It’s a phrase growers are painfully familiar with when talking with customers: “Sharpen your pencil – we need a better price.”
In a competitive market, the tendency is to do whatever it takes to make the sale. That often means beating the lowest number out there. At some point, however, low prices add up to unsustainably low profits.
“You can sell a lot of product at a low price, but if the market drops, all of a sudden you don’t have enough cash flow to pay the bills,” says Ed Kiley, sales and marketing director for The Perennial Farm. “To generate cash you have to sell more product, but you may have to cut your price to do that. Ultimately you’ll sell yourself out of business.”
A competitive price is important, but selling the value of your products and your business is a surer path to success.
Price For Profit
Welby Gardens has a reputation for maintaining consistently higher prices for its wholesale bedding plants. And that’s a point of pride for CEO Al Gerace.
“In the early ’70s, with bedding plant prices stagnant and costs rising, we raised our price from $3 per flat to $4.20, simply to survive,” Gerace says. When competitors followed with an increase and customers continued to buy plants, Welby knew it was on to something.
The key, Gerace says, is getting a fair margin after covering all of your costs to produce and sell a plant.
“Often, growers only use direct cost along with some labor and overhead to price a crop,” he says. “Our pricing covers the total cost of production, overhead, distribution, and administration.”
Growers need meticulous accounting of total production space and utilization and total revenue on a year-round basis to set prices that cover actual costs, as well as identify when those prices need to go up.
“With seasonal business such as bedding plant production, calculating the true turns per square foot is essential. Knowing your real cost and having to answer to your banker means prices can’t remain stagnant,” Gerace says.
It takes guts to ask for more, but economic survival has to come first.
“Welby Gardens lives by a simple axiom: A customer will never offer you more than you ask,” Gerace says.
Value To The Consumer
With today’s Black Friday mindset, value simply equals low price for many consumers. Tim Brindley, president of Stacy’s Greenhouses, says low prices have a place, but that shouldn’t be where growers focus all of their energies.
“On basic groundcovers, annuals and perennials, ‘value’ is high-quality plants at an affordable price. That’s fine. But what drives innovation is adding value in ways that resonate with consumers and convince them to pay more for your product, or buy yours instead of someone else’s,” he says.
With the right packaging, program and message, that bargain-hunting groundcovers customer might also see the value in a combination succulent garden in a table-top pot that costs $20 or $30.
The trick is in understanding what customers really care about. “Value can mean a lot of things. It can mean multiple uses, less water, easier care, more flowers. Sometimes it means smaller packaging and a lower price. That’s fine too, as long as it’s a true value to the consumer. That’s really what they’re looking for,” he says.
Stacy’s approaches different consumer segments in different ways. Experienced gardeners may be willing to pay a little more in return for additional longevity in the plants they buy, especially in today’s economy. For Stacy’s, that means providing value with brands like Endless Summer hydrangeas and Knockout roses, and plant lines with multiple uses.
Stacy’s is also looking at how it can connect with the under-35-year-old, who is an inexperienced gardener and increasingly urban.
“With the economy and the job market, people are downsizing into apartments. How do we reach this young gardener that really doesn’t know anything about gardening yet, but will learn if you give them the ability to be successful? The value is giving them something they can start with. We’re looking at smaller packages that work in smaller spaces or have more uses, for example, collections of salvias that let them start to build something and understand how to do it.”
Value To Your Retailers
Creating value with your retail customer is just as important.
“I’m a big believer that you have to address the price hurdle by adding value,” says The Perennial Farm’s Kiley. “We are cheaper than some, more expensive than others. But we offer value by focusing on excellent customer service.”
To Kiley, that’s more than lipservice.
“Everybody thinks they have great customer service. But what are you doing to really please them? Is your delivery fast? Are you providing good tags on plant material? Do you have websites where people can reference information? Are you going to garden centers to give talks? You can get a perceived increase in your quality without really doing anything different with the plant,” he says.
Kiley cites his sales with a common variety as an example. “Everybody has rudbeckia ‘Goldsturm.’ Why should a retailer buy it from me?”
The answer, he says, is in the value he can add around the product.
“Natives are really big around here. We chose 225 natives that look good in a pot and we wrote a little book. We had Allan Armitage write an introduction and we told stories about the natives. We built a website, WhatsNative.com, with a lot of information, where you can download data sheets and big glossy pictures.
“So, why is my rudbeckia ‘Goldsturm’ better than yours? I have it on a website. I have it in a book. You can download data sheets and pictures. The perception is there must be something better about the Perennial Farm’s rudbeckia ‘Goldsturm’ than the one down the street,” he says.
“We get a better price.”