My parents had been running their own tailor shop in the 80's, barely making ends meet, pulling in less than $20K a year.
It wasn't for lack of business, father was a master tailor trained in Italy and capable of elite bespoke craftsmanship. They had as much business as they could handle. The problem was that they were charging what they thought the work was worth rather than what their customers were willing to pay.
At some point, during the Reagan years, my mother had an epiphany and jacked up the prices massively, far beyond what my father thought was remotely reasonable. The result? Even more business, more pressure, more return customers. That put me and my brother through an expensive college.
There's something about high rates that makes customers feel more important, it's a status-thing and it also propels them to take you more seriously even if they have you do low-value stuff.
>> Frew, who apprenticed with a Savile Row tailor, can — all by himself, and almost all by hand — create a pattern, cut fabric and expertly construct a suit that, for about $4,000, perfectly molds to its owner’s body. In a city filled with very rich people, he quickly had all the orders he could handle.
> You don't have to be Wall Street to figure out the bleedingly obvious solution to being a starving artist who has so much work they have to turn work away. Raise the prices. Then raise the prices. Then when you're done with that, raise the prices.
> At some point you'll be too expensive for the typical businessman, which will make you absolutely crack for a certain type of person common in New York, thus defeating all efforts at being less busy. So it goes. I guess you will have to raise prices.
I wonder if it's sustainable though. If you keep raising the prices and people buy what you're selling, and then eventually realize the quality isn't up to par of what they're paying for.
No matter what you think you are selling, you are always selling the buyer's experience. And for some work, framed the right way, high prices improve the experience.
I'd modify this statement to "you're selling the customer a story", but you're right. When trying to sell a customer an expensive wine, you don't say "This is a cherry-chocolate red wine with earthy undertones", you say "This is a 1787 Chateau Margaux, grown on the left bank of the Garonne estuary in the Médoc region, in the département of Gironde."
Nobody will follow that up with "but what does it taste like", they'll say "oh that's very interesting I'll take it", despite the fact that the whole point is the taste.
By the way, there's nothing wrong with this. Experience is HUGE in how you perceive something. Consider your favorite wine from your honeymoon.
Let's say you're at a restaurant on the beach in Greece, the sun is setting and the weather is perfect. There's a light breeze, and you can hear the waves gently breaking on the shore. You take a sip of the wine and it's wonderful, so you buy a bottle and take it home. You rave to your friends and when you finally crack it open, they're not nearly as impressed as you were. It's not an uncommon story, and it's because half of the enjoyment was the perfect day, the perfect weather, the perfect setting.
Remember the "I'm Rich" app on the iPhone years ago? It was just a picture of a spinning diamond. I think it was like $1000 per download? The dude who made it had a bunch of sales before Apple took it down.
People will definitely buy stuff JUST because it's expensive.
> Nordstrom is selling “mud-stained” jeans to the tune of $425. They’re called the “Barracuda Straight Leg Jeans” and come with some sort of fake mud substance caked all over them. (It’s not clear what that substance is.) The knees, pockets and crotch of the jeans appear bear most of the faux brown muck.
This is much like the relic electric guitar market. Fender Custom Shop sells guitars for a premium that look like they've been dragged behind a truck (distressed nitrocellulose finishes, scratches, dings, hardware patina, sanded necks, &c.)
There were mentioned studies in the book "Influence: The Psychology of Persuasion" that mirrored what your parents experienced.
Long story short, a jeweler was trying to move some turquoise and told an assistant to sell them at half price while she was gone. The assistant accidentally doubled the price, but the stones still sold immediately.
Turns out there's a phenomenon where humans automatically associate price to quality. So getting charged more means we think we're getting better quality, regardless of the actual quality
Honestly, you don't even need to specify 'brown', regular diamonds would apply. DeBeers has some awesome marketing, diamonds are one of the least beautiful gemstones.
Beauty depends entirely on the cut. (If you haven't seen diamonds with "old european" cuts - late 19th century, essentially - you should. They are so much more beautiful than the sterile modern cut ones)
"Veblen goods are types of luxury goods for which the quantity demanded increases as the price increases, an apparent contradiction of the law of demand, resulting in an upward-sloping demand curve. Some goods become more desirable because of their high prices."
The suits are expensive, so they must be good. It's also a status signal to others that you can afford such goods. (Edit minor typo).
As the Director of Technology at a non-profit organization, how am I supposed to staff software engineering resources when these pricing practices like these are commonplace in the for-profit world? How am I supposed to make an argument to the board that a single technology staff member, let alone a working team, is 5x-10x more valuable than the rest of the workforce? I'm going to admit it - it's hard to see stuff like this and not be extremely frustrated. Tech is already one of the largest cost centers in an enterprise, and it's proving to be nearly impossible to find any tech staff willing to work for, admittedly, crumbs.
Don't compete on the price then. Compete on something else, like the working conditions.
The author describes how they had to drive 50 miles every day, use the corporate laptop (or install shady software on their own one), not get a response for many days. Basically, their rate (and the total cost) covers not just the work they do, but all the frustration that comes with the work.
