Cost-Plus vs Value-Based Pricing in the Flower Business
We have a client in a big city with a lot of flower shops. A lot of high end flower shops. There is a lot of competition in that space. But he has very wisely differentiated by being the ‘eco-friendly’ flower shop.
One of his big things is using “reclaimed” materials. Whenever possible he’s using stuff like the packaging material that his flowers and hard goods come in as part of the arrangement. He’s really talented and he makes the stuff look great, and really original. Floral Management magazine has done some really good stuff on this, featuring ideas you can use in your own shop.
So instead of always buying containers and materials he’s often using stuff he would have otherwise had to pay to throw away. Now – there is of course some time in cleaning and preparing it, but that’s true of stuff that you have to order and receive and unpack and clean as well. So there is a definite savings on material, on his cost of goods sold.
Under a cost-plus model he’d charge less. His costs are lower, so his prices would be lower. But when is the organic, sustainable, reclaimed version of anything less expensive?
Terms like that are jealously guarded because they’re really a kind of code. They identify the customers that are willing to pay more. The organic aisle at your grocery store, Whole Foods…. they’re not there to make you healthier. They’re there because somebody figured out people would pay much higher margins for those versions.
So in a cost plus model we’d be charging be less for the sustainable version because our costs are lower. In a value based model we charge even more, realizing much higher profits, because we know people value, and will pay for, those attributes.