Lowering wholesale prices

From my mail:

One of my sales reps is trying to get me to reduce my wholesale pricing.

I am concerned that the details I have added to the line (engraved buttons, quality fabric, etc.) are being overlooked by the buyers. One feature of the line is “selling itself” according to a different rep but there seems to be a barrier between buyers who want the line but who won’t pay more than the $19.99 mental block price.

I don’t want to sacrifice quality and detail for more sales, however, I also don’t want to shoot myself in the foot by sticking to firmly to my guns.

First, I must commend you for your willingness to be open minded about the problem. This is an intriguing one, it’s a question I’ve gotten many times over the past 10 years. Accordingly, my responses will be based on past experience because I’ve seen the situation from several different sides. By the way, none of my responses should be interpreted as directed at this DE personally (unless directly stated) because I don’t know her beyond this email and I’ve never seen her products. If anything, my response should be interpreted as a generic response to anyone who may be grappling with a similar issue.

I can summarize my responses with:

  • There’s a limit to what people will pay for a toaster.
  • Comparatively speaking, it’s a fallacy that increased quality requires an increase in costs.
  • There is a disconnect between how you and your customers perceive value.

There’s a limit to what people will pay for a toaster.
Back when I started working with DE companies, I ran into this lady named Geraldine. She was a real piece of work and had some emotional baggage. She had this thing about quality and imagined that wealthy (old money) people would pay $300 for play clothes for toddlers. She’d always wanted to be wealthy and had recently gotten lucky enough to marry an attorney (who was not so wealthy by anyone’s estimation other than hers, having come from reduced circumstances) but was trying to jump start her social entry into exclusive circles by making exclusive products -using his money to bankroll her venture of course. She put on a lot of airs. Now, I’ve met truly wealthy people and the most striking thing about them is their humility and noblesse oblige; she obviously had never known truly wealthy people and didn’t know they can be very down to earth and very nice people. Second, there was no way old moneyed people were going to pay $300 for a toddler’s pinafore with lined ruffles on the sleeves. Come on! While there’s always an exception, most rich people got rich because they didn’t blow their money. Anyway, Geraldine is why I say there’s a limit to what people would pay for a toaster and by this I mean that there’s a limit of what the market will bear based on anticipated life span and features of a product. A kid will grow out of anything quickly and while I’m not suggesting parents won’t invest in heirloom quality products for specific events (say a wedding, first communion, portraits, baptism etc), they’re not going to spend that kind of money on rough and tumble play clothes.

Now, I’m not suggesting the DE who emailed the questions to me is arrogant like Geraldine. No way. But, I am asking -any of you- whether the features that one builds into their products are features that the customer will perceive as value. It may be the customer agrees these features have value but that said features in this particular product are something the customer doesn’t care to pay for. Some DEs have the idea that people will pay for quality regardless of the item’s intended lifespan or utility but it’s not true. For example, consider a cap and gown used for a high school graduation. This product is a one shot deal. Nobody is going to pay for a cap and gown that’s been made out of imported silks, has had all of the pleating hand tucked with silk finished seams through out. People assign value to an item in accordance with its anticipated utility and lifespan.

The fallacy that increased quality requires an increase in costs.
This is something that goes right to the heart of lean manufacturing. In our (“western”) culture, there’s always the presumption that increased quality requires increased cost. In an absolute sense, increased quality can mean increased costs but not in a comparative sense. For example, if you look at the example provided by Toyota, it’s been definitively proven that increased quality does not mean a required increase of expenditure. Toyota produced the Lexus to compete with BMW and Mercedes. The Lexus was comparable in quality (if not better) but Lexus were half the price of the BMW/Mercedes. This is what I mean by quality not costing more in a comparative sense. You have to compare apples to apples. Quality costs less, not more. It’s been proven time and time again that producing quality consistently means doing things the right way the first time.

The other problem with this fallacy that I see a lot with DEs is the presumption that the more labor is involved, the higher the quality. Again, you have to look at this in a comparative rather than absolute sense. For example, consider the results of the nameless tutorial series, or even the zipper tutorials. The way I illustrated was a lot less labor and the results were superior. Less is more! Less work doing the same operation means you’re smarter and more streamlined, it does not mean lower quality. And again, consider the comparatives. Sure, silk seams are undoubtedly of higher quality but it’s overkill to put those on a cap and gown that’ll only be worn once.

