# Could someone please explain...



## JerrySambrook (Aug 27, 2011)

I think it is rather ironic people can complain about the price of something when they cannot make it themself. Or complain of the cost when they do not understand what might go into making of that something.
     Or the fact that the cost of running a business is now greatly controlled by things like taxes, workers comp, osha, epa, etc.

It really is uncomprehensible to me.

Can someone please explain?


----------



## Timebandit (Aug 27, 2011)

Nope.......This is just a drag over form another thread because you got mad at what someone said and i think its kind of dumb...............Just let it go:bulgy-eyes:


----------



## renowb (Aug 27, 2011)

That's just it! They don't know what goes into making it! They are looking for a deal. It takes a lot of craftsmanship to make a pen, albeit it is a small item. But fortunately, there are people who like one of a kind things, especially handmade things.


----------



## JerrySambrook (Aug 27, 2011)

Justin, if you cannot answer, why say anything???


----------



## renowb (Aug 27, 2011)

What is this forum for, if not to ask questions? Maybe I'm missing something here??


----------



## Florida Marine (Aug 27, 2011)

When I owned my dive shop, folks always wanted me to sell stuff at cost, or just over...

Where did they think I was getting the rent from?


----------



## JerrySambrook (Aug 27, 2011)

Justin,
   Yes, it is very similar, but maybe, just maybe, you have to look back on what was said both there and here. And as for stirring the pot, yes I do at times because I too have my convictions. And just like YOU are doing now as well???:wink:

But this removed all of the personal reference that was in the previous thread, to try and understand something.


----------



## Timebandit (Aug 27, 2011)

Ok, i retract, but underlying you know why you posted this.

Carry on


----------



## monophoto (Aug 27, 2011)

Price is what the market is willing to pay for a product or service.  Price should have nothing to do with cost.  (Marketing 101)

Cost is an accounting concept and reflects the total cost of delivering the product or service - materials, labor, inventory, shipping, insurance, etc.  

There are many people who believe that there should be a fixed relationship between cost and price.  That believe is based primarily on ignorance.


----------



## JerrySambrook (Aug 27, 2011)

So, could we get back to what I originally asked?
And thanks Louie


----------



## Haynie (Aug 27, 2011)

This is actually an interesting question, it will stir up emotions, but ultimately there is no answer.

The buyer will always want the best deal.  The seller will always want the higher price.  That being said there are silly extremes on both sides.  It is just the nature of the beast called doing business.

I forgot to add that both sides will complain when they don't get what they want.


----------



## InvisibleMan (Aug 27, 2011)

Simple - it doesn't represent the same value to them that it does to you.  They value it ~somewhat~, or they wouldn't even take the time to complain.  But, they don't value it enough to pay ~your~ price.  They wish it meant more to them, or that it didn't mean as much to you, because then they could buy it at a price that fit the value they assign.

I wouldn't pay 50 cents for an abstract painting for my wall.  I just don't get it.  Doesn't mean it isn't worth a million to somebody else.


----------



## nativewooder (Aug 27, 2011)

In my experience, there are people who understand the cost of doing business, and there are the others, those that I choose to call "ragpickers", and they are offended when I suggest they might be able to find what they are looking for at a "yard sale" or Wally World!


----------



## hunter-27 (Aug 27, 2011)

InvisibleMan said:


> Simple - it doesn't represent the same value to them that it does to you.  They value it ~somewhat~, or they wouldn't even take the time to complain.  But, they don't value it enough to pay ~your~ price.  They wish it meant more to them, or that it didn't mean as much to you, because then they could buy it at a price that fit the value they assign.
> 
> I wouldn't pay 50 cents for an abstract painting for my wall.  I just don't get it.  Doesn't mean it isn't worth a million to somebody else.


THat may be the best answer possible to the original question.  Well said.


----------



## NewLondon88 (Aug 27, 2011)

monophoto said:


> Price is what the market is willing to pay for a product or service.  Price should have nothing to do with cost.  (Marketing 101)
> 
> Cost is an accounting concept and reflects the total cost of delivering the product or service - materials, labor, inventory, shipping, insurance, etc.
> 
> There are many people who believe that there should be a fixed relationship between cost and price.  That believe is based primarily on ignorance.



I have never understood this as a business practice. It puts the cost of 
merchandise at the will of the most ignorant customer. This kind of avarice 
is what causes things like housing or dot com bubbles. What do we do? Keep raising our price each time a new group of suckers come along? 

And I certainly have no faith in the 'experts' who teach this. These are the
same kind of thinkers who have driven manufacturing out of the US and
into other countries who DO NOT do business this way.

