Architect Archive
Thread: A little pricing experiment
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Pawlin
Sun Jul 25, 2004 3:39 am
#1
I was wondering one day if either raising or lowering my prices would generate more profits. This brought me to also think about whether a low price or high price model would be more profitable in general. There are two possible sides of the coin: if you are lower priced then you'll sell more and the increased volume will make up for the loss in profit margin or maybe if you're higher priced then you'll have lower volume but higher margins that make up for the loss in volume.
My current prices are in the 40-60k range for mediums and 100-150k range for heavies. However there are folks selling heavies for 80-85k on my server nowadays. So I"m on the higher side for pricing now it seems.
So I decided to do a little pricing experiment...
What I was trying to answer:
If I dropped my prices down to the 80-85k range would I get a huge jump in sales?
Would higher prices with increased profit margin compensate for the expected drop in volume?
How the experiment was setup:
There would be 2 phases to the experiment. Phase 1 prices would be about 20% higher than my normal prices and phase 2 would be about 20% lower. Each phase would run for around 2 weeks give or take.
Location, advertising and stock type and level would remain constant between phase 1 and 2.
The shop was outside of Coronet about 1300m. NOt a great location but not too bad considering its Coronet. The vendor was registered on the planet map as 'Pawlin's harvesters'. I did not advertise the shop on the trade forums or anything else.
I stocked it with a variety of medium harvesters and about 4 each of heavy mineral and heavy chemical. I also stocked it with paintings, a few small houses and a handful of misc funiture items. Not a full stock as I didn't have heavy flora, gas or water harvs which I usually stock.
Sales were as follows, numbers after items sold are the sale price / approximate profit per unit based on roughly 2 cpu costs
.
Phase 1:
6/23 - 7/7
4 x ber13 chem - 143k/95k
2x painting -19k/19k
2x ber10 mineral - 50k/42k
furniture - 2700/2500
ber10 gas - 75k/51k
4 x ber13 miner - 159k/105k
sales = 1423k, profit = 975.5k
phase 2
7/8 - 7/24
furniture - 875/600
7 x ber10 flora - 45k/21k
6 x ber10 min - 29k/21k
1x house - 7500/900
8x painting 13.5 (reseller)/13.5
1x ber13 miner - 84k/30k
4x ber13 chem - 79k/31k
painting 25.5k/25.5
sales = 1005k, profit = 561.4k (+180k)
furniture - 875/600
7 x ber10 flora - 45k/21k
6 x ber10 min - 29k/21k
1x house - 7500/900
8x painting 13.5 (reseller)/13.5
1x ber13 miner - 84k/30k
4x ber13 chem - 79k/31k
painting 25.5k/25.5
sales = 1005k, profit = 561.4k (+180k)
The paintings are noted as being sold to a reseller. One person bought out 8 of the 1st Bestine painting in one visit. I asked if he was reselling them and sold him another crate at a discount for 180k. It wasn't a sale off the vendor but it should be taken into account.
Of course this experiment isn't perfect. I was looking at 2 different time periods. Obviously demand fluctuates a bit from week to week. If the one buyer who bought the 4 BER13 minerals in phase 1 had gone shopping and found my shop in phase 2 instead of phase 1 then that would make the picture a lot different. Also the sample size is pretty small so its not too meaningful.
Also I didn't have it fully stocked so I'm missing what the sales of heavy flora, gas and waters would have done. The experiment might have been more accurate if I had 2 vendors setup simultaneously both near Coronet. But I didn't have an extra vendor to spare and that would just look weird to anyone that happened to notice. It was odd enough having this vendor setupwith pricing +/- 20% of my normal prices on my normal vendors (on Talus & Naboo).
Also I didn't have it fully stocked so I'm missing what the sales of heavy flora, gas and waters would have done. The experiment might have been more accurate if I had 2 vendors setup simultaneously both near Coronet. But I didn't have an extra vendor to spare and that would just look weird to anyone that happened to notice. It was odd enough having this vendor setupwith pricing +/- 20% of my normal prices on my normal vendors (on Talus & Naboo).