There is a disconnect between how you and your customers perceive value.
This can be related to product inputs and labor but let’s limit this discussion to inputs which in this case would be the engraved buttons…are these buttons engraved with your logo? If so, is your brand established with perceived cachet in your market? If your brand is not established with perceived cachet, the buyers may resent that the increased costs of those buttons are artificially requiring them to subsidize the establishment of your image in the market. I mean, if you’d previously been producing products at the 19.95 ceiling, they may feel that they are having to pay more now so that you have a buffer to subsidize the establishment of your brand in the market. On the other hand, if your brand was already established with perceived cachet, I could see that the buyers would like the engraved buttons because it’d be a way that your products could be discerned from others in the marketplace at a glance.

The other thing that few of us care to admit to ourselves is that engraved buttons can be overkill. I’m saying this based on a past experience I had with another customer. In that DE’s case, the buttons were superfluous. It was a new product line with a lot of problems (the expensive buttons being just one of many). The buyers saw it as kind of arrogant because if the DE had had both oars in the water with a product that merited the wonderful buttons, it would have been okay. As it was, using the engraved buttons on this DEs products could be compared to using silken cords on the necks of burlap bags; the product didn’t warrant such expensive inputs. Buyers can interpret that as something that you’re doing for yourself but it’s not adding value to the product so they resent having to pay for it. Using custom made buttons do not constitute a value to the customer and so, they’re not willing to pay for it.

Now, I do think there is great value in branding your product line with logos if you can. I’m not saying you shouldn’t but your products have to be comparable to other products in the marketplace, particularly in price. The buttons (or more often zipper pulls) do not create value themselves until your line has established cachet. Therefore, you’re going to have to differentiate yourself in other ways by creating value in ways that your customers agree with.

Another thing. A lot of sales reps have been known to pressure DEs into lowering their prices because it makes the product line easier to move and I can’t know the truth of this situation. In this case, you’ve said your other sales rep says that your products have a feature that sells itself so what’s the truth between the two reps? Still, going back to the first concept I mentioned, it could be that there is a perceived price limit of “toasters” in your market of 19.95.

Also, reps are known to have their own less than ethical reasons which you can’t always know in advance. For example, I knew of one rep who strenuously objected to anything a DE (a client we shared in common) would do that might increase her costs. She objected to an idea I had for an innovative hang tag that would have been appropriate for the product line (the line was called “Garden Kids” and I suggested to the rep that the DE should use seed packets with a custom sticker on them as a hang tag). The sales rep didn’t want me to tell the DE of my hang tag idea saying it’d increase the costs but I found out later that the sales rep went to the DE and made that suggestion herself, taking credit for my idea :)

[post amended]
This DE reports that she has always used engraved buttons from the beginning. Accordingly, I’d recommend that she continue to do so. I feel that doing otherwise would be too risky. We will be looking at her processes to analyze opportunities for cost reduction. I’ll keep you posted as I am able.

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  1. christy fisher says:

    I agree with you on all points.
    My question is how many reps does this DE have (only those 2? or more?), what territories do the reps cover, and is it possible that the product is being carried by the wrong rep, or that the territory covered by that rep is not appropriate for the product?
    For instance: I do handloomed sweaters. My rep in Minnesota can sell the heck out of a $125. wholesale sweater..but I would be nuts to expect a rep in SoCal or Florida to do the same volume. I also have a few reps who are “gift” oriented. They carry my jewelry line only (lower price points). The clothing price points are too high for their territory.
    ..So it is possible that the DE is off in the choice of that particular rep ?

    I also agree about the buttons.
    Now if YOU are engraving the buttons and selling the item as an art piece, then you could probably get $100 wholesale for a top. But if the buttons are strictly a branding thing and you are unknown, then the customer can perceive that as an unwarranted ego-trip.
    You can find quality fabric for 50 cents a yard.. and you can find junk for $30 a yard. Quality is quality..it is not price related.