I'll never get rich. I understand this and I'm OK with it. But I will always
figure out my cost of goods, figure in what profit I think is appropriate,
and then that is my price. I don't care what someone else charges, their
costs may be different than mine. Or perhaps they majored in "101"
themselves. But I can sleep at night (and not with one eye open) and
I still have a conscience.


----------



## ctubbs (Aug 27, 2011)

The craftsman is worth his pay.  The same goes for the artist.  I have and will continue to, buy what I feel is worth the price asked for an object.  If that object attracted my attention, there was something there that I liked and or appreciated.  If the owner likes it more than I do, then I complement the object and go on my way.  the cost of doing business contains many hidden things of which many people have no idea.  If there is a person which wishes to degrade my work hoping to get a better price, that person is SOOL.  Do not try to dicker with me over price, because the price goes up by at least the amount that was taken off in the counter offer.  That always brings forth a startled response, whereupon we can agree on the original price or they may leave.  The actual cost of material is irrelevant to the final price of a piece of art, the perceived value is what sets the final price whether it be a chunk of wood or a Old Master's painting.  My $0.02.
Charles


----------



## pensbydesign (Aug 27, 2011)

my 2cents its not that people don't understand what it takes to make something or cost associated with it but why they have to pay when they don't have to work and get everything else for free, its the work to support oneself that's a mystery to them


----------



## Real (Aug 27, 2011)

Jerry:

It's an age old question. And a lot of good answers above. 

Many years ago I had a friend who owned a Glass and Mirror shop who took a booth at the local spring home show. He asked me to fill in for him one day. In the booth he had an 8 ft. mirror wall made up of beveled strips. A man came by and liked what he saw and asked some questions, one being the price. When I told him the suggested price he asked if I was crazy (with several expletives thrown in for good measure).

Later on another man came up and was interested in the wall and again the question came to price. Hesitantly I told him the price. His answer was "That's it!!!. My wife is looking at wallpaper more expensive than that and I like this." You never know.

Real


----------



## Smitty37 (Aug 27, 2011)

*Not Quitew*



monophoto said:


> Price is what the market is willing to pay for a product or service. Price should have nothing to do with cost. (Marketing 101)
> 
> Cost is an accounting concept and reflects the total cost of delivering the product or service - materials, labor, inventory, shipping, insurance, etc.
> 
> There are many people who believe that there should be a fixed relationship between cost and price. That believe is based primarily on ignorance.


 
Price is what a willing and able buyer is willing to pay and a willing and able seller is willing to accept for a good or service.  The market is where the transaction takes place - the market does not buy or sell anything.


----------



## Smitty37 (Aug 27, 2011)

*price*

People will "complain" about the price because they feel like it.  Just like people complain about taxes.  We don't need a reason.  And, just like our complaints having little effect, if any at all, on taxes our complaints about prices also  have little effect, if any at all, on them.  Generally speaking we do not live in a barter world, the seller sets a price and the buyer either pays it, takes his business elsewhere or waits for it to go on sale.

People selling pens are in a slightly different position  because in many, if not all, of their venues they are in a "barter" world.  In that world, most prices have a "bargaining" margin built in, just as most people list a house for sale at a higher price than they are willing to accept.  It is a supply and demand situation and has Zero to do with cost.  Cost only determines whether or not a seller will produce the item - if the price won't cover the cost the seller won't produce it.  So let it be with pen makers, if you can't sell them at a price that cover's your cost of production, you are in the wrong business.

I am brought to mind of a camping lot that I bought in the Poconos several years back.  The asking price $6500 - my offer $2000, and it was accepted (actually I was a couple of hundred dollars higher than I should have paid).  The seller hoped, of course, that someone would just "not question" his price.


----------



## Holz Mechaniker (Aug 27, 2011)

As I understand it from my marketing course.  It has to do with "Implied Value."  What is to you, for the infamous widget, the cost to manufacture includes Labor, Insurance, utilities, Patent pending filing cost. All in all, those cost are what makes your widget $60 Per unit.  You have to sell them, to provide for more material components to make more widgets, pay investors, etc, so forth and so on for a price of at least $175 (That will get you Ramin noodle dinner.)  $200 is the Suggested Retail.  
NOW having state all that. This buggered economy with the pockets of area's that your widget fly's off the shelf and other area's that they are on close out at a dollar store gathering dust.  
NOT to mention, some operations will counterfeit your widget and rake it all in.  
It is all about money, some have it to spend others don't. and If joe schmoe can get it for less, they will.  If they can creatively get you to bring down the price, they may return to do it again like a feral cat if you leave out food. or you may never see them again.


----------



## Smitty37 (Aug 27, 2011)

*Economics 101*

If you are a manufacturer of pens and you are smart, you want to sell your pens for the greatest *total *return. That might or might not be the highest price you can command for a single pen. Assume you can produce 500 pens to your quality standards a year at a cost of $100 per pen.

