Marketing/sales question for the experts here...

[4shotB]

My private sector background was in operations, engineering and manufacturing so the marketing and sales stuff always puzzled me a bit. With that background, here is a scenario I dealt with today and a resulting question(s) -

My 5 yo AV receiver just went on the fritz. Of course it is out of warranty. The cost of shipping and repairs is about the same as replacing of course. So I ordered a basic model on Amazon. I just run a simple 3.1 system with no Atmos/surrounds/etc. in my den so I don't need much in terms of features or power (WPC). The model I selected (btw, there is a shortage of stock on these as my usual go to electronics vendor had only 5 models in stock - all above $3k) was listed at $350. However, if I ordered it with accessories (either speaker wire or banana plugs) I could get it for about $50 less than that??!!!

So, for you marketing and sales types, what is this about? It doesn't make sense to me why they would offer this promotion (unless they were over inventoried on plugs and wires? Only rational theory I have). Any other possible explanations? Thanks in advance.

 

[Techster]

My private sector background was in operations, engineering and manufacturing so the marketing and sales stuff always puzzled me a bit. With that background, here is a scenario I dealt with today and a resulting question(s) -

My 5 yo AV receiver just went on the fritz. Of course it is out of warranty. The cost of shipping and repairs is about the same as replacing of course. So I ordered a basic model on Amazon. I just run a simple 3.1 system with no Atmos/surrounds/etc. in my den so I don't need much in terms of features or power (WPC). The model I selected (btw, there is a shortage of stock on these as my usual go to electronics vendor had only 5 models in stock - all above $3k) was listed at $350. However, if I ordered it with accessories (either speaker wire or banana plugs) I could get it for about $50 less than that??!!!

So, for you marketing and sales types, what is this about? It doesn't make sense to me why they would offer this promotion (unless they were over inventoried on plugs and wires? Only rational theory I have). Any other possible explanations? Thanks in advance.

Not really answering your question (I'm not a marketing person either) but I do have a similar anecdote. I'm big into saltwater fishing, so I buy new gear every year. One of the big purchases I make every year are Penn rod and reels. Well, when I go to buy them I can get Penn Battle reel for $110 and the Penn Battle rod for about $100. However, if I buy the combo, it cost me about $159-$189 depending on where I get them and what size they are. If I get a lower end Penn series (like Fierce) it's even more curious. They have just the rod for about $85, but the rod/reel combo is $105.

 

[Jim Prather]

It is simply a tactic to get people to spend money. The markup on each of the items is 10X - 20X, so they could sell the entire combination for $50 and still make a profit. While it seems counter-intuitive, it really isn't.

 

[RonJohn]

I am not a marketing person either. In fact I pretty much detest marketing. I think part of the reason you see these types of things is that you do have an engineering mindset. Most stores don't price things exactly based on cost to produce/acquire with a reasonable markup. Many "sales" items are actually a price the store would like to sell at, but they place a price tag with a totally unreasonable price. Sears used to always have shirts(and other items) at huge "discounts". You could buy a $120 shirt for $30. However, the shirt probably cost Sears $5, and they would have sold it for $10 or $15 and still made a profit. Instead of running as a cost-plus-markup business, most store try to get you to pay as much as possible, while getting you to feel as though they gave you a much better deal than you should have been able to get. It is smoke-and-mirrors instead of hard facts.

I don't see the kit at the moment, but for a long time a cordless 1/2" impact wrench was $139 for the tool only, but $99 for a kit with the tool, a bag, a battery, and a charger. I don't think they are losing money on either item. If someone has a battery and charger for other tools and only needs an impact wrench, it is highly likely that they won't even compare pricing. They will just get the tool and pay $40 more than they would to get an extra battery and charger. From the standpoint of running a store, it works both ways. If someone notices and buys the kit, they feel like they got a really good deal. If someone doesn't pay attention and just purchases the tool, you get more markup while the customer gets the tool they want.