    I am sorry to say that I think a lot of this push for “luxury market” is a lot of PR hype..the “premium” denim is the same ole stuff that’s been around for years..some is more beat-up than others..oh, excuse me- “finished and washed”..”premium” cotton T shirts..a joke..
    (now I am seeing hype about a NEW 50/50 T shirt.. 50% cotton..50% polyester)- hey kids.. that’s the cheap stuff being sold as “luxury” goods.
    So, you have to be careful if your marketing spin is “luxury/premium/or whatever voodoo buzzword”..

    $19.99 wholesale sounds inexpensive for just about anything, except T-shirts and underwear.
    I’d take a long hard look at the rep and the territory..as well as what you are using as a marketling ploy..

    Kathleen, you are so right on.

  2. christy fisher says:

    Okay..I’ll probably get dinged for posting 2 in a row (with a bit of ranting)..but another thing to look at with the “complaining” rep it what other lines does she/he carry?
    If the rep is carrying inexpensive import lines, then yours may look really out of whack pricewise by comparison which could be killing sales.

  3. Dave says:

    Wholesale sales reps in the clothing business are a neccesary evil. You obviously need them to get your product in front of buyers in all territories, but finding reps for a new line or brand can be challenging. Many reps want immediate action and are unwilling to do the “groundwork” required to give the brand exposure and ultimately generate sales activity. These “grassroots” reps are rare, but they do exist.
    Funny, but once a brand is established or has some degree of recognition, the reps are not so hard to find to represent you.
    Sales reps will also go out of their way to concoct excuses when a product doesn’t move like the owners would like or expect.
    In many instances, the owner of the line will look after sales in the “home” territory, and have good results. They tend to use their success to measure against the territories. Often, reps lack the passion and dedication the owners do in their sales efforts, and this where the excuses start to fly.

  4. mamasmina says:

    I remember when Tahari suits were known for their fabulous unusual buttons (not proprietary or logo). When Tahari reappared a few years ago, the wonderful buttons were gone. I saved them to use on other things.

    Now that Tahari has moved out of the boutiques and into the department stores, the fancy buttons wouldn’t be feasible with the increased volume.

  5. Mike C says:

    A sales rep is motivated to maximize their profits/hour. If they are suggesting that you lower your price, its because they believe that they will make more if you do so.

    That’s not necessarily the same thing as you making more though – since lower prices may take too much margin and leave you with a lot of volume and very little to show for it.

    If a rep suggests that lowering the price would generate more sales, its fair to ask them “how much more?” With that information, a little business acumen and a healthy dose of common sense, you should be able to figure out whether its worth considering a price change.

  6. MW says:

    the “premium” denim is the same ole stuff that’s been around for years

    I would have to staunchly disagree with that. For some people, jeans are jeans. But that doesn’t mean that all jeans are equal. There are people who see no added value in any features a “premium” product might carry, because they are only interested in utility (i.e. they wear jeans when they do their gardening). And there are others who are more into the fit, appeal, look and the “dressing up” aspect of premium denim.

    I have a pair of Levi’s 515 that retail in the $40 range but can easily be purchased for twenty-something dollars. I have a pair of Old Navy jeans, probably just a tad under $30 retail, and I have a pair of Blue Cult that retail for about $150 or so. These are just three examples.

    There is absolutely no comparison. All jeans are low rise boot cut with 1-2% lycra and they all have a similar color denim with a worn wash. All technically in the same size, so one could argue they should be very similar. There is NO comparison. First the Blue Cult jeans use a higher quality denim. Secondly, they garment wash, but they also apply the “distressing” by hand. Lastly, the fit is vastly different as the Old Navy and Levi jeans are made to fit the “typical american” bodytype, thus I get a much better fit out of the premium denim, which is targeted towards the contemporary market.

    Coincidentally, I purchased the Levi’s 515 in a darker blue and couldn’t wear them. The distressing on the legs was applied in such a way that it had the horrible look of someone trying to be trendy but getting it all wrong. They were distressed too far down the leg (thus didn’t elongate the leg properly and makes the wearer look shorter), they were distressed too heavily (thus having that stark dark/light contrast, making the leg look wider). And lastly, the more “mass market” jeans have a more “mass market” fit and thus are not as flattering.

    Now there are times when a consumer truly does not notice a difference between product A and B. And there are many times where any difference is perceived as nominal and therefore not worth the increase in cost. But there ARE differences.