Assume the following average price line:
Say at $1000 you can sell 50 pens. Total return $50,000 [profit $45,000] and your facility is under utilized.
At $500 you can sell 200 pens. Total return $100,000 [profit $80,000} and your facility is still under utilized.
At $300 you can sell 500 pens. Total return $150,000 [profit $100,000] and your facility is fully utilized.

What average price will you want to sell your pens at? In most cases the answer would be $300 but for pens since you are your only employee the answer might be $500.00 and you would have more time to do other things. Rarely will it be the highest price and never at a price where you can't meet the production volume needed.

Buyers are rational, they will pay the lowest price they can get a suitable product for....and probably complain that it is too high.


----------



## Frank Nemke sr (Aug 27, 2011)

Children, children , children,  What did I tell you about fighting?  Now go stand in the corner: both of you.   ;-)


----------



## Smitty37 (Aug 27, 2011)

*Fighting????*

I don't even think there was a disagreement much less a fight.


----------



## maxwell_smart007 (Aug 28, 2011)

JerrySambrook said:


> I think it is rather ironic people can complain about the price of something when they cannot make it themself. Or complain of the cost when they do not understand what might go into making of that something.
> Or the fact that the cost of running a business is now greatly controlled by things like taxes, workers comp, osha, epa, etc.
> 
> It really is uncomprehensible to me.
> ...



I have no idea why people complain about and bemoan certain things...Complaining about price, however, - the price of anything - is just human nature...

We complain when the coffee store raises the price of coffee or Timbits by a dime...we complain when taxes go up, or gas skyrockets...we complain when contractors charge mileage when they live a block away...

Sure, some complaints about cost might stem from ignorance of the other built-in costs that are hidden...but all to often, we complain because deep-down, we think we can make it cheaper, or better, or that we can find it cheaper elsewhere with a bit more effort.  

We complain because money is precious, and you have to work hard to get more...complaining about overspending is just a fact of life.


----------



## babyblues (Aug 28, 2011)

I also think that those of us trying to run our own businesses tend to think we need to try to appeal to everyone and anyone. That's just not possible. Some people just don't understand what it takes to run a business and therefore don't understand the costs of running a business. So what? There will always be those who think everything is overpriced no matter what it cost. Is it really worth it to worry about those kind of people taking their "business" elsewhere? How can you cater to those kinds of people and keep your business from going bankrupt? You can't, so don't try. We need to start being more creative in how we advertise our products and who we advertise our products to.

As a side note: It never ceases to amaze me how much money people spend on entertainment and then complain about the price of something that will be of use to them for years and years.


----------



## Smitty37 (Aug 28, 2011)

*Yep*

Willing to drop $100 across the bar on Saturday night with nothing to show for it but a headache Sunday morning....yet think something that takes more time and effort to make is only worth $1.00.  But, that's life in the real world.


----------



## bitshird (Aug 28, 2011)

Jerry, when you find any thing that resembles a reasonable answer let me know, I had a guy bring me a project that was a Bit-h I knew the guy slightly so I offered to do it for 400.00. Keep in mind my shop time on a machine is 65.00 Per hour and this looked like an 8 or 9 hour job, The guy called me every thing except to dinner, told me I was trying to rip him off and that crap. I almost threw him out of the shop, but he left on his own (fortunately).
A couple of days later he came back with this sheepish look on his face and wanted to know if would still do it for the 400 I'd quoted me before the cussing started. 
Try and guess where I told him to stuff the job and the 400 dollars!!!


----------



## dogcatcher (Aug 28, 2011)

bitshird said:


> Keep in mind my shop time on a machine is 65.00 Per hour and this looked like an 8 or 9 hour job,



I only give discounts to relatives and friends, and when the shop is open, I have no relatives and no friends.


----------



## Smitty37 (Aug 28, 2011)

*Maybe*



ctubbs said:


> The craftsman is worth his pay. The same goes for the artist. I have and will continue to, buy what I feel is worth the price asked for an object. If that object attracted my attention, there was something there that I liked and or appreciated. If the owner likes it more than I do, then I complement the object and go on my way. the cost of doing business contains many hidden things of which many people have no idea. If there is a person which wishes to degrade my work hoping to get a better price, that person is SOOL. Do not try to dicker with me over price, because the price goes up by at least the amount that was taken off in the counter offer. That always brings forth a startled response, whereupon we can agree on the original price or they may leave. The actual cost of material is irrelevant to the final price of a piece of art, the perceived value is what sets the final price whether it be a chunk of wood or a Old Master's painting. My $0.02.
> Charles


 
That is true Charles only to the degree that what the craftsman or artist is producing a product that is worth that much to a buyer or buyers. If there is no market for what a craftsman or artist produces it is worth nothing regardless of how well it's done or how long it takes. There are two sides to the equation the seller and the buyer and it is when those two sides are in agreement as to value that a sale is made.