 

[4shotB]

Not really answering your question (I'm not a marketing person either) but I do have a similar anecdote. I'm big into saltwater fishing, so I buy new gear every year. One of the big purchases I make every year are Penn rod and reels. Well, when I go to buy them I can get Penn Battle reel for $110 and the Penn Battle rod for about $100. However, if I buy the combo, it cost me about $159-$189 depending on where I get them and what size they are. If I get a lower end Penn series (like Fierce) it's even more curious. They have just the rod for about $85, but the rod/reel combo is $105.

Man, I like those Penns but you must be on the water alot more than me. It's a good year if I can go on 4 or 5 saltwater trips (2-7 days each) but I fish freshwater much more frequently. I fish inshore on the Gulf Coast when I go and have never had to replace any of my Penns (I have an old Penn SS that I can't get parts for anymore that is in retirement) but I change line after every (saltwater) trip and clean/lubricate them also. I could see this being a hassle for someone who was out there everyday.

I guess my feeble brain is accustomed to getting a price break on a combo. As the other posters alluded to above, they are still making a profit. What was surprising to me in the incident I described above was similar to finding a combo on the Battle combo that was cheaper than just the reel or rod by itself. I guess what they are doing (as RonJohn said) is maximizing their profits through price discrimination so that the shopper in a hurry is willing and able to pay the max price. That shopper is certainly not me!

 

[Deleted member 2897]

I've been in sales for the last 20+ years. I hate nonsensical pricing like this. That's the engineer side of me. I think things should always be simple and rational for folks to understand. If you place easy doubt in peoples' heads that something doesn't make sense, they'll think there's a catch or something untoward is going on and shop elsewhere.

 

[4shotB]

I've been in sales for the last 20+ years. I hate nonsensical pricing like this. That's the engineer side of me. I think things should always be simple and rational for folks to understand. If you place easy doubt in peoples' heads that something doesn't make sense, they'll think there's a catch or something untoward is going on and shop elsewhere.

I am so skeptical of anything that looks or smells like a sales pitch that I am certain that I have walked awy from some really good deals in retrospect. I expect to purchase things exactly the same way as I buy milk - the grocery store has the milk on the shelf for the price they want to sell it for. I can choose to buy it or not. I don't want or need to haggle with the manager to see if he won't knock off $.15 on a gallon. Other people thrive on negotiating but I see it as a waste of time. That's why I like internet shopping. No one to talk to or deal with. I just click a button and the product arrives on my door step.

 

[Deleted member 2897]

I am so skeptical of anything that looks or smells like a sales pitch that I am certain that I have walked awy from some really good deals in retrospect. I expect to purchase things exactly the same way as I buy milk - the grocery store has the milk on the shelf for the price they want to sell it for. I can choose to buy it or not. I don't want or need to haggle with the manager to see if he won't knock off $.15 on a gallon. Other people thrive on negotiating but I see it as a waste of time. That's why I like internet shopping. No one to talk to or deal with. I just click a button and the product arrives on my door step.

I'm similar to that. When we built our last house, the builder explained the cost buildup and showed his margin ($60k or some ****). I didn't even haggle with him. It was about a 15% margin, which seemed fair, and I wanted him to make money so that when things went wrong (they always do when building a home - like the wrong flooring gets ordered, stuff has to be redone), he had the margin to be able to take care of it. That's one type of buyer. Others do like to negotiate until the end of time to split every single penny, even if they spend more time negotiating than they save. And lets face it, there are a lot of dumb people in this country that see things that look like deals and jump on it. Like 20oz of ice cream for $4.99. But a 15oz package for $4.29 - buy it, its cheaper!!! So that is one thing marketing people probably struggle with - maximizing price for different types of people, and messaging for different types of people.

