives you what I call price elasticity.
So it's not like you can charge twice as much for something that somebody really
loves, but you want them to have an emotional response to it. You want them
to just really want this item because then they don't ask
as many questions about the price. So if you're struggling with pricing,
ask yourself, is this the best product for my ideal customer?
(26:11):
And also, are you doing enough to explain to the customer the
ins and outs and the why behind why something needs to be the price that
it is? If you think your prices are too low, then
why not take a minute to go back over the process that I
outlined in this episode, Reassess where you sit in the market, talk to your
customers, and then once you've done all of that and you've assessed, do you need
(26:34):
to change them? Do you need to tweak them? Then check your profitability. And
if you're struggling to get the prices that, that you know that your products deserve,
then make sure you use the value triangle concept to help guide
your messaging. And the other thing I would say as well is that if you
haven't checked your prices against your competitors in the last three to six months,
check them again. Because it used to be something that we could do once a
(26:55):
year, but in the era of rising prices all the time it
stabilized a little bit. But still you need to be double checking that the
whole market hasn't moved. And I've had this conversation with a few people where they
say, well, I can't charge more than that this for a T shirt because that's
what everyone else charges. And then we've double checked and everyone else has been putting
their prices up. So make sure that you can, hand on your heart, say that
(27:16):
you've got the most up to date information. And just remember that
customers don't pay for products, they pay for perceived
value. So if it's worth more, charge more. But make sure you
explain why. And if it feels really hard, then help bring somebody
objective into the process and be brave. You might be
surprised by how well your customers actually end up responding.
(27:38):
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