Forums: Discussions for entrepreneurs and small business.

I would like to get some advice on pricing our new product. 

Our business is called Friends FIR Life and we have invented a Far InfraRed (FIR) radiant heat therapy device for pets.  The first of it`s kind designed for home use, our product is an effective alternative to drugs for arthritis, hip dysplasia, skin irritations, hot spots, dermatitis, anxiety, etc.  You can check out our website at www.friendsfirlife.com for more info and to see what it looks like.

So my question re. pricing:  We are working on defining our pricing structure for retail, wholesale, and distributors and would love some advice.

Our cost per unit from our manufacturer is $300 while we amortize up-front costs over the first 300 units, but ultimately will average to $200 per unit .  We are a home based business with no employees other than my husband and myself and since our manufacturer drop ships for us, we don`t have a lot of overhead for warehousing, etc.  We plan to both do retail sales through our website and shows, as well as wholesale through trade shows, direct contact with retailers, though vets, kennels, etc.

After doing some research, we have come up with the following structure:

Wholesale (3 unit minimum):  $390
Distributor (20 unit minimum): $300
Suggested Retail:  $550
Our Website - 10% off: $495

This allows for a 40% mark-up from wholesale to retail for smaller stores that just want a few units at a time, and an additional 30% for large retailers or distributors who might, for example, sell at wholesale to kennels who would then sell to their customers at retail.

Does this pricing structure make sense?  Any comments or suggestions would be much appreciated.

Also, since we are just going to market with a brand new product, we are considering doing some introductory pricing.  Can this get us into trouble with then raising prices to the above structure (or whatever we come up with) after, say, 6 months?

Thanks in advance to all for any advice you can give us.

Lisa




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Lisa Tarver
Fauna Sauna
Natural Heat for Your Pet`s Health
www.faunasauna.com

Lisa,

I am not an expert in this area but I know that a lot of distributors and resellers will not appreciate the competition from you company.  You may want to examen selling from you website at a discounted price.  This could undermine your retail price in stores.  You want to show a united front when it comes to pricing a keep yours close or similar to that of your retailers. 

Again I am not an expert but this is just some knowledge that has been passed on to me from veterans in the business.  For example, the president of www.booninc.com .

Good luck!

I would have to agree with Letutor
Your web price will have to the highest price.

Rather than seeing this as a problem ... have you thought of selling only on the web for a year?
Your idea is new, and needs a lot of explaining. Sitting on a shelf may not be  effective when compared to a small write-up in a pet magazine with your web site in the article. I think the pet industry would eat-up a press release from you guys.  At $550 each you would make up your start-up costs faster. After demand starts to grow distributors will start coming to you.  Then you could start moving the product with some real volume.

As for the other questions, I would shy away from introductory pricing. I don`t think the end user is that price sensitive once we get into this range.  I think what would close the deal with a retailer , is a buy- back offer. The retailer will be afraid that they will be stuck with this product. If you can calm that fear, they will be less hesitant.

Degrees,

Good advice.

Thanks, everyone for the great advice.  We had already been considering  the question of whether or not having a lower online price as compared to retail is viable, so the input is very much appreciated.

As for only doing direct web sales at first, we already have quite a few contacts and people who are interested in either carrying our product in their store (small "boutique" pet stores) or on working in a particular sector in the animal care industry (for example a past board member of the American Kennel Association who wants to focus on selling to kennels specifically).  These have come about just through talking to people as we were developing the product, as well as through my husbands work of selling Far Infrared saunas for people.

Since, as you say Degrees, our product is a new concept and needs a lot of explaining, we feel that having people in the industry - vets, kennels, breeders, trainers, etc. - using and/or selling our product, will also help the general public`s "trust factor".

As for media coverage, definitely part of the plan!  We are working on the press release this week.

Would still be great to hear some feedback on the pricing structure, specifically if 40 % mark-up for the retailer is adequate.

Thanks!


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Lisa Tarver
Fauna Sauna
Natural Heat for Your Pet`s Health
www.faunasauna.com

Hi Lisa,

I have to disagree with everyone else so far.  The customers themselves determine what they are willing to pay.  A good question to ask yourself would be how many more will I sell if I lower the price? I mean if you can move a lot more product by lowering the price while still making a nice profit, then by all means do it.  I do not agree with the premise that you may offend other retailers if you price is to low.  Who cares what they think. Do you think they would really care if they lowered the price and it had a negative effect on you? Heck not they would not care, especially if they were making a lot more money.  It is very dangerous territory you are getting into if you start worrying about your competitions feelings.  You have to sell the product at the price your customers are willing to pay and at a price where you still make a profit. That is not to say that if you are way higher than your competition , that you shouldn`t adjust it a little.  I am sure you have heard this before but it is worth repeating. In business you have to constantly adapt and adjust or you get passed by. Why should you sit there and not make money and watch your business fail?  Because your competition does not want you to? That is not the entrepreneural spirit. I don`t mean to sound rude, I just am not a fan of spending my day worrying whether or not I am making everyone happy. You do what you feel is best for your business. That is the best way to go. After all, it is YOUR business.