 

[4shotB]

I'm similar to that. When we built our last house, the builder explained the cost buildup and showed his margin ($60k or some ****). I didn't even haggle with him. It was about a 15% margin, which seemed fair, and I wanted him to make money so that when things went wrong (they always do when building a home - like the wrong flooring gets ordered, stuff has to be redone), he had the margin to be able to take care of it. That's one type of buyer. Others do like to negotiate until the end of time to split every single penny, even if they spend more time negotiating than they save. And lets face it, there are a lot of dumb people in this country that see things that look like deals and jump on it. Like 20oz of ice cream for $4.99. But a 15oz package for $4.29 - buy it, its cheaper!!! So that is one thing marketing people probably struggle with - maximizing price for different types of people, and messaging for different types of people.

I agree with the idea of a good deal is a win/win. Buyer and seller profit.

Towards the end of my career I was involved heavily in preparing quotes for our customers involved in large commercial construction projects. The truth is - the cutsomers who wasted time trying to beat you out of every dime they could and/or were otherwise a royal PITA actually paid more for our products than they otherwise could have as I considered that time dealing with these $&*^@ to be a real cost for the organization and built it into the pricing structure. The customers who you could do business with on straightforward and honest terms did not pay this "annoyance cost". It got to the point where I added additional costs to certain geographical areas in the US (we rarely did overseas projects) because, for the most part, the people in these areas were just difficult to deal with and looked for win/lose negotiations rather than win/win. Because each project we bid on was custom, it was easy for us to do this and keep our customers from not knowing about it. Pricing was our polite way of declining jobs without saying no to any customer.

 

[RonJohn]

I agree with the idea of a good deal is a win/win. Buyer and seller profit.

Towards the end of my career I was involved heavily in preparing quotes for our customers involved in large commercial construction projects. The truth is - the cutsomers who wasted time trying to beat you out of every dime they could and/or were otherwise a royal PITA actually paid more for our products than they otherwise could have as I considered that time dealing with these $&*^@ to be a real cost for the organization and built it into the pricing structure. The customers who you could do business with on straightforward and honest terms did not pay this "annoyance cost". It got to the point where I added additional costs to certain geographical areas in the US (we rarely did overseas projects) because, for the most part, the people in these areas were just difficult to deal with and looked for win/lose negotiations rather than win/win. Because each project we bid on was custom, it was easy for us to do this and keep our customers from not knowing about it. Pricing was our polite way of declining jobs without saying no to any customer.

I may be getting too far off the topic of the thread here, but to your point of declining jobs by pricing to high: I regularly work with a construction company of which I spoke to the owner a month or two ago. They were extremely busy and had been asked to quote a large job. They didn't have time to fully price the job, and didn't have resources to complete the job, so they just sent in a bid that was so high they knew they wouldn't be considered. They ended up getting a PO for the work. At that point, the owner sent one of his PMs to start putting together a plan for materials and labor to complete the job. It is going to be a pain for them, but the owner wasn't willing to turn down double/triple level profit just because it is going to be stressful. Plus, for construction these are strange times and he will probably never see such opportunities before he retires.

 

[4shotB]

I may be getting too far off the topic of the thread here, but to your point of declining jobs by pricing to high: I regularly work with a construction company of which I spoke to the owner a month or two ago. They were extremely busy and had been asked to quote a large job. They didn't have time to fully price the job, and didn't have resources to complete the job, so they just sent in a bid that was so high they knew they wouldn't be considered. They ended up getting a PO for the work. At that point, the owner sent one of his PMs to start putting together a plan for materials and labor to complete the job. It is going to be a pain for them, but the owner wasn't willing to turn down double/triple level profit just because it is going to be stressful. Plus, for construction these are strange times and he will probably never see such opportunities before he retires.

Yes, occasionally you do land one of these jobs in an extremely hot market and, as you say,you find a way to get it done. It is a much easier sell them to the team when they aware of the margins that resulted in such a job. We had a generous bonus plan at that time so there was "trickle down economics" in place. the only time we ever truly turned down work is when we knew the specifications of the project were outside of our existing capabilities. We never wanted to promise something we didn't feel we could deliver. Actually our competitors would take those instead and we were certain that they couldn't deliver them either. Our reputation for being straight with our customers may have cost us a few jobs but I am certain it paid dividends in the long run.