If I tried to price the value of my time into the things that I sell here, I'd never sell a thing. Is my time worth nothing because it is not "artist or craftsmans" work. Well let me assure you that buyers (artists and craftsmen) think it is worth exactly that. None even cares if I make a profit at all - most only buy from me when I have a sale and make even less than a normal mark-up. That's not a complaint, if I wasn't happy doing it I wouldn't, it is just a fact of life. And, those facts apply to folks turning pens when they sell the pens as well as when they buy the components.


----------



## Chris Bar (Aug 28, 2011)

I like NewLondon's comment.
But my opinion, and only an opinion as there can be no absolute, greed occurs when the price is fixed at what the market will bear or fixes the market to accept that price for a required commodity.


----------



## sbell111 (Aug 29, 2011)

JerrySambrook said:


> I think it is rather ironic people can complain about the price of something when they cannot make it themself. Or complain of the cost when they do not understand what might go into making of that something.
> Or the fact that the cost of running a business is now greatly controlled by things like taxes, workers comp, osha, epa, etc.
> 
> It really is uncomprehensible to me.
> ...


Every time that I fill up the Jeep, I complain about the price of fuel.  The mere facts that I 1) cannot make my own gasoline, 2) do not fully understand how to make gasoline, and 3) do not know the ins and outs of running an international petrochemical companydoes not change the simple fact that I believe that gasoline is really expensive.

I hope this helped you comprehend how some people can be dissatisfied with prices that they perceive to be high.



NewLondon88 said:


> monophoto said:
> 
> 
> > Price is what the market is willing to pay for a product or service.  Price should have nothing to do with cost.  (Marketing 101)
> ...


I have been one of those 'experts' that taught that bit to my students.

This pricing theory does not put pricing at the will of the most ignorant consumer.  It puts pricing at a point where profits are maximized.  If the price is lowered, then more people buy, but at a reduced overall profit.  If prices are raised, a higher profit is made per unit, but the reduced number of buyers yields a lower overall profit.

Another benefit of pricing with this method rather than pure costing is that cost efficiencies are a reward to the seller, not the buyer.


----------



## Smitty37 (Aug 29, 2011)

*Hmmmm*



bitshird said:


> Jerry, when you find any thing that resembles a reasonable answer let me know, I had a guy bring me a project that was a Bit-h I knew the guy slightly so I offered to do it for 400.00. Keep in mind my shop time on a machine is 65.00 Per hour and this looked like an 8 or 9 hour job, The guy called me every thing except to dinner, told me I was trying to rip him off and that crap. I almost threw him out of the shop, but he left on his own (fortunately).
> A couple of days later he came back with this sheepish look on his face and wanted to know if would still do it for the 400 I'd quoted me before the cussing started.
> Try and guess where I told him to stuff the job and the 400 dollars!!!


 
And, yet when you bought your last new (or used) car ... did you pay the asking price?  

If you are like most car buyers you offered less then the seller was asking, it might have been accepted or rejected or the seller might have countered with another price.  

You might have pointed out to the seller all the things he already knew needed to be fixed and mentioned how much it was going to cost.  But in the end you settled on a price.  At times I have bought cars where that was a LOT less than the asking price at other times it was very close to the asking price.  

You probably neither knew nor cared what he paid for the car, how much it cost to build and whether or not he made a fair profit.  

The real question is why do people feel that when they sell the rules should be different than when they buy?


----------



## JerrySambrook (Aug 29, 2011)

Smitty,
   You actually did hit the real question.


----------



## kenspens (Aug 29, 2011)

i hear yah!! for every complaint there will be a customer who will be appreciative of the time and effort that goes in to the product cherish that moment when your hard work is admired for its beauty! and put cottom balls in your ears for the complainers!! lol
 ken
 kenspens


----------



## bitshird (Aug 29, 2011)

Smitty37 said:


> bitshird said:
> 
> 
> > Jerry, when you find any thing that resembles a reasonable answer let me know, I had a guy bring me a project that was a Bit-h I knew the guy slightly so I offered to do it for 400.00. Keep in mind my shop time on a machine is 65.00 Per hour and this looked like an 8 or 9 hour job, The guy called me every thing except to dinner, told me I was trying to rip him off and that crap. I almost threw him out of the shop, but he left on his own (fortunately).
> ...



Actually LeRoy I did, the guy shot me a price of 4500.00 and I paid it. I don't have time to haggle when I see what I need, and the price is reasonable.


----------



## Smitty37 (Aug 29, 2011)

*Unusual*



bitshird said:


> Smitty37 said:
> 
> 
> > bitshird said:
> ...