I also assume that I'd have sold more if I had actively advertised in the forums or otherwise, particularly during phase 2. But thats a topic for experiment #2. /wink
I assume most of the business was just random drop ins. They may or may not have seen the vendor on the planet map and may or may not have recognized my name. I don't personally know anyone that bought from me.
I should note that in this same time period I had about 25M in sales on my main 2 vendors on Talus & Naboo. However those are well established locations and I advertise on the forums every week or two. I also have a good business in high quality crafting stations that usually accounts for about 10-20% of my revenues.
Conclusions:
*Demand is fairly low (no huge surprise). Particularly in a less known shop without active advertisement other than planet map listing.
*Demand is fairly low (no huge surprise). Particularly in a less known shop without active advertisement other than planet map listing.
* It appears that maybe the buyers of heavies may be less sensitive to price than the buyers of mediums. I say that because the relatively high priced heavies sold well enough but when I dropped the prices in phase 2 I got a lot more interest in the mediums than before and not too much interest in heavies.
To answer my original questions:
If I dropped my prices down to the 80-85k range would I get a huge jump in sales?
My conclusion: No necessarily.
Would higher prices with increased profit margin compensate for the expected drop in volume?
My conclusion: Yes, seems so.
I wouldn't make too much out of this. AsI've noted it wasn't the best designed experiment. But its some data to think about and thats better than none.
What do you think sirs?
Benjawa
Sun Jul 25, 2004 4:33 am
#2
Interesting expiriment Pawlin.
Though, as you said, not very scientific in design. I think, because of the context that we are under here (That context being a
Game and Starwars) that your conclusions are correct though. Most of the average gamers inside SWG aren't out to budget their funds, make informed purchases, or invest in a portfolio for retirement. As you stated in your expiriment the customers seemed to be random and not repeat customers that you have established a rapport with, and so they aren't really expecting a set price so therefore they will purchase at whatever price, in their mind, seems fair. My guess is that, even though your prices were 20% higher and lower, those buying from you hand no idea what the standard on that serveris and thought they were getting a decent deal. So, as long as those circumstances remain static, you will be able to sell at higher prices and increase your profit margin quite a bit. But, I don't beleive that those circumstances will remain, and eventually prices will have to be adjusted down. Of course, if you remain lower you may develop a large customer base and be able to eventually enjoy a larger profit margin and maybe even bring prices down accross the entire server.
Benjawa
Sun Jul 25, 2004 4:34 am
#3
Interesting expiriment Pawlin.
Though, as you said, not very scientific in design. I think, because of the context that we are under here (That context being a Game and Starwars) that your conclusions are correct though. Most of the average gamers inside SWG aren't out to budget their funds, make informed purchases, or invest in a portfolio for retirement. As you stated in your expiriment the customers seemed to be random and not repeat customers that you have established a rapport with, and so they aren't really expecting a set price so therefore they will purchase at whatever price, in their mind, seems fair. My guess is that, even though your prices were 20% higher and lower, those buying from you hand no idea what the standard on that serveris and thought they were getting a decent deal. So, as long as those circumstances remain static, you will be able to sell at higher prices and increase your profit margin quite a bit. But, I don't beleive that those circumstances will remain, and eventually prices will have to be adjusted down. Of course, if you remain lower you may develop a large customer base and be able to eventually enjoy a larger profit margin and maybe even bring prices down accross the entire server.
By the way, thanks for running something like this. Reguardless of what conclusions the individual obtains from this information, it is simply very good to have it and have someone dedicated enough to the profession to do it in the first place. Good Job!!
Larant
Sun Jul 25, 2004 4:41 am
#4
I had this exact discussion with a well know master architect on my server tonight. Low prices saturate the market. But vendor location is key....unless you spam and lag then entire galaxy with your unwanted ads....but still location is key
I am a newbie to the bus. and he has a well established bus....while in his store for one hour every single customer but one come in because it was the first vendor they saw that had something they wanted. South of coronet is the hot spot on my server.