 

[Milwaukee]

I may be getting too far off the topic of the thread here, but to your point of declining jobs by pricing to high: I regularly work with a construction company of which I spoke to the owner a month or two ago. They were extremely busy and had been asked to quote a large job. They didn't have time to fully price the job, and didn't have resources to complete the job, so they just sent in a bid that was so high they knew they wouldn't be considered. They ended up getting a PO for the work. At that point, the owner sent one of his PMs to start putting together a plan for materials and labor to complete the job. It is going to be a pain for them, but the owner wasn't willing to turn down double/triple level profit just because it is going to be stressful. Plus, for construction these are strange times and he will probably never see such opportunities before he retires.

The market is stupid right now. I’m not hating on people making money but the global supply chain right now is nothing more than price gouging in all commodities. I actually benefit from it so I’m a hypocrite but I’m honest with my customers that I’m not comfortable with it. Raw materials (304 stainless, wood, consumables, tapes/adhesives, etc etc) is all a joke right now. Manufacturers are making more profits than in the history of their respective worlds. Just my two pennies.

 

[4shotB]

The market is stupid right now. I’m not hating on people making money but the global supply chain right now is nothing more than price gouging in all commodities. I actually benefit from it so I’m a hypocrite but I’m honest with my customers that I’m not comfortable with it. Raw materials (304 stainless, wood, consumables, tapes/adhesives, etc etc) is all a joke right now. Manufacturers are making more profits than in the history of their respective worlds. Just my two pennies.

When, if ever, do you think things 'return to normal" or even stabilize? I expect the corporations to ride this as long as possible in the interest of maximizing profit. Not that there is anything wrong with that.

 

[Vespidae]

My private sector background was in operations, engineering and manufacturing so the marketing and sales stuff always puzzled me a bit. With that background, here is a scenario I dealt with today and a resulting question(s) -

My 5 yo AV receiver just went on the fritz. Of course it is out of warranty. The cost of shipping and repairs is about the same as replacing of course. So I ordered a basic model on Amazon. I just run a simple 3.1 system with no Atmos/surrounds/etc. in my den so I don't need much in terms of features or power (WPC). The model I selected (btw, there is a shortage of stock on these as my usual go to electronics vendor had only 5 models in stock - all above $3k) was listed at $350. However, if I ordered it with accessories (either speaker wire or banana plugs) I could get it for about $50 less than that??!!!

So, for you marketing and sales types, what is this about? It doesn't make sense to me why they would offer this promotion (unless they were over inventoried on plugs and wires? Only rational theory I have). Any other possible explanations? Thanks in advance.

This isn’t complicated. Often, a “standard” design is the most cost effective because of volume discounts on components. Pricing is used to steer customers to the most cost efficient offering. We like to think in terms of “custom” but the reality is most customers choose from a very limited set of options.

Dell has been doing this for decades.

 

[Milwaukee]

When, if ever, do you think things 'return to normal" or even stabilize? I expect the corporations to ride this as long as possible in the interest of maximizing profit. Not that there is anything wrong with that.

I don’t see it ever coming down. It’s not like gas where I see it gouge and then come down. This is the new normal, and unfortunately salaries aren’t gonna keep up. It’s just the way of the world, greed is good I guess . I have mixed emotions about it honestly. I provide great service and products and feel like I’m worth it but damn man these prices are like nothing I’ve ever seen.

I have a small customer than spends about 40k annually and he spent 75k in 2020 and it’s staying that way. His consumption didn’t even go up. And he’s a small fry, that kills small businesses like that.

 

[RonJohn]

When, if ever, do you think things 'return to normal" or even stabilize? I expect the corporations to ride this as long as possible in the interest of maximizing profit. Not that there is anything wrong with that.

I think things will stabilize. The price of wood is about double what it was a year ago, but it is half of what it was a few months ago. Sawmills are ramping up and the price will stabilize eventually. Same things will be happening with steel. Similar things will happen with cars when chip manufacturing catches back up. (If anyone is under on a car that they don't need, I read a story that some used cars are being purchased by dealers for prices above the original MSRP. It is a good time to get rid of any vehicles that you don't need.)

