Eggs & The Power Of Attributes

Jun 06, 2016

 

Eggs illustrate how attributes can be used to stream buyers and price according to their willingness to pay rather than the actual cost of production.

 

Take a look at the photograph above.

It's an egg farm. But it's not just any egg farm. It is an Farm Fresh, Hormone & Anti-Biotic Free, All Natural Free-Range egg farm.

But what does that really mean? Let's break it down...

 

Farm Fresh

The term is not regulated and means nothing.

 

All Natural

The FDA says it's OK to describe food as natural if it does not contain added color, artificial flavors, or synthetic substances. When it comes to eggs it's meaningless.

 

Hormone-Free

It's illegal to give poultry hormones so the claim is again meaningless. It's like claiming that tobacco is cholesterol free, or milk is free of poison.

 

Anti-Biotic Free

Antibiotics are rarely ever used in egg production and the term becomes meaningless.

 

Cage-Free

Instead of small cages the chickens live in massive aviaries like what you see in the photograph.

 

Free-Range

When it comes to eggs the USDA does not have or enforce a definition for "free range" and there is no standard in the industry. If you are raising the chickens for meat the only standard is cage free plus "access to the outside", which usually means a tiny door, leading to a tiny fenced enclosure, usually with a gravel or paved surface. The overwhelming majority of "free range" chickens never get outside.

 


So any eggs could be labeled as Farm Fresh, Hormone & Anti-Biotic Free and All Natural. But they're not. That is because these attributes, things like "all natural" etc. are very powerful indicators of a willingness to pay more.

The eggs from this farm, which is the less common "cage free" variety, are estimated to cost about 36% more to produce. If this producer used the same cost plus formula these eggs would cost 36% more in the supermarket. But they don't. Instead they are more than double the cost of standard eggs.

When you go to the organic section of your supermarket you don't expect lower prices. You know you're going to pay more. Same thing when you go to Whole Foods.

That is why they are there. It's not about providing healthier alternatives or more choice – it's about streaming customers according to their willingness to pay more.

One study shows that the majority of people interested in food labeled this way are educated and have median incomes close to $60K. Another puts the average household income of this type of consumer at $75K.

The key is the realization that some consumers aren't price sensitive when it comes to food. They're willing to pay more, and you just have to give them an appealing premise...

 

attributes-in-pricing.jpg

 

... with a bigger price.

From a pricing standpoint the most important thing is that it is the willingness to pay and not the cost that accounts for the higher prices. We saw with the eggs that cost has nothing to do with it. What does change is the markup. Food with these attributes is marked up much more aggressively.

So how can florists put this into practice?


Flowers

Sustainable, local, organic, fair trade.... these are all attributes that can be used to describe fresh product. Customers that gravitate towards these labels know they will be paying more.

 

Containers

Premium, imported, eco-friendly, artisanal... these attributes can be used to describe containers. Again – customer that like the sound of that are effectively agreeing to pay more.

 

Design

Do you have an accredited or award-winning designer on staff? If so that is another attribute – all of your "prestige" designs are prepared by your renowned AIFD designer.

 

It's easy to get focussed on price-sensitive customers – the comparison shoppers that we lose to order-gatherers and direct shippers. In doing so we forget, and alienate, people that do love flowers and/or the environment and/or upscale products – customers that would apply pay more for products that meet those criteria.



Category: Examples

Sponsored by FloristWare – Software For Florists

Beyond Cost Plus is sponsored by FloristWare – powerful, affordable and easy-to-use software for florists that saves time and money while increasing sales.

FloristWare – flower shop software/POS system.

Related Material

If Costs Determine Price Why Do E-Books Cost More?

The traditional cost-plus approach to pricing dictates that price is a function of cost. So why are e-books (no printing, binding. etc.) more expensive?

Costco/Amazon Prime Model Taken To The Extreme

This real life example shows how far you can take a pricing model similar to that used by Costco and Amazon Prime. Can florists do the same?

Gasoline, And Why You Should Always Let Customers Pay More

We get so hung up on customers focussed on price that we make an expensive mistake. Premium gasoline shows why we always need to let customers pay more.

Pricing Lessons From MLB Tickets

Being honest about how fans value different games helps baseball teams sell more tickets at greater profits (and recover money otherwise lost to scalpers).

Tesla Doesn't Price Based On Costs & Neither Should You

By charging different prices for the same battery Tesla illustrates that a cost-plus formula is much less important than a willingness to pay.

Category List


Tag List


Tag Cloud



Archive

2018

2017

2016