Price counts...but if I'm looking for a heavy min harvester and I find in the first place I look I find 12 or them for 160K...I may shop a bit on my first trip but if the prices are similar I'll repeat shop at the close one. I'll pay an extra 10 or 20K maybe 40K depending on range...but location is key. If the first thing you find is reasonably priced you buy it. Ifyour vendor is in the middle of no where and charging half price, your only hope is spamming.
SPAM.. some shop, some avoid at all costs...put overall it is a plus for spammers/cheap dealers.
Curxcha
Sun Jul 25, 2004 4:46 am
#5
I havent run any kind of experiment as you have, but I have adjusted prices a lill now and then and from how your results seems to come out just as i'd thougt they would. It made me think of maybe dropping prices a bit on mediums tho and rise heavyes just a tad.
I'll go over my pricing soon again anyway. Havent done that since the hologrinders "left" and I did a few things to increase my sales after that. Btw, After that Houses and PA Hall sales took off! But then again i'm always underbid when ppl ask what I want for pa halls and houses. But what do I care, increase of ... 1000% atleast on houses and pa halls since the hologrinders left heh (150k large House, 240k planet and 260k Generic PA Halls, none has taken me up on 300k for a City hall yet even tho compared to a large house its a good price).
I'd still want a "kindergarden" economic quest for allowing you being an artisan tho
I have even considerd becomming an AS as you can charge 150+ cpu and none blinks and eye of that.
AS seems it can be fun aswell I prolly wont tho as it'll take a lot more effort I think and I need to have some time with my figher char and not all crafting.
I'll go over my pricing soon again anyway. Havent done that since the hologrinders "left" and I did a few things to increase my sales after that. Btw, After that Houses and PA Hall sales took off! But then again i'm always underbid when ppl ask what I want for pa halls and houses. But what do I care, increase of ... 1000% atleast on houses and pa halls since the hologrinders left heh (150k large House, 240k planet and 260k Generic PA Halls, none has taken me up on 300k for a City hall yet even tho compared to a large house its a good price).
I'd still want a "kindergarden" economic quest for allowing you being an artisan tho
I have even considerd becomming an AS as you can charge 150+ cpu and none blinks and eye of that.
AS seems it can be fun aswell
I prolly wont tho as it'll take a lot more effort I think and I need to have some time with my figher char and not all crafting.
valubo
Sun Jul 25, 2004 6:17 am
#6
Take a look at the customer's point-of-view:
With the current vendor/bazaar system, shopping in SWG is very difficult. I've spent hours running around to different (often empty) vendors trying to find one simple item. This will affect your experiment for 2 reasons:
a) no one can sell anything on the bazaar for more than 6k
b) customers have no way to find items that sell for more than 6k except to run out to dozens of vendors.
When I'm trying to locate an item to purchase on a vendor, my frustration level is very high because I hate wasting my time running around to vendors that don't have the item I want. Sometimes I buy something that I know is overpriced, just because I don't want to keep looking for a lower price. For this reason, I believe that you can price anything pretty high and it will still sell.
If SOE ever gives us a way to view what's on people's vendors without having to run all over the planet, then the lower-priced items will certainly sell first. Until then, jack up those prices!
With the current vendor/bazaar system, shopping in SWG is very difficult. I've spent hours running around to different (often empty) vendors trying to find one simple item. This will affect your experiment for 2 reasons:
a) no one can sell anything on the bazaar for more than 6k
b) customers have no way to find items that sell for more than 6k except to run out to dozens of vendors.
When I'm trying to locate an item to purchase on a vendor, my frustration level is very high because I hate wasting my time running around to vendors that don't have the item I want. Sometimes I buy something that I know is overpriced, just because I don't want to keep looking for a lower price. For this reason, I believe that you can price anything pretty high and it will still sell.
If SOE ever gives us a way to view what's on people's vendors without having to run all over the planet, then the lower-priced items will certainly sell first. Until then, jack up those prices!
yodachaos
Sun Jul 25, 2004 9:51 am
#7
i agree with you on the empty vendors. sometimes im out looking for stuff and i go through 10 venders and 7 out of 10 can be empty and when i finally do find the item im already very mad.
