Marketing and Pricing Part 2

When building a pricing program, I found it advantageous to create three tiers of prices. That way I could achieve better margins where possible. 

For example, a retail store would normally buy stock from a wholesaler and a wholesaler would normally buy from a manufacturer. If a manufacturer was buying from the outside, they would want prices that would allow them to turn it around with prices matching their own. 

I would overlay the three tiers on top of three qualities of diamond, and two qualities of colored stones. Finding the level at which a potential new client was comfortable was a true exercise in listening and observing. 

Why offer your lowest possible price at the very outset? Sitting down with a new customer the conversation inevitably turns to metal types and stone qualities. This provides the starting point for you to set your program to provide relevant quotes. 

Normally a client would pick a few pieces and ask for prices. At the same time, they would ask for the gold weight, and the stone weights. Then they would pull out their calculators and work out what they think the piece should cost. That indicates what they must charge their customer and whether it will be profitable for them. If they were satisfied with your price all was well. 

On the first quote you can shoot for your middle price. If there is clear resistance to the price you can lower your quote to the next level down. If there is no resistance you can increase on the next quote to see if their calculations are consistent. If you strike a nerve the customer would ask for a full breakdown. The breakdown provided would include gold weight, gold price and gold loss, stone prices and finally the cost of various types of labor – setting finishing etc. Very much about your pricing hinges on the knowledge of the buyer. Their weaknesses can be spotted and noted during this conversation. 

More than once, when doing business with a very switched-on pro, I would have to fall back on the line that would usually bring on a chuckle. “Come on, will you leave me someplace to profit? You know, I have to stay in business too”! 

There is more wiggle room on prices with more complex pieces. Designs that require multiple castings and joining and designs with multiple settings require more labor. This was the cost component I found that was least understood buy my buyers. The next least understood was the cost of colored stones. 

The buyers from USA calculated their cost of the metal component very carefully because their crude pick of design and the fact that they used inferior quality stones meant that the metal was the largest component of the price. Buyers from Europe had a better understanding of design and were not worried about choosing heavier pieces with more complexity. Asian buyers – the Japanese for example, were happy to pay a good price but usually tested your first deliveries very carefully to see that you delivered what you promised - their quality standards were the most stringent. 

You must know what your real raw costs are. Then you can build a profit into your pricing program, and you are able to present quotes to your clients which are consistently profitable. High margins can cover all kinds of slippage but if you want to be competitive your margins must be reasonable. 

After an order comes out of the factory you will want to set up a top-notch Quality Control, invoicing and packaging system that first checks there are no mistakes. Anyone in the business of manufacturing jewelry can tell you that, just by the nature of the methods of production, each one of a batch of twenty of the same design pieces will not exactly match each other or the sample. There are small differences in the stone weights and the metal weights, so you are working with averages and within tolerances. You want to put the brakes on anything that will blow your averages out or anything that damages your reputation. 

You compare, item by item, your finished production cost with the price you quoted the buyer. Averages are the norm when considering your profitability. Some items in the same order will be more profitable and some less profitable.