Now, if you treat your staff better than that — remove all the hurdles, answer their emails promptly etc. — then there will be many talented people who'd prefer it over a meaningless-but-highly-paid alternative.
> it's hard to see stuff like this and not be extremely frustrated.
I guess you are frustrated because your company doesn't make much money on technology. If the company has a positive ROI on tech, then you wouldn't be frustrated, because more you invest, more you get out. Most companies doesn't need made-to-measure technology solutions.
As a freelance dev I've worked with a ngo where they paid me to get their junior to create an application. Then another. Then later just to help him with some new concept.
I'm not freelance any more (yet) but if you just wanna chat about it, I'd be happy to relay my experience.
My sister works for a non-profit, and we've discussed tech projects there a few times. I think the issue from a business perspective is on the demand side of things. The problem is that the market rate is set by the companies that are in a position to pay it. Everyone else has no say, they're just shut out. You're competing for staff with startups and enterprises that are capturing enormous value.
There's no easy solution, in market terms at least. Maybe you get lucky and catch someone who doesn't need the money and thinks your cause is good enough to put effort towards, but that's not reliable. I wish I had a better answer. Upskilling someone else is potentially viable, depending on what exactly you need. The problem is that things such as static sites and basic sysadmin stuff that are (relatively) easy to skill up in, are also quite cheap in the marketplace for that exact reason. So I'm guessing that's not exactly what you're talking about.
There's quite a bit of effort these days towards upskilling people into more web app developer roles. Lots of bootcamp graduates and a few self taughts floating around. And in my last hiring exercise I found there's quite a large pool (in my area, ymmv) of devs looking for their first real FE/BE job. There's probably some real good value there but the trick is in sifting through the mud. The quality varies wildly, and some of it is shocking. You could get lucky though. I think the go is university graduates, but I hear a lot about grads in the US going straight into high-ish paying jobs so that may be area-specific advice. I was on $45k my first job out, which I thought was fair at the time. But now that I understand the market better and can see just how sub-par a lot of the work out there is, it's obvious that that was a bargain.
The other problem with that is that you're at a big disadvantage when building a team from scratch. A lot of the new devs coming in that will accept lower wages will turn out to be great coders and deliver great value, but a much smaller subset is going to be able to do that on their own with no guidance. That's part of the reason I suggest looking for graduates. I know it's an unpopular opinion here but I think a strong theoretical understanding of software development will help a self-starter more than the equivalent practical knowledge, since without a lot of mentorship they're going to get much more of the practical side from working for you. My first job was straight in the deep end, full responsibility for everything and very little help (one back-end dev who was in the same position with only a tiny bit more experience). I'm super greatful for it, and I think it made me a far better dev than I would have been if I went with a different (bigger) company. Maybe that could be a selling point?
tl;dr if you can't compete with the market then you need an edge that gives you more value than you'd otherwise get. That means people that aren't in it for the money (needle in a haystack, as I'm sure you know, given your position), and people that will rapidly (and successfully) upskill above what the market expects.
When I price out eg contractors, I know roughly what a senior SE should cost. Where I live, that's $150/hour.
If you come in at $75, I don't assume you're a bargain. I assume there's something wrong with you. Either you're not good, or are just starting out, or whatever the case may be.
In this case, just like I bet the tailor, the point isn't paying more for status. The point is that a service should cost X, so someone going way under cost worries the buyer.
University is definitely a prestige good. Most people don’t go into the profession they trained in. Lots of people studied something there are either no jobs in or they never even intended to practice professionally. Most people forget most of every university class they ever took. People care enormously about the prestige of university attended even though what’s covered in an engineering or literature degree at Harvard and Directional State U will have huge overlap. Finally, look at credentialism; people need Master's to get jobs that used to require a. Bachelor’s and a Bachelor’s for ones that used to require a Master’s. The Case Against Education, Bryan Caplan, has much more but education is absolutely a positional good. People don’t just want it. They want to have more than other people do so that in a legible ranking they’re superior.
Conspicuous consumption and its ilk have a very poor status in sociology. Thus far, wealth inequality and displays of it are the only things actually shown, when all societies are considered, to always increase violent crime. Even poverty has no effect except in situations where it is juxtaposed with wealth. There, it irresistibly tends to violence. (Source: 'Nine Crazy Ideas in Science', chapter 1, which was actually about gun ownership rates and violent crime levels but which mentioned the finding about wealth inequality after dealing with the original issue)
I've a friend who has run his own small IT business for a bit over a decade. When I talk to him and he mentions how much he charges, I always tell him it is far too low. He sees it as being easy for him, so he doesn't think he should charge much. I've tried to explain to him that when the plumber comes over, you're not loading that guy down with quantum physics work... he knows how to unclog your drain or run a new water line. That's easy for him. He charges a high amount because his services are valuable. And I, for one, am happy to pay that plumber the high amount. It saves me having to invest far larger amounts in learning and tooling up to do it myself.
