Tuesday, October 13, 2015

Why Raising Prices too much in the Nursery Business in GOOD TIMES will create BAD TIMES later

Drunken sailor alert.

When business is poor in the nursery trade, many nurseries get too aggressive reducing prices and therefore leave money on the table.  I warn of that.  This other than a full liquidation.  Pricing lower doesn't increase demand, much.  People buy what they need and if they need it they will pay a fair price.  You do not create significant incremental demand with a lower price. 

On the other hand, pricing too HIGH in good times has an effect that many don't grasp.  Nurseries have good customers, people who have bought from them for years and who use them as core suppliers.  When a nursery gets too far out of the center of the price spectrum as many do in these good days the net result is they become to existing customers an unreliable supplier.  I am not talking about brand new customers, yes you can gouge them a few times but at some point they will walk away.

What happens too often in these markets is long time customers drift away, cease to call, find other suppliers.  Not always cheaper either.  Sometimes these suppliers are just more consistent.  Predictable.  Quality the same, but without the drama.

Sure you are selling everything you can dig or grow, the question is, when the market turns as it always will, can you get those burned over customers back?  Will your desire to capture an additional ten or twenty dollars per tree from your existing customer base require you to spend much more money you won't have then to try to woo them back later? 

It's a false economy (unless you are intent at going out of business) to raise prices too quickly or too radically.  There is a perception that the marketplace has when a radical increase in price is made, it signals desperation or incompetence.  We see that too much and it's causing upheaval.

So where is the right price point, if you were doing your job well up till now you will be slightly below the averaged up price of your high priced competitors and slightly above the low priced ones.  And you will have a "Deal" for the volume buyer.  A too high price Can cause you to MISS business and burn customers you cultivated for a long time.  Right pricing is an art.. learn it.  It starts with throwing out the high price outliers and the bargain basement sellers.  Then start analyzing the middles.  Find the price that will work.

The longest operating nurseries profitable in the USA are that way because they have been consistent and at the right price for a long time. They didn't have to liquidate when things got tough, they didn't have to fire sale, they simply kept their price structure within the range of sanity for decades.  Always just on one margin or the other.  Never a price leader up or down.  I won't name them here, but they are the ones who survived and prospered in the hard times and cultivate new business in the good times that will stay with them in the days to come.


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