Case of Price, Part 1

If you want to stir up a hornet’s nest; bring up the subject of price among printers. Well, I did that this year as I embarked on an expansive project to develop a pricing guide for digital printing. In this series of articles, I hope to present some of the interesting things that I have found as well as raise the awareness of the role price plays, as opposed to the role owners often thinks it plays.

Okay, what is price? It’s really more than one thing, you know. There’s the sticker price on an auto, also called list price on some things, and there’s the price you pay. Who doesn’t get 10% off last bracket from the paper merchant? Oops! I inadvertently found pockets of printers who, quite frankly, were paying much more than others, especially for cover and carbonless.

There’s also the asking price in real estate, for instance, as well as the bid price. When an agreement is reached, it’s rarely either of those numbers. Rather, it’s a transaction price, or traded price, or final, final price.

The Perfect Price

Some simply refer to price as the quantity of payment or compensation given from one party to another in return for goods or services. And that’s it, but that’s not what we printers mean when we talk about price. We printers, I believe, are asking about the clearing price when we discuss price and pricing, which is an economic term.

The clearing price (aka: market clearing price) is defined by me as being the price at which we sell every last bit of what we have to sell without having any capacity left over, and getting the maximum dollars (or cows, if bartering) so as not to leave any money on the table.

Now, in economics, the concept of market clearing (supply will always meet demand, and everything remains in balance over time) was an accepted truth for 150 years, through 1935 when we hit the Great Depression and questions arose about its validity. John Maynard Keynes asked, if this is true, how could unemployment last for so many years? That gave birth to more modern short-run focuses of economics. (Keynes reportedly was asked, “Yes, but what about the long run?” He was said to have responded, “In the long run, we’re all dead!”)

What You Don’t Know

Setting macro economics aside, when we printers talk about price, I believe that the clearing price is what we are really asking about. I hear the question as, “What price should I ask for that will allow me to sell all that I can at the highest possible value without having to do anything else—like talk with customers?”

The answer is there isn’t one. I don’t know if you saw that answer coming or not, but the clearing price or the final, final price is the result. And the result can never be predicted with accuracy since it will change from transaction to transaction, even within the same shop. (Can two people in the same shop give the exact same price for a complex project?). Not only that, but the role price plays is over emphasized by most because they took Economics 101 at some time in the past.

Huh? Everyone knows about Supply and Demand. Ask any business owner. You’ll get something like, “As the supply goes down, the price goes up,” or “As the supply goes up, the price comes down.” That’s common sense, isn’t it? And it’s taught in economics!

Actually it’s not.

The only thing most people remember from economics is Perfect Competition, or the concept of a market where there is no product differentiation (coal is coal or one share of IBM stock is the same as another share); there is perfect information (all buyers and all sellers know the final price on all transactions); and there’s no scarcity. That’s not printing, nor is it a condition that most small businesses operate under.