    I am sure you would get offended if someone came along and said they could get a nice sweater for $50 and there was no reason to pay over $100-200 for a handloomed sweater and yet you would find it fitting to defend the quality of your products, and therefore your price point. Yet you so easily claim that other products have no such difference and is just a bunch of marketing hype as though you operate in either the only, or one of the few, niches in which true value exists.

    If I were willing to put my money on it I would bet that these are items which you do not purchase, you’re not a consumer of, thus you feel so free to scoff at another industry’s product line and marketing efforts while you charge a premium price for items you make with “fifty cent” fabric.

  7. christy fisher says:

    “Yet you so easily claim that other products have no such difference and is just a bunch of marketing hype as though you operate in either the only, or one of the few, niches in which true value exists. ”
    Wow, Miracle.. that really seems like a personal attack..
    let me clarify myself here:

    By premium denim.. I am talking about the FABRIC itself being promoted as premium. The denims you mentioned are all the same.. until you get to the finishing processes.
    (The washing, distressing, etc.)
    And as you stated above, the DENIM is made of the same fibers, the same weaves…the same quality.
    My beef is with the promotion of “premium” as somehow being a “better quality” fabric- which it isn’t. It is often the SAME fabric used in those good ole levis as in those $200. “premiums”.
    I think the way you and I see the word “premium” being used is different.
    I see “premium” being touted in the fabric itself (which is what I stated).. You see “premium” as describing the cut, design, distressing techniques, etc.. (and some brands that say “premium in their ads are using NO distressing techniques in their newer lines)
    This is where we differ. “Premium” is a misnomer.
    The FABRIC is not better. It is “the same ole stuff”..just cut differently and beaten up a “special way” ..which does not necessarily mean “better” (I know lots of people who cannot wear many of those specialized contemporary brand jeans because the cut is uncomfortable on them)
    WE are different..and I also do not agree with you about the sweater thing..
    I DO feel there are some very good sweaters out there for $50… and there are some pretty crummy ones for hundreds. Hand loomed is not touted as “better” or “premium”.. it is stated as a technique. The “better” or “premium” would come in at the fabrication point i.e. I do feel that a cashmere sweater (whether handloomed or mass produced) is “premium” or “better” quality fabrication compared to an acrylic one. (and I would not get offended either way.. either a customer likes what is offered or not..)
    My point is at the “emperor has new clothes” promotion of many contemporary lines. I see some fabrications being pr’d as “new” “better” and “premium” (because they have embroidery, rips, bleach or rhinestones on them)…when in actuality..the fabrics come off the same rolls frome the same mills and some of the basic brands that have been around for years. the fabric itself is not “premium”.
    Now, I have also seen some “luxury” weaves that incorporate gold and silver thread into the weave. I also have seen some denim that is a mix of linen and cotton or silk and cotton. These could be considered as a more “premium” or “luxury” weave compared to a basic cotton or a cotton/lycra.

  8. christy fisher says:

    Miracle.. I cannot find contact information for you anywhere on this site. I would like to discuss this further with you “off site”.
    Please advise.
    Thank you.

  9. Christy, I totally disagree with you on the premium T-shirt thing.

    Expensive micromodal is completely unrelated to cheap T-shirt cotton:
    * softer
    * more often on-grain (that cheap junk is almost always torqued)
    * pills less
    * drapes better
    * Dyes better
    … & costs 3 times as much (I think it’s worth it)!
    (& I bet it’s harder to sew–kind floppy)

  10. joyce says:

    a lot of higher priced premium denim is made from vintage looms, and you can tell by the type of seams on the inside of the leg

  11. christy fisher says:

    That’s just not true.
    You can get the same seams with a modern loom.

    If you re-read, you will see that I was specifically talking about poly/cotton blends. I did not mention modal (which is rayon BTW)..
    and addendum to the denim thing:
    “seams” are not produced on looms..you may be referring to the selvedge (and the little red thread that runs along the selvedge line)..easily reproducable on any loom.. it’s just how you warp it.

    • Alison Cummins says:

      I thought that the selvedge was different: that most modern looms shoot a length of fibre across a loom to leave fluffy cut ends on both selvedges. The “premium denim” on vintage looms is continuous fibre woven with a shuttle. The selvedges are closed.


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