I've worked alongside him a few times on projects that his clients had which required coding work alongside the hardware and sysadmin stuff, and each time I've had to badger him into charging double or more than what he wanted to charge. And of course the customers paid for it, because it was still a good deal and I could show them a conservative estimate that said the system would pay for itself in savings in under 2 years. When freelancing, those are my favorite contracts. Where you can show to the customer up-front that you will be saving them money in the long run. It's always much easier to sell them at that point, and I think the amount its going to save is a pretty good proxy for the value of the work.
If his prices are that low he could likely increase by 25% or more and not lose any clients - and even if he did lose some odds are good that they'd be his cheapest and worst ones.
If you double your rates and lose half your customers, congratulations! Now you have the same revenue plus available time to go find more customers fine with the higher rate.
I'm not sure this is totally applicable to say a tailor shop, but I do wish more craftspeople would try charging more money for quality work.
For example say I want some shelves built. If my shelf-builder charges $X that's fine, but what if I would happily pay $2X?
On the one hand, I might be personally miffed to know I'm paying 2X instead of the X someone else is paying. On the other hand, I'd probably be the more satisfied customer if I don't know (or have the discipline to ignore) the price gap, because the shelf-builder is probably going to give extra effort in hope of getting more jobs from the 2X clientele.
It would be interesting to explore what would make your 2X client feel good even if they know they are paying double. And would that scale to 4X or 40X clients?
There must also be the satisfaction derived from keeping a quality craftsperson in business, in face of the cheap-shot mass manufacture that seems to happen everywhere.
But also, charge accordingly, if you don't have to post your prices (as your parents probably did). A lawyer is likely willing to pay a lot more for the same website than a tailor shop, and I'll gladly take both of their money.
Yes, "charge accordingly" means different things to different customers.
My parents never advertised their tailor shop, it was all "word-of-mouth" business. After the pricing jack-up, every customer got charged what my mother felt they could pay (with a very loose regard for consistency and some allowance for negotiation).
I used to think that was sketchy. It wasn't until muchlater that I realized that B2B enterprise sales people do that stuff ALL THE TIME even with their onerous kpi's, forecasting and fiscal quarter expectations!
> I used to think that was sketchy. It wasn't until much later that I realized that B2B enterprise sales people do that stuff ALL THE TIME even with their onerous kpi's, forecasting and fiscal quarter expectations!
Depending on how it's done, it still is, and enterprise salesmen doing it doesn't make it less so. As a customer, I don't necessarily seek absolute minimum price, but I want it to be a fair price that I can agree on voluntarily - that means, I don't want to be subject of a bunch of manipulative sales techniques during pricing negotiations. Moreover, individual pricing used at scale makes it impossible to compare prices, or even develop a sense of what price is fair price. I actively prefer buying from vendors who list prices publicly, so by going the individual price route, you might be losing business of me and people like me.
I think he means prices where the webpage just says "contact us for a consultation". Here they'd probably google your company and see how much they can get away with charging you.
I mean that if a webpage just says "contact us for a consultation", I'll first try to find a company that shows their prices publicly - and if I find such, I'll stick to them. I hate "contact us for a consultation".
As for dynamic pricing on-line, AFAIK only airlines do that to significant extent so far. Once other people start, I might start opening in different browsers or not keeping cookies or whatever.
> every customer got charged what my mother felt they could pay
I suspect with advertising profiles and amazon purchase histories (and possibly amazon visa card applications requiring household income)... this wonderful "service" previously only available to the rich will be democratized for everyone!
Offering coupons through the mail, online ad codes etc. You are reaching out to different demos using different marketing techniques and offering or not offering discounts accordingly.
Where? This anecdote is oft repeated with little evidence. The only I example I remember is some place getting caught doing it and having to stop because of the bad press.
"As shown in Figure 11, Travelocity alters hotel search results for users who browse from iOS devices." (In particular, alters the prices shown to the user).
I was shopping for flights last Christmas and got price X on every site. I started checking out and the price became X+50. I got angry and left and came back later to find the price, on all sites, was X+80. Since I had no choice but to travel I paid X+80. Then for kicks and self torture I checked the price on my Android phone and it was still around X.
Jacking up prices when revisiting the site from the same browser is a separate thing. It’s there to encourage you to buy ASAP as prices appear to be increasing rapidly.
One day randomly in the 80s IIRC, Rolex tripled their prices, and they haven't lowered them since. The same watch cost three times as much at retail one day than it did the day prior.
It wasn't for lack of business, father was a master tailor trained in Italy and capable of elite bespoke craftsmanship. They had as much business as they could handle. The problem was that they were charging what they thought the work was worth rather than what their customers were willing to pay.
At some point, during the Reagan years, my mother had an epiphany and jacked up the prices massively, far beyond what my father thought was remotely reasonable. The result? Even more business, more pressure, more return customers. That put me and my brother through an expensive college.
There's something about high rates that makes customers feel more important, it's a status-thing and it also propels them to take you more seriously even if they have you do low-value stuff.