Saturday, April 4, 2009

Econ in Action: Barterer's Dilema, HSN Pricing

A few days ago I was cruising the Etsy forums (much like cruising for chicks, yeah baby) and came across the following:
BirdTrouble says: A customer is saying they cant afford my bag but they really love it. I have it included with a cosmetic pouch for the total of $38. She's asking if she can buy the bag without the pouch.
I barly even included the pouch in that cost of the pouch in the price. Gahhhh I dont know what to do, I don't want to lose out on a customer but I dont wan't to sell myself short. What would you do?
PERFECT econ example! BirdTrouble was kind enough to be my economic explanation guinea pig, so here goes!

BirdTrouble makes her bags when inspiration hits, not when they sell or to fill orders or repeats of identical bags. From the forum thread:
I make when I feel like making. Pouches are easy, bags are fun. It really comes to me when Im walking my stinky dog into the door from a walk and I'm like OH MAN that fabric would look awesome with this, WHERE IS THE PAPER!!!!
This is not a bad thing. It's an artist thing and it brings us happiness and I do it all the time with many creative and some non-creative aspects of my own life. I'm not putting it down in any way.

That being said, it puts her in the fish swimsuit maker category from my past economic example posts (don't worry if you haven't read them). She already made both the bag and the cosmetics pouch. She can never get back the time and materials she spent on them. They are sunk costs. Now, anything she gets for the bag and pouch is better than the bag and pouch just sitting there, and the goal is to get the most money possible in the least amount of time she's willing to wait.

She's priced the set at $38 for both pieces. Her customer is offering her a lower price (I don't know how much it was, let's say $25?) for just the bag. Now BirdTrouble has to ask herself if it's worth $25 now with the possibility of selling the pouch later, or if she'd rather take the risk of holding onto the set for the chance to sell them together for the full $38. It's a game show:
"BirdTrouble, you have already won $25 from the magic Etsy fishing pond. You can keep that $25, or throw it back for a chance to win $38!"

So what did she choose?

Neither. At the advice of some clever forum responders, BirdTrouble offered her customer a layaway plan to buy the set at the full $38 but over time.

In retail stores, layaway plans are usually a terrible idea for the customer. They involve fees and/or interest and customers always end up paying more in the end for the privilege of waiting to pay it. But in Etsyland, we have the power to make our plans more customer-friendly. In this situation, if BirdTrouble makes the full cost truly the $38 in four monthly installments of $9.50, then even though her customer gets to hold on to the extra money and the few cents it may accumulate in a savings account over that time, BirdTrouble is still way better off than she would have been at $25 or if it had taken more than a few weeks for another customer to buy the set at the full $38.

Thing we can all learn from the story and/or Home Shopping Network: TWELVE MONTHLY INSTALLMENTS OF $19.99! are much easier to swallow than $240, particularly in this lovely current economy of ours. Try offering a pricing plan on some of your more expensive items. But if you don't have a collections agency at your disposal, consider not sending the product until it's paid in full. Just a thought.

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