Why Don’t We Know More About Pricing Plants?
If you had to name one thing that determines the financial success of every business in our industry, it’s the obvious: how much we sell plants for.
So imagine my shock when I learned how little research has been done on this. Last fall, as I planned the topics I wanted to devote attention to in 2016 and 2017, plant pricing was at the top of my list.
But I was already committed to the consumer plant marketing research we’re doing with Michigan State University and Flowers Canada in 2016, for our most recent 10% Project (a program we began to help increase plant sales by 10%). So I thought it would be a good idea to have a series of articles reviewing all the research that has already been done, then launch a bigger 10% Project on plant pricing in 2017.
With that in mind, I called Charlie Hall at Texas A&M University.
“Plant pricing research? Let’s see. There’s the study we did with you in 2012 [our first 10% Project — I’ll explain more in a minute], Bridget’s [Behe, Michigan State] eye-tracking studies, and the article you wrote about 4-inch annuals. That’s about all I can think of.”
Obviously, much more needs to be done.
Naturally, the plan for 2016 changed quickly. In June, we launched a plant-pricing survey for the industry, including both growers and retailers. Dr. Hall, Dr. Behe, as well as several consultants, Steve Bailey, Sid Raisch, and Ian Baldwin, helped us shape the survey. Since this is the industry’s first pricing survey, we kept it fairly simple.
It covers three main areas: how prices are calculated, how growers and retailers handle sales, and if and when they apply perceived value pricing.
Preliminary Plant-Pricing Results Are In
While we are still analyzing data from the survey, I can share a couple of patterns.
1. There Is No Standard In Pricing. Even with a couple hundred or so answers coming in so far, almost no one calculates prices for plants the same way. For growers, some look at what the competition is doing and either match the price or mark their prices up or down. Others calculate their costs and markup the costs, or calculate a margin. Others pretty much take what the customer will give them. There are dozens of other ways, but some form of those three are fairly common.
2. Profit Isn’t Mentioned As Part Of Pricing. I personally know several grower-retailers who make a profit accidentally. They have a pricing formula, and hope it’s enough for them to come out in the black that year. From the answers I’m reading, these friends are not alone. I haven’t read every single answer yet, but I have read most. Not once is a goal profit mentioned. Or any sort of profit.
For growers who are calculating their prices in part based on their own costs, there’s a lot to learn. What all is included in that cost number? Inputs, labor, overhead? And is that expense added up for the year then divided out in the number of plants sold annually? What about shrink?
For those who are looking at competitors for their pricing, how are those competitors calculating prices? Is this a classic case of lemmings rushing over a cliff?
Why Do Plant Prices Matter?
Plant prices worry just about every industry sage I know. I’ve heard breeders, bankers, growers, and plant retailers talk about how our industry flirts with financial disaster.
The core concern? That no one charges what they need for their plants. When plants are undervalued, a few predictable things happen:
1. There’s no cushion for hard times. Think of all the businesses that failed during the recent recession. Building a cash reserve isn’t being greedy; it’s just making sure you have something to fall back on during those inevitable poor years.
2. Upper level staff and owners work extreme hours. This problem is especially true for the medium and small retailers and growers. Why stress your labor budget when you can work 12 hours a day, seven days a week during the season? Then you wonder why the next generation has zero interest in taking over the family business.
3. Improving your business is treated as a luxury instead of a necessity. Many plant retailers with unimproved structures don’t understand why they’re losing customers. But hoop houses with poor air circulation are an awful place to shop on a sunny day. And who wants to push a cart through gravel when shopping is so much easier elsewhere?
We’ll publish results throughout the third quarter of 2016, including in the September print addition of Greenhouse Grower RETAILING. Our game plan is to take the results of this survey and use them as a compass, pointing to the direction we need to go with a much larger study.
As I mentioned earlier, we have conducted one plant pricing study before. It was our very first 10% Project. When the results were in, we learned that plant prices are inelastic and lowering plant prices does not sell more plants — just the opposite, in fact. You can read the full article about the study at http://goo.gl/VRkulT.
Based on what we learn in this 2016 survey, we’ll conduct another large-scale study that may take place in either 2017 or 2018. That study should help us understand what methods of pricing plants actually make a profit.
We’ll share what we learn with you, and we’ll ask various experts to weigh in on the results, too. It’s my hope that, as an industry, we’ll figure out a way to price plants that is not only fair to customers and allows for healthy competition, but will also make the industry financially healthy.