Captain’s log, stardate 20180829
Sent by Jonathan Stark on August 30th, 2018
Thanks so much to the 30+ folks who sent in replies to yesterday’s question about what to do if your neighbors started undercutting your price for firewood.
In case you missed that message, here it is again:
Let’s say you live near a popular campground. To make a little extra money, you and all your neighbors sell firewood at the end of your driveways for $3 per bundle. You know that your cost per bundle averages out to $2, so each sale nets each of you $1 of profit per bundle. You know your neighbors’ prices (i.e., $3/ea) but you don’t know their costs, so you don’t know what their net profit per bundle is. Then one day, your neighbor Alice lowers her price to $2.50 per bundle. And then the next day, your neighbor Bob lowers his price to $2.00 per bundle. Your move. What would you do?
This scenario sets up a potential “race to zero” situation. I’m going to talk more about the race to zero in an upcoming message.
In the meantime, here’s what you said:
Up my price to 4$ and advertise my wood as better somehow... But if it doesn’t work after a few days I go down again:(
Man, you are really fixated on this wood thing, huh? :-) Presuming it costs me nothing to hang on to the wood, I’d raise my price an extra dollar and widen that gap, just so there’s some price differential. Keep it that way for a few weeks, or the whole season, whatever, and keep increasing the price until it hurts net income, then back it off.
Raise my prices to $4. Include a small bundle of kindling, an old newspaper and a box of matches.
I’m gonna go $5/bundle and bag it in plastic to keep it dry. A heavy duty plastic bag and a zip tie works out to an added cost of about $0.30/bundle and takes maybe 5 seconds of additional work on my part. My bundles become more valuable because they’re weatherproof and my profit margin goes up to $2.70/bundle. I would - and do - happily pay a few bucks more for a bundle of wood that I know is dry and will burn better.
$3 is pretty close to theirs and more expensive. I think I would try to raise it to $4 or $5 to differentiate my wood from my neighbors, and then figure out what is needed to make it worth $4/5.
“Premium Firewood $4. 100% money back guarantee”
think the thing here is to figure out additional sources of income. Sell a matchbox and lighter fluid or something in addition to the bundle for $10. Sell the complete package instead of part of a solution. Just my thoughts
I add more value like delivery so they don’t get their car dirty or splinters in their finger or palm , while avoiding termites or other bugs in their car or on their clothes. You could add 50 cents per bundle and still get willing buyers.
Since it’s a commodity I would make a “pay-what-you-want” sign to make people come to me. Then have talks with them about my product and let them convince themselves to pay me around 3-4$ per bundle.
Slap a sign on the pile that says “Premium Wood, Contains No Uranium” and charge $6 a bundle.
Oooh good question! I guess one option is to specialise, justify my higher price, I.e it’s toasted / it’s super dry But then again, with wood being a commodity item, surely most people’s purchasing decision is based on convenience or cheapest. So the one they are going to buy will be the one they see first, or the cheapest among a comparative set. But, if I’m going to lose profit by making mine cheaper (and suffer the risk of having to go cheaper still), why not risk it in the other direction and try premium, and at least earn more per sale? so selling two bundles at $5 each gets me $6 profit, whereas to make the same profit at a cheap price, I’d have to sell 12 bundles at $2.50
Walk over to Alice and Bob and ask what they are going to buy from their 50 cent profit. And watching their reactions; people reading. Worst case scenario, they know my profit margin now, best is I have a good guess of theirs. Then change my sign to 3.5$ and add “super dry, burns like tinder” and see what happens. When still enough people buy, I’d run some additional test with price increases and new value proposition. And if enough people buy and Bob’s wood is as fine as mine, I’d go buy his for 2.5$ and resell it at 3.5$ and higher. Still 1$ profit but I don’t have to do the work anymore.
Being the second lowest offer is not a competitive advantage. Being the most expensive is. I would increase the perceived value by adding some benefits, and probably increase the price a bit.
I’d change the sign from “Firewood $3” to “Quality Firewood $3” (that or stick an Apple logo on it).
