Pricing may be one of the biggest challenges facing makers today. Not only is the act of determining price difficult in and of itself, makers must also deal with market pressures outside our control that effect price.
I mentioned in a previous post that Etsy recently posted a link to one of my cozy/cuffs on its Facebook page. This sparked a discussion about price. There were many people who thought that $32 was a ridiculously high price, and that I must be making an insane profit. (You can read my response to those comments on my other blog.)
This discussion coincided with my recent reading of the book Cheap: The High Cost of Discount Culture. I had been planning on reviewing the book here anyway, but now I thought I’d talk a little about how the phenomenon of cheap affects marketplaces like Etsy.
In Cheap, author Ellen Ruppel Shell looks at the evolution of price in American – particularly the development of our current discount culture and American’s love affair with cheap. She also looks at some of the true costs of cheap good and labor that are not reflected in the actual price of an object.
I was immediately struck by the comment that “Most of us…have absolutely no idea of what goes into setting a price. Consumers… link price to profit, and they grossly overestimate profit margins.” I think this holds true for customers, but also for many makers. I think when many people look at a price, they only mentally factor in how much value there is in the materials (if they are even able to infer that). Most consumers lack the ability to factor in all the other costs associated with running a business – whether it’s a multinational corporation or a one-woman show – that effect a price. These other costs, such as labor, packaging, shipping, marketing, and promotion, are also often the costs that makers fail to factor in when setting their prices.
In the case of Etsy, I do think that in general prices have become artificially low. This is due mainly to the fact that Etsy is a Pro-Am community. While there are sellers on Etsy who make a full-time living from their work (often using Etsy in conjunction with retail shows, wholesale and consignment, and other selling venues), there are many more who view Etsy as an extension of their hobby. They knit scarves in their spare time, and someone suggested that they sell them on Etsy. These sellers don’t consider labor, profit, or many of the other costs of running a business when setting their prices because they don’t have to. And because these low prices occur on Etsy, more and more buyers expect them. Which creates a vicious cycle where sellers feel they need to lower their prices in order to sell.
Seth Godin says that you can’t change the marketplace, and I wonder if Seth might be right. While I know it is possible to sell higher priced goods on Etsy, it is becoming increasingly difficult to compete in a marketplace where buyers are motivated solely by price.
The question then is, what’s the solution for those of us attempting to make a living wage on our products? We can’t compete on price. What are the alternative marketplaces, both online and off, for us? And most importantly, how can we go about building and educating a consumer base that understands and supports the prices we are charging?
I’d love to hear your thoughts, and I would highly recommend that you read Cheap: The High Cost of Discount Culture.