Price It Like Picasso
Remember we said we think eBay has ‘treasure hunters’ and ‘bargain hunters’? And you want to appeal to the treasure hunters, right? Well, when it comes to pricing your items, there is a huge concept that really governs this whole idea.
Economists call it rival versus non-rival goods. It sounds fancy, but it’s pretty simple really.
A rival good is one that people have to fight over if they want it because there is a limited supply. (A rivalry occurs). The Hope Diamond. 12 slices of pizza sitting in front of a hungry football team. 4 Limited Edition copies of a cute dress designed by Micah Caitlin. People fight! Prices escalate. Winners win, loosers lose. People immediately recognize that scarcity will create competition for the item(s).
A non-rival good is one that has infinite supply. Our digitally downloaded patterns. Itunes songs. Broadcast TV. (Any digital product). There is no need to rush, there is enough for everyone because there is an endless supply. There is no competition. If you want it, you buy it, and there are still an infinite number of ‘copies’ available for the next person.
Mass manufacturing has blurred the lines between these two ideas, right? There is a finite number of iphones, but they’ve made so many, they can act like they are a non-rival good when they decide on pricing. And fixed prices are appropriate for non-rival goods – because there is enough for everyone – there is no need to fight.
But occassionally this system of ‘non-rival – fixed pricing’ breaks-down, and we realize this when a product is so popular it out-paces supply. When Apple releases a cool new product and prices shoot up because they only made 3 million, and lots more people want one. What happens? You see them on Ebay for crazy prices because some smart marketer has identified the fact that a shortage comes an opportunity to get higher prices. This happens with AG Dolls too. This is the market acknowledging that these items aren’t really a non-rival good.
As a seller of rival goods, the best selling strategy is an auction format, (if you have a good product, and if you can attract a crowd). Why? Because you acknowledge that there are more people that want the item than there are items, and the only fair way to settle it is through an auction.
The best selling strategy for a non-rival good is a fixed price. Because there is no concern in anyone’s mind about scarcity. You just set a reasonable price, and let the market decide about the popularity.
If you have a rival good, and your selling strategy is to act like it’s a non-rival good, you’re making a big mistake, because you’re failing to use scarcity when you legitimately should. Think about this – are you pricing your items at the same level as American Girl? They have an almost infinite supply – you only have a few. Shouldn’t you try to sell yours for more to take advantage of this scarcity? If you price it the same as the Chinese Imports, you’re making a mistake.
So what’s the application to us as sellers of hand-made items?
Picasso was a seller of hand-made items. He was a busy guy and his work included 1,885 paintings; 1,228 sculptures; 2,880 ceramics, roughly 12,000 drawings, many thousands of prints, and numerous tapestries and rugs. Picasso was well known for keeping his artwork ‘off’ the market as much as possible to ensure there was a sense of scarcity – and he used auctions (done through his network of fans in places like New York) to help establish his premium pricing.
We are selling rival goods too, like Picasso. We aren’t Apple. We aren’t AG. We aren’t mass manufacturers. We are more like Picasso, (maybe not in terms of skill, but at least in terms of what we’re doing). And if we price our items (our rival items) at the same price point as mass manufactured items we are making a huge mistake. Imagine Picasso selling his items for the same price as a poster of his items you could buy at the mall. That would have been crazy. His strategy makes a lot of sense when you’ve got a rival good, and you’ve got an auction format opportunity. (ala Ebay).
Bottomline, if you can make it well, and attract a following, price it like Picasso – use auctions to help create a sense of rivalry and competition, then use that to establish your premium prices. Manage the scarcity. Don’t lie about anything – you don’t have to – just be honest. You can only make a limited number of cute little outfits in your home – highlight that fact. You’re not a chinese factory. Make people realize it – and get paid what you’re worth!
Price it like Picasso!