I don't think prices will ever return to pre-COVID levels for most anything. Interest rates are low. There is a lot (and by that I mean a lot by an incredible margin) of money (dollars) that didn't exist before. I am not an economist, but in my layman's mind I can't see how inflation can be avoided. We will just have to get used to a new normal, and that will probably take a few years for prices and wages to settle back out.

 

[Milwaukee]

I think things will stabilize. The price of wood is about double what it was a year ago, but it is half of what it was a few months ago. Sawmills are ramping up and the price will stabilize eventually. Same things will be happening with steel. Similar things will happen with cars when chip manufacturing catches back up. (If anyone is under on a car that they don't need, I read a story that some used cars are being purchased by dealers for prices above the original MSRP. It is a good time to get rid of any vehicles that you don't need.)

I don't think prices will ever return to pre-COVID levels for most anything. Interest rates are low. There is a lot (and by that I mean a lot by an incredible margin) of money (dollars) that didn't exist before. I am not an economist, but in my layman's mind I can't see how inflation can be avoided. We will just have to get used to a new normal, and that will probably take a few years for prices and wages to settle back out.

I hope you’re right. Great post.

 

[Deleted member 2897]

When, if ever, do you think things 'return to normal" or even stabilize? I expect the corporations to ride this as long as possible in the interest of maximizing profit. Not that there is anything wrong with that.

When we stop printing money. Last year we went from $4 Trillion in money supply to $19 Trillion. Yes we effectively printed $15 Trillion Dollars. We have been paying everyone in the country tons of money for a year. If you own businesses, you've been getting paid extra gobs of money. When the free money train stops or materially changes trajectory, then the trajectory of the price of things will change.

M1

View a measure of the most-liquid assets in the U.S. money supply: cash, checking accounts, traveler's checks, demand deposits, and other checkable deposits.

fred.stlouisfed.org

 

[Lotta Booze]

When we stop printing money. Last year we went from $4 Trillion in money supply to $19 Trillion. Yes we effectively printed $15 Trillion Dollars. We have been paying everyone in the country tons of money for a year. If you own businesses, you've been getting paid extra gobs of money. When the free money train stops or materially changes trajectory, then the trajectory of the price of things will change.

M1

View a measure of the most-liquid assets in the U.S. money supply: cash, checking accounts, traveler's checks, demand deposits, and other checkable deposits.

fred.stlouisfed.org

The M1 supply isn't the best depiction of "money printed" at the moment, in my opinion. The vast majority of that jump shown in the graph in May 2020 is due to a change in how they calculate it rather than a change in money supply. M2 would show the isolated increase in money supply without the change in calculation. Which is still about $5T, so nothing to shake a stick at, but not close to $15T.

 

[Deleted member 2897]

The M1 supply isn't the best depiction of "money printed" at the moment, in my opinion. The vast majority of that jump shown in the graph in May 2020 is due to a change in how they calculate it rather than a change in money supply. M2 would show the isolated increase in money supply without the change in calculation. Which is still about $5T, so nothing to shake a stick at, but not close to $15T.

I had (seems like wrongly) assumed that they would account for that change in their own data. Sheesh.

To your point, you can audit that assumption in a couple ways. One piece is the Fed's balance sheet. Because they effectively use printed money to buy back corporate bonds, our own debt, and mortgages. Their balance sheet increased $4 Trillion last year.

Recent balance sheet trends

The Federal Reserve Board of Governors in Washington DC.

www.federalreserve.gov

Another piece is areas like PPP and PUA (pandemic unemployment assistance) where we essentially printed money to hand out to people. I don't have those figures off the top of my head for what we spent, but that's probably another $1 Trillion. And that gets you to that $5 Trillion number.

But yea, that's a huge step change in money floating around in the system. The venture capital market, housing market - there's money flush in every corner of the system. Dr. Koop.com could get adequately funded again in today's environment. When that trajectory of money in the system changes, the inflation and spending trajectory will change IMHO.