 
Well that would be unusual....I have sold cars for the asking price but never without the buyer at least trying to get it lower.  I have never paid the full asking price personally but there were times when I would have if the seller didn't move.


----------



## arioux (Aug 29, 2011)

Smitty37 said:


> bitshird said:
> 
> 
> > The real question is why do people feel that when they sell the rules should be different than when they buy?
> ...


----------



## NewLondon88 (Aug 29, 2011)

sbell111 said:


> This pricing theory does not put pricing at the will of the most ignorant consumer.  It puts pricing at a point where profits are maximized.  If the price is lowered, then more people buy, but at a reduced overall profit.  If prices are raised, a higher profit is made per unit, but the reduced number of buyers yields a lower overall profit.
> 
> Another benefit of pricing with this method rather than pure costing is that cost efficiencies are a reward to the seller, not the buyer.



I guess the litmus test would be for the manufacturer to ask himself:
"Would I pay this much for this product?"  If not, then they have placed
themselves in an adversarial position with the consumer.
And when I say 'the most ignorant consumer' I mean uninformed. There
are people who will pay unrealistic prices for products. Those people are
part of the market, and if they will pay an unrealistic price, then this is
what the market will bear. Ergo, the pricing (what the market will bear)
is at the will (actions) of the most ignorant (uninformed) consumer.

Cost efficiencies SHOULD be a reward to the seller (manfacturer) but
first we need to define 'efficiencies'.  Are we talking about finding better
ways of containing costs? Great. Streamlining the manufacturing process?
Wonderful. But if we're talking about lowering the quality of the product
and keeping the price the same (or more likely, raising it anyway) then
this is where the consumer is likely to talk with their wallet. It is one of
the reasons companies are losing what used to be known as 'brand
loyalty' .. and archaic term, now. And the business climate has changed
so drastically in the last several decades that many companies do not
consider the customer .. only the consumer. There is a much greater
remove than there used to be.. so much so that when a company really
DOES take care of their customers, it stands out as being unusual.

And often these kinds of 'efficiency' decisions are made my people who 
know it's a bad move, but they'll make their quarterly numbers, get their 
bonus and move onto the next company before anyone catches on .. but 
that's a whole different discussion..


----------



## Smitty37 (Aug 29, 2011)

NewLondon88 said:


> sbell111 said:
> 
> 
> > This pricing theory does not put pricing at the will of the most ignorant consumer. It puts pricing at a point where profits are maximized. If the price is lowered, then more people buy, but at a reduced overall profit. If prices are raised, a higher profit is made per unit, but the reduced number of buyers yields a lower overall profit.
> ...


 
That's not quite the way it works.  A maker of widgets is in business to make the most profit - that is rarely at the highest price some widgets might sell for.  It is also rarely at the price that would move the largest number of widgets.  The fact that one person or even a few are willing to pay too much for an item will have very little bearing on its market price.


----------



## JerrySambrook (Aug 30, 2011)

Smitty, to a point, NewLondon is correct.
I remember when we could buy used Shaker furniture around here for a couple grand a piece.
Oprah came by, wanted a chest, got into a bidding war with another, and paid $100,000.00 (yes one hundred thou), and now everyone thinks there pieces are five and six digit figure pieces.

Same with cars, people see a pedigree 67 Mustang driven by Parnelli Jones in some races, and it sells for 75,000 to a collector. Now the guys with a floors missing 67 mustang six cylinder think theirs is worth 1/2 that.

Thanks for all the varied answers gentlement and ladies.

Jerry


----------



## beck3906 (Aug 30, 2011)

Hmmmm.....
Then question of buying at the asking prices raises thoughts I've experienced recently.  

Did you ever look into buying a Saturn vehicle when they were around?  Or what about a Tempurpedic mattress?

I bought both and paid the asking price because that is what their business model was based on.  No bargaining allowed.


----------



## alphageek (Aug 30, 2011)

beck3906 said:


> Hmmmm.....
> Then question of buying at the asking prices raises thoughts I've experienced recently.
> 
> Did you ever look into buying a Saturn vehicle when they were around?  Or what about a Tempurpedic mattress?
> ...



I would use retail as a better example of no bargaining allowed (most of the time).    I've bought 2 Saturns and didn't pay asking price exactly on either.   Yes, there is no 'bargaining' on the sticker price according to the way they sell, but there was bargaining, both on trade in and on accessories that were included.    And one of them even had dickering on the actual price because of the time of year.

The only thing consistent about buying and selling is the inconsistancy.


----------



## nativewooder (Aug 30, 2011)

NO!


