Analysis tries to understand things by breaking them down into their components.
Synthesis tries to understand a thing by combining and processing information in its surroundings.
Do you determine your prices by building them up from their component costs? Or do you look at how your prices will fit into the entire market ecology that they are entering into?
The first method is analytic; the second is synthetic.
The task of setting the prices for your products at farmers’ market seems to be a bewildering exercise for new and first time producers. The advice from academics tends to make each price determination seem like the result of complex calculations that involves collecting data on the many different costs that make up what it “really costs” you to produce that item.
The question you need to ask is: Are you going to “build” your prices by stacking up all your costs and dividing by your yield, or are you going to base your pricing on an acute awareness of what others in your marketplace are charging?
|Analytic determination: Consider costs||Synthetic Determination: Consider environment|
|First you determine: Cost of land, mortgage, interest, etc.
Labor costs – your own labor & hired people
Keep track of the above by item whenever the costs vary by item (i.e., it may cost more to weed carrots than summer squash).
Determine a profit target for the year
In some ways, synthetic pricing may seem like a “seat of the pants” approach, but it is far from that. Rather it is process that begins with a best price guesstimate based on your current understanding of what the marketing environment you are entering is like, what it will bear, how your quality compares with that of others, etc. Then iterate (repeat) the process often at market and re-evaluate the previous pricing decisions. This isn’t to suggest that you change your prices at each market, but rather that you be aware at each market of where your prices fit into the range of other prices that shoppers will find there.
In synthetic pricing, the process of determining a price is impacted by a multitude of phenomena, many of which are completely non-monetary. For example:
- If you are bringing all you can and still sell out before the end of market, you should raise your price.
- If something isn’t selling well, rather than adjusting the price, move it to a new location in your stand.
- If you have a lot of something, keep the unit price the same, but offer deals on purchasing multiple units, or purchasing it in bulk.
- Don’t get stuck in the math: Make your prices so they add and multiply easily.
- Don’t use human psychology as a weapon against your customers: Don’t end your prices in 9, 4, etc.
- Give shoppers a generous amount and consider that extra as part of your promotional budget.
- Keep most of your prices the same throughout the season. Change only certain prices as the first of the season gradually turns into an abundance; tomatoes, cukes, and corn may be perceived as worth more early in the season. Continuity of pricing makes your job of remembering prices easier.
- Put your price label right on your display container; many folks won’t bother to ask you or to look around to find the price and they will walk on to your competitors.
- If demand is low there is psychological pressure to lower your price. Look around. If demand is low for everyone, then ignore that pressure to drop your price; it’s just a slow day. However, if you are the only one with slow sales, find out what you are doing wrong!
- If you are going to be a professional retail marketer, assume the responsibility to find out what others around you are getting for their produce and what their quality is like. Drastically undercutting prices also drastically undercuts good feelings.