Magic Power Sticks These wild wands can burn, break, bristle, blaze, flare, flash and flicker. They can delight and destroy; create and consume. They are a stage for the world’s fastest, most fiery dancers, and bring light to the deepest darkness. These wands can smell, smoke, stifle, snap, sizzle and squeal. They can cloud the sight and make water disappear. These natural sticks can warm the heart, stimulate conversation, instil a contemplative silence, and enkindle sagging spirits. They will create an atmosphere that no technology can compete with. They will sacrifice themselves until they run out of oxygen, and then they will be ash. These magic sticks are natural and priceless. They need close supervision and must be treated with reverence. They are exclusively for purchase by people who have poetry in their soul. These magic sticks are not firewood. They are poems and songs and dancers and dreamers and life and death and are yours for $11 per bundle, if you dare to use them.
I’d cut half of each bundle into smaller sizes, then offer both kindling AND camp wood in one convenient bundle for $5 each - bringing my cost to $3 but doubling my net. No more sending your kids out to hunt for branches and sticks that have, by this time in August, certainly been cleared out within a 100-foot radius of the campsite, so they come back with pine needles, damp bark, or green twigs freshly yanked from some poor unsuspecting nearby tree that’s already been stripped up to 12-year-old-kid’s-reach (speaking from experience) And if anyone thinks you are overthinking the camp wood argument, enjoy this lively 3-page thread: https://www.arboristsite.com/community/threads/anybody-sell-campfire-wood-bundles.132821/ Doesn’t it start to look like it’s one guy supplying all the houses on the way to the campground? “My cousin does that for a 2nd job. It’s gotten so big that he’s bought a used processor, powered shrink wrapper/bundler and a few trailers to deliver the wood in.”
Put a sign out: FIRE STARTER KIT $6 all natural, cord of wood included Kit is birch bark, kindling, cheap pack of matches, additional cords for $4 unadvertised.
Here’s a couple of quick ideas I came up with, you are welcome to share. Package x) $5 per bundle with included matches / Firestarter material (newspaper, kindling, etc.). Maybe include a safety brochure for how to build, start, and extinguish the fires (one of those 3 page large picture type brochures). Package x) $10 per bundle and include smores kits; sticks, marshmallow, chocolate, etc. maybe even some quick recipes or derivations on smores. Charge more and come up with a personal recipe Package x) $20 per bundle with free delivery and setup. Offer a phone number that can be called if more service is needed so that the customer doesn’t need to driver back and get more. Package x) $49.99 per bundle with included cooking paraphernalia / personal campsite recipes / etc. Adjust pricing and packages over time based upon feedback from customers. Once sales are going well then turn Alice and Bob into suppliers and hire locals to do sales and delivery, sit back and think up new services / packages. Onwards and upwards!
Buy all of theirs and sell them for $5 each :) For real, though… add delivery options, kits (like you mentioned before), insert a “firewood tips and tricks” printout with each bundle, etc… basically, raise the value, hold or raise the price. Looking forward to what some of your “correct” answers are.
I would raise my price to $5 and include matches w/kindling with each bundle. The firestarter stuff costs me $1.
I’d immediately raise my price to $5 with a clear benefit like “bone dry firewood”. The price difference would self-justify that the other wood must be low quality in some way. Enough of the market would buy my wood that I’d make 2x+ profit selling 1/4 as much as Bob. I’d use my new buyers to learn more about the right benefits and outcomes that are meaningful to them. I’d create a 2-4 value propositions that are easy to deliver on based on perception and test out which one resonates the best. Few people would buy from Bob, Alice and me - so the market perception for tourists would mean it all plays out very quickly as they drive down the road. I assume the market is very fluid with few repeat buyers so the risk is very low to test things out each week and then dial in the best offer.
This is a problem when you are differentiating your product based on price. All it takes is one of your competitors to lower their prices and then you have to lower yours to stay competitive. The solution is to differentiate your product based on something other then price. This is one of the reasons a car dealership will give you a tour of the facility pointing out their service department and how great it is and how convenient it will be for you. When the price is close, knowing that you will be able to get fast, great service just might make the difference. So, in order to combat this race to the bottom, I would advertise that my firewood was ”campground approved“ or that I buy back unused firewood (within 1 week). The goal being to get the campers thinking about something other than price when that are deciding where to get their firewood.