----------



## BKelley (Aug 30, 2011)

I try to price fairly.  I figure the cost of materials, shop supplies, my electricty is not free and of course I figure a little labor.  I do not dicker prices with the grocery store or the shoe store.  I expect to be treated the same.  If a person likes my work and buys, good.  If he thinks my work is bad or prices too high, he is free to seek out some one who has work and prices to his satisfaction, no hard feelings. 

Ben


----------



## Smitty37 (Aug 30, 2011)

*THINK is right---*



JerrySambrook said:


> Smitty, to a point, NewLondon is correct.
> I remember when we could buy used Shaker furniture around here for a couple grand a piece.
> Oprah came by, wanted a chest, got into a bidding war with another, and paid $100,000.00 (yes one hundred thou), and now everyone thinks there pieces are five and six digit figure pieces.
> 
> ...


 
Think is the operative word - regardless of what they think unless they find a buyer who thinks the same thing they have a potentially classic car for sale.

In fact, when Oprah paid $100,000 for that chest - just the fact that she bought it probably DID (at least for a while) make shaker furniture (I assume this was an original antique piece) worth more.  There are a lot of people who will buy something just because Oprah did.  I don't know why that is but it is a fact.

Copy cat is what made people pay a couple of thousand dollars for rag dolls [cabbage patch kids] when my kids were young.  Ours got theirs the next year for 10 bucks.


----------



## sbell111 (Aug 30, 2011)

NewLondon88 said:


> sbell111 said:
> 
> 
> > This pricing theory does not put pricing at the will of the most ignorant consumer.  It puts pricing at a point where profits are maximized.  If the price is lowered, then more people buy, but at a reduced overall profit.  If prices are raised, a higher profit is made per unit, but the reduced number of buyers yields a lower overall profit.
> ...


We sell pens for eighty dollars that have total costs of about ten dollars and an hour of our time.  Personally, I won't  pay that much for a pen.  Still, plenty of the buying public are happy to do so.  That's not a bad thing.





NewLondon88 said:


> And when I say 'the most ignorant consumer' I mean uninformed. There
> are people who will pay unrealistic prices for products. Those people are
> part of the market, and if they will pay an unrealistic price, then this is
> what the market will bear. Ergo, the pricing (what the market will bear)
> is at the will (actions) of the most ignorant (uninformed) consumer.


First, it should be noted that the market is what determines whether prices are realistic.  If profits are maximized, then the price is realistic.

Second, it is not the 'most ignorant customer who determines sales price because are pricing methods are not customized to each specific buyer.  Instead, prices are set at a level to maximize profits.

Look at it this way:  Most everyone will buy a nice pen at a price of $5.  A few will buy the same pen at a price of $500.  At neither price point is profits maximized.  In fact, at both extreme price points, you will not even make breakeven.    

In general, as prices increase, number of sales drop until it reaches a point where no one will buy.  At the same time, profits per sale increase.  At both extremes (pen for a penny or the same pen for $1000), profits are not maximized.  However, there is a price at which the number of sales maximizes overall profits.  That's the sweet spot that we strive to find.  





NewLondon88 said:


> Cost efficiencies SHOULD be a reward to the seller (manfacturer) but
> first we need to define 'efficiencies'.  Are we talking about finding better
> ways of containing costs? Great. Streamlining the manufacturing process?
> Wonderful. But if we're talking about lowering the quality of the product
> ...


You are getting away from the topic.  In the context of this conversation, efficiencies are the ability to make the same exact pen at a reduced cost.


----------



## NewLondon88 (Aug 30, 2011)

Perhaps I just don't understand the phrase 'maximize profit' because nothing
in that post made any sense to me.. it might as well have been in a different
language, except that I recognize the words.


----------



## Smitty37 (Aug 30, 2011)

*Profit*



NewLondon88 said:


> Perhaps I just don't understand the phrase 'maximize profit' because nothing
> in that post made any sense to me.. it might as well have been in a different
> language, except that I recognize the words.


 

In any free market, supply and demand will control where the price is set.

If I am a producer and am seeing a demand for my product that I can't work fast enough to meet, my price is too low.  

If my finished inventory keeps piling up because I can produce the product faster than I can sell it my price is too high.  

In neither case will my company make the maximum profit when total sales are considered.

Somewhere between those too extremes there exists a price where my enterprise will be able to satisfy the demand without creating excess inventory - that is the correct price.

IF that price does not exceed costs and produce a profit - I should get out of the business.


----------



## Smitty37 (Aug 30, 2011)

*Good if you're selling.*



BKelley said:


> I try to price fairly. I figure the cost of materials, shop supplies, my electricty is not free and of course I figure a little labor. I do not dicker prices with the grocery store or the shoe store. I expect to be treated the same. If a person likes my work and buys, good. If he thinks my work is bad or prices too high, he is free to seek out some one who has work and prices to his satisfaction, no hard feelings.
> 
> Ben


 


Whether that's good or bad depends on whether or not you're selling enough and making a satisfactory return on your business -if you are - great, you've found the right pricing model.  