Thanks,

Cole

 

Hi Cole

You do realize those "other retailers" are her customers. All the distributers, and retailers of the product are her customers. She wants to avoid competing with them.

Lisa is the manufacture, When she sells direct on the web she`s competing against herself.

Jeff,

Thanks for pointing that out. Apparently I did not read that right. oops!  One thing I would say is that I do purchase from a lot or manufacturers who also have their own website and that does not bother me at all. I am still able to sell their items at a good price. 

Thanks

Somewhere in this forum I have discussed this already… but this discussion seems to be begging me to chime in again. I sell about 60% (or so) of my products at wholesale as well as retail (online). The other 40% I am strictly the retailer.

1. As a retailer only, I am often required to follow the guidelines for pricing presented by my wholesaler. For example, the wholesaler will state I can resell so long as I do not sell the item at a price below “$X” amount. The wholesaler also sells these items at retail. Typically their retail price is higher than my “below $X amount.” This helps hold a market value (for the wholeseller).

2. As a wholesaler and retailer I place a fair market value on my retail price (if not slightly inflated) because it is much less work for me to sell 20 of one item, with slightly less profit, than 20 items, at retail with a great return. If I can sell 20 items to one person instead of 20 items to 20 people, I am happy to make a few bucks less. My packaging costs are lower and my product turn over is faster. Time required for putting the order together is also less. If a product sits in my warehouse, I am loosing money (storage costs even if I own the building).

So, it comes down to how you want to run your relationship between you and a reseller. I would rather become a large warehouse selling wholesale than a smaller warehouse selling retail. When all the math is done, the bills have to be paid, and the left over is shared between me and my business. Yes the business gets a cut, because the business needs to grow and accumulate “seed” money for the next shipment (container) of product.

Pricing is difficult. And I do agree with Cole in a way. Other sellers will sell for less if possible. They may have less overhead. But they also don`t want to compete with you… but really, their market is not yours. If it were, you would be direct competitors. Competition can be death, unless you are the manufacturer.

If you are the manufacturer, you are like the Great White Shark (sorry Discovery Channel’s, Shark Week has been playing). Everyone must come to you. Until someone else starts manufacturing replicas, of your product (there are some legal things in that sentence). Anyway, when you are King of all fish, you want to make a great environment for the little fish to thrive. Sometimes that means creating pricing standards.

Look at Wal-Mart. They have become King because of great price structures. In the beginning they were a small fish trying to figure out how to sell products for less. They accomplish this by fiercely negotiating high volume sales for low purchasing prices. I can buy the same toothpaste at Safeway (grocery store). But Wal-Mart and Safeway get the toothpaste from the same place. Because of volume, Wal-Mart gets buying power to push the toothpaste maker into agreeing to sell for less than they do to Safeway. Of course we are not discussing generic brands.

Does this make sense to you? The internet is an equalizer that allows the toothpaste company to sell direct (if the ordering and shipping structure is present). However, the toothpaste company can turn product faster by sending it to Wal-Mart. So they may be willing to sell to Wal-Mart at a lower cost because of faster turnover.

So it’s all up to you. And you can change at anytime if you are the manufacture. But don`t undercut your market by selling low cost at retail. Wholesale buyers may be your bread and butter... um big fish.


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Vincent Wilcox (a.k.a. KRAKR)
Drummer
My band: Letters Make Words

Thanks to everyone for all the great input.  Haven`t been here for a couple of days due to the flu, but now back up and running (literally). 

Vincent, I like the Great White Shark analogy - while we don`t technically do our own manufacturing, it is our invention, our product, and the manufacturer produces it exlusively for us.  Sort of best of both worlds, since we don`t have to worry about manufacturing process, warehouse space, etc.  We have already filed patent application, so when some one else tries to copy us, we will be ready.  Of course no one else`s product will ever be as good - we are setting the industry standard!  And I like the idea of setting pricing guidelines for retailers - will definitely have to work that in.

We do plan to do both retail and wholesale for now, but we will see how it goes and not get locked in to one or the other exclusively at this point. 

Thanks again to all - what a great community this is!

Lisa

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Lisa Tarver
Fauna Sauna
Natural Heat for Your Pet`s Health
www.faunasauna.com