Some ideas: * I would sell a “complete” package with kindling included (marginal extra cost) * Same with added skewers (+marshmallows?) for even more money * Perhaps include competing starter package for 2.50 (but make money on the others) * Jumbo 3 pack for $10 is a really nice number (“all night bundle”), would get rid of 2.50 option in that case, or add kindling etc to justify * Make the case that my packages will burn/last longer, make it emotional “keep the conversation/party/quality time alive longer” * Offer full service delivery via SMS to the campsite for more money (“don’t leave the party”) * Make a bigger, flashier sign, eg Campfire Experts * Leave the business
I would probably try to market my wood differently. Make people feel like they’re getting $3 of value from my bundle and they should pay a premium for it.
Understand their competitive position, the value prop for the buyer and then if all else fails move right outside the camp ground and raise my price accordingly for the added value of proximity. Or better work to sell it to the campground for onsite purchasing! :)
I’d immediately lower my price to $2 to drive my neighbours out of business. At the same time I’d start hiring neighbourhood kids for $1/hr to go chop the firewood for me thus driving my COGS down. If the neighbours start doing the same thing I start bringing in shipping containers of the stuff from China, benefiting from low wages and economies of scale to drive prices down even further than child labour allows. At this point I’m buying the firewood for 50 cents and selling it for $1. Parking on the street is nuts because everyone is coming for my firewood and the neighbours are starting to complain. I start applying for small business grants and convince the city council that it would be a win-win for the city to subsidize me leasing a distressed lot that used to be a gas station rather than continuing to run this out of my house. Gorging on tax payer money, offshore labour, and an insatiable desire for ”more“, I expand my operation to include sales of complimentary products like marshmallow skewers. I then erect a giant neon size promoting my firewood and purchase a billboard 5km up the road advertising the ”Best Deal Firewood in Town“. At this point I’ve run all the neighbours out of business and have secured a complete monopoly on the firewood market. Secure in this knowledge I start jacking up prices to $5/bundle and offering a premium version for $10/bundle. I tell people that only my firewood is certified free of bugs (we gas the firewood with toxic chemicals pretty heavily once it comes off the cargo containers) and buying it anywhere else they are endangering forests. I start expanding to other towns and rinse and repeat.. :troll emoji: Nice work on the emails as always ;)
I keep it at $3 and show the value of my firewood – vs the commodity my neighbors are selling.
If you lower your price to $2.25 to beat Bob, then you have lowered your price by 25% but you have cut your profit by 75% so you should instead differentiate your wood from their wood and raise your price. Or Corner the market, buy out all of Alice’s and Bob’s wood, and then raise your price to $5 :)
I’d go for the ”blue ocean strategy“ here and not to compete on price. Reducing my price by just 1/6th, half a dollar, cuts my profit in half! Instead, I’ll try to tap into a demand not served by my competitors. Maybe add a pack of skewers and marshmallows or something and add a few dollars to the price even. If the others compete on price, their wood is not of higher quality. And lets face it: people are not being camp wood because they are cold. They are buying an experience. So I’d sell them exactly that. One that tastes like marshmellows and smells like summer.
I would keep my price right where it is and add another sign that says ‘Wood Matches included’ then another sign the next day that say ‘newspaper included’ because my dad delivers newspapers and usually has a mile high pile at any given point. The third day I would chang my sign to bullet points: Seasoned Firewood $3 * w/ Matches * w/ Newspaper * Zero Plastic
I’m thinking about 2 things I could do: * Sell bigger bundles so the buyer is not comparing anymore * Increase the price significantly and offer at-home delivery so again no comparison
Keep at $3 and add the word ”Organic“ to the ”Firewood $3“ sign. Final sign - ”Organic Firewood - $3“
Thanks again everyone! Lots of good ideas in here (and some hilarious ones, too!). I’ll summarize the patterns in a future message.
For now I’d just like to point out that there is no right answer. But there is a wrong one:
”I’d charge less.“
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