If you're not - and you just keep having more and more pens to sell piling up, then you don't have the right model - you need to lower your price.

If you find that you can't make pens fast enough - you ought to raise your prices some.

A fair price is one where both the buyer and seller are satisfied.

One thing though, unless you are operating a retail outlet, you are in a business where "dickering" is the norm in most venues.  You don't dicker at the grocery store because fixed pricing is the norm there and you are not dealing with someone who can change a price. But, if you go to a furniture store and don't dicker you're gonna get hosed.


----------



## butchf18a (Aug 31, 2011)

When the subject comes up educate them. Let them know how many years you've practiced your craft to get it to a point where you can sell your wares. Let them know all the steps involved. While I rarely get that inquiry, when I do I ask them what do they feel a fair compensation per hour would be? Ask them what they, in their profession get on an hourly basis, would they compromise on their efforts? I have not found one yet that would.


----------



## PenPal (Aug 31, 2011)

Jerry,

I accept your challenge and say this:

My philosophy is approach situations such as making or selling with respect and try to understand the truth of all dealings.

I try to leave having bought or sold feeling fairness has been at the root of all sales or purchases.

Sure as night follows day every deal or purchase requires considered thought as best we can.

40 yrs ago in New York City on my own I travelled most of Fifth Avenue buying from wholesalers who had minimums of maybe hundreds of rolls buying 1/2 a yard of this and that to take home for my Quilter wife. In every case I put forward my request up front there were no refusals. Prices were fair and yes having been the shadow in so many Quilt
Exhibitions etc I had a working knowledge of materials, I knew my wifes preferences.

With Pen Turning it is my passion profit does not control or motivate me because I live within my means, my observations during my membership in this forum is that I am in the minority by observing the Avatars and advertising of product and materials.

On this fishing expedition of yours I do trust you succeed in your quest maintaining your dignity and preserving mine and others who choose to answer in their own way.

Love a challenge.

Kind regards Peter.


----------



## Glenn McCullough (Aug 31, 2011)

I have been in retail sales for 32 years, and I know a couple of things. The price asked is given its value by the salesperson. Most people who dont want to pay the price for something dont understand it's value, many dont care because they have no interest in it. Some would love one, simply cant afford it (these are the ONLY people I may adjust the price for).  If you dont explain what goes into making a handmade pen, it isn't worth squat.  Celebrate the fact they wont buy your pen and throw it out or trash it, then thank them for not purchasing, they dont deserve it...but save yourself the aggravation of stewing over it, it will always be like that.


----------



## sbell111 (Aug 31, 2011)

NewLondon88 said:


> Perhaps I just don't understand the phrase 'maximize profit' because nothing
> in that post made any sense to me.. it might as well have been in a different
> language, except that I recognize the words.



When I say 'maximize profit', I am not referring to the profit that you make on one pen sale.  I am talking about your overall profit for all sales, say at a show.  You could price your pens at a penny each and sell out, but you won't make any profit.  You could price the very same pens at $200 and perhaps sell one or two, but not even cover your booth fee.

As you increase your price along the continuum between one penny and $200, your sales volume will drop, but your profit contribution per item sold will increase.  The thing is to find the sweet spot where overall profit is maximized.  

Check out this graph that I found online.  I think that it depicts the concept pretty well:






In this graph, you can see how changing your sales price affects your overall profit:






I think that one of the things that confuses people is the idea that price is set by the market.  The fact is, that's an oversimplification of the concept.  The price is set by the seller and the market reacts to it.  An experienced seller understands this market reaction and sets the price to maximize revenue.


----------



## Smitty37 (Aug 31, 2011)

*Good picture....*

Economics 101....

I agree except for a minor disagreement about who sets the price.  You are correct that it is NOT the market.  In and of itself the market is simply a place to buy and sell things. 

I don't think it is just the seller who establishes the price either.  It is both rational buyers and rational sellers who establish the market price.

True that the seller puts a price on and the buyer reacts but the buyer's reaction (which might be just not buying) can cause the seller to react by changing his price or withdrawing his product from the market.  It really is a two way street.


----------



## NewLondon88 (Aug 31, 2011)

ok.. I understand what you're saying. The words were going in, but
not making any sense.
It still isn't the way I'd want to price my own products, but now I
know what you meant by 'maximize profits'


----------



## jedgerton (Aug 31, 2011)

I think I can answer your question. People don't care about what costs are, nor should they!  None of us know what goes into everything that we buy and for the most part, we don't care. 