ZenDragonMLS
Sun Jul 25, 2004 10:35 am
#8
I think that valubo's observation about how people shop for big-ticket items in SWG is one of the keys here - if someone finds what they are looking for, is it worth the risk to continue looking to find not only what you are looking for but at a lower price also? Not typically.
Certainly most people buying heavies have some sense of the economics of the resource business. The harvesters don't decay so eventually they can sell them for a price on the same order that they bought them for. Each hour they delay putting that harvester out there they are foregoing some amount of profit.
In a way, particularly for people serious about mining, they are more limited by time than money. For example, if I know that I can play for 2 hours tonight, and I want to get new harvesters and get them going, I run the risk of either not finding them or in finding them so late that I don't have time to set them up tonight. Missing1 day of harvesting is missing about 20-25K of profit per harvester.
Given this, if you had two very well stocked vendors near one another ("Joe's Harvs" and "Sam's Harvs") such that I could see them both on the control-M map, and they had different prices, I would expect the lower-priced vendor to have better sales. That's because a shopper approaching the area would perceive that they had a choice without a high incremental cost to exercise that choice.
But as soon as they are far apart, then you run into the "oh what the hell, I'll buy these and get on with playing" effect.
The other thing that you didn't do that would be interesting, and you could just do it as a thought experiment, is to ask "how much MORE volume would I need at the price point to exceed the *profit* I would make on the higher priced items?"
Given that your costs are the same and your time is the same, I think you might be surprised at how much volume you would need to exceed the profit of the higher priced operation.
Ksynia
Sun Jul 25, 2004 11:26 am
#9
Food for thought Hmmmm.. I'd get to craft less too bonus!
*sound of prices raising stealthily*
Pawlin
Sun Jul 25, 2004 3:01 pm
#10
Benjawa wrote:
.... My guess is that, even though your prices were 20% higher and lower, those buying from you hand no idea what the standard on that serveris and thought they were getting a decent deal.
...
The prices picked were 20% higher or lower than my personal prices. I also picked that range because those prices roughly corresponed with the range of pricing on our server (kinda). The 20% lower prices correspond roughly with the lowest prices on our server. 20% higher than myself is probably about the highest prices on our server or close to it.
I don't expect that the customers to this shop would have had great knowledge of pricing on our server. If they did then they wouldn't be coming to this shop they'd be going straight to the known lower priced architects or theyd be going to their other current preferred architects. THey may or may not have arough idea of what pricing is. They might have heard before that someone charges 80k or 120k or whatever. But I wouldn't expect they'd know of a stocked vendor at the price they like or they wouldn't be shopping around.
Pawlin
Sun Jul 25, 2004 3:35 pm
#11
ZenDragonMLS wrote:
...
The other thing that you didn't do that would be interesting, and you could just do it as a thought experiment, is to ask "how much MORE volume would I need at the price point to exceed the *profit* I would make on the higher priced items?"
Given that your costs are the same and your time is the same, I think you might be surprised at how much volume you would need to exceed the profit of the higher priced operation.
Might as well do the math to illustrate the point.
Say we wanted to make the same profit in phase 2 that I made in phase 1. How many heavy harvesters would I have had to sell to hit that 975k profit? I was figuring 30k or 31k profit for the heavies I had listed in phase 2. So thats 31-32 heavies I would have had to sell in a 2 week period. Thats pretty heafty sales.
ZenDragonMLS
Sun Jul 25, 2004 8:46 pm
#12
So, you could sell 4 heavies at price X or 30+ heavies at price 0.6 X and make about the same profit?
I think that people who price low need to look at that one single sentence about a dozen times until it sinks in.
Because in these pricing discussions we get people who say "oh, I sell twice as many harvs at my price as I would if I charged more". Essentially this says that you need to sell 5-7 times as many to get the same profit.
Pawlin
Sun Jul 25, 2004 8:53 pm
#13
ZenDragonMLS wrote:
So, you could sell 4 heavies at price X or 30+ heavies at price 0.6 X and make about the same profit?
...
Actually it would have been about 10 heavies at price X or 30+ heavies at 0.6 X.
I was looking at all the profit from phase 1 which included 8 heavies total and a few other things.
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