What we do care about is getting what we perceive to be the best value for our resources (money, time, effort, expertise, etc.).  If a company started selling steaks just like we find at our grocery stores for even 20% more, we would abandon them and not listen for one second to their complaints about their costs.

It's incumbent upon all businesses to convince people their goods and services are worth what they charge.  There are no entitlements!

If the issue is about what people are willing to pay for our pens, just consider that most of us will be competing with other hobbyists who consider materials to be their only cost.  Some will even be willing to lose money on materials just to pursue their hobby.  To me this means you have to have something extraordinary to make it profitable.

I'm still trying to figure out how to get from where I am today to something that approaches extraordinary!

John


----------



## SCR0LL3R (Sep 1, 2011)

A hairdresser charges $80-$100+ an hour to cut hair... and people often feel inclined to tip on top of this price. But try to get $25/hour for any woodworking of any sort and these same people will think you are nuts.

People feel they need a 7 Liter, 400 Horsepower, $60,000 pickup to go to the grocery store but look at a $100 pen and think you are nuts.

It takes all kinds i guess.


----------



## Smitty37 (Sep 1, 2011)

*Watch it.....*



SCR0LL3R said:


> A hairdresser charges $80-$100+ an hour to cut hair... and people often feel inclined to tip on top of this price. But try to get $25/hour for any woodworking of any sort and these same people will think you are nuts.
> 
> People feel they need a 7 Liter, 400 Horsepower, $60,000 pickup to go to the grocery store but look at a $100 pen and think you are nuts.
> 
> It takes all kinds i guess.


 Careful there, that is mighty thin ice you are skating on....us pickup truck owners consider our pickup to be an appendage, just like an arm or a leg.  Besides mine only cost $18,500 and only has a 3.7L V6.


----------



## sbell111 (Sep 1, 2011)

Smitty37 said:


> Economics 101....
> 
> I agree except for a minor disagreement about who sets the price.  You are correct that it is NOT the market.  In and of itself the market is simply a place to buy and sell things.
> 
> ...


So basically, you are agreeing with the last two sentences of my previous post.

Unless you are selling at auction, the buyers do not set the price.  The seller always sets the price with an understanding of how the market will react to it.


----------



## glycerine (Sep 1, 2011)

You guys are saying the same thing.  Saying that the seller sets the price according to the "market reaction" is basically the same thing as saying the buyer sets the price.  The "market reaction" is the buyer...
If the seller actually wants to sell their product, then yes, the buyer does set the price, "indirectly".  They "set" the price by either buying the product or not at the currently requested price.  If no-one buys, the seller lowers the price, if too many people are buying, then the seller may raise the price.


----------



## Smitty37 (Sep 1, 2011)

*True*

That's true, there is only a minor disagreement.

We probably had different Economics 101 professors.....although we might have had the same text book.  Economics by Paul A Samuelson...I believe I had the 8th edition....as of 2010 it was up to the 19th.


----------



## sbell111 (Sep 2, 2011)

That is not the book that I taught from, but no doubt the concepts are the same.


----------



## Smitty37 (Sep 2, 2011)

*Hmmm*



sbell111 said:


> That is not the book that I taught from, but no doubt the concepts are the same.


  I thought that was the Bible of Economics 101/102.  It is the most successful economics text book of all times first published in 1948 it's 19th edition came out in 2010 the year after Samuelson died.  That text has sold over 40,000,000 copies and has been published in 40 languages.


----------



## sbell111 (Sep 2, 2011)

Smitty37 said:


> sbell111 said:
> 
> 
> > That is not the book that I taught from, but no doubt the concepts are the same.
> ...



You know a crazy wierd amount about a textbook.

Personally, I have never taken nor taught a 100 level Economics course as those would generally be just an Intro to Econ course that is offered to non-business majors.  Business majors generally jump in at 200 level Macro- and Microeconomics courses.  The pricing theories discussed in this thread would, of course, be taught in a Microeconomics course.


----------



## sbell111 (Sep 2, 2011)

Smitty37 said:


> sbell111 said:
> 
> 
> > That is not the book that I taught from, but no doubt the concepts are the same.
> ...



Just for giggles, I just checked the websites of four local colleges: Vanderbilt, Belmont, MTSU, and UT.  None appear to use the text that you referenced.


----------



## Smitty37 (Sep 2, 2011)

sbell111 said:


> Smitty37 said:
> 
> 
> > sbell111 said:
> ...


 
Actually it was Paul Samuelson that I had the interest in.  I read about his death a year and a half ago and read about his book then.  I just happened to read an economics article on Yahoo last week or the week before that mentioned in passing that the 19th edition of his book was published after he had died.

Macro and micro Economics had not been invented yet when I first took Economics in 1966 and 1967.


----------

