Price ceilings and perceived value
As the days get longer and the chaos of spring is increasingly imminent, we’re grateful for the opportunities we’ve had to get back out on the road over the past few months. We have always looked forward to winter: it’s our time to meet with customers, network with industry partners, celebrate the past year, discuss the future, and, of course, attend trade shows. It’s also an opportunity to gain a better sense of the issues facing our industry. The absence of in- person events and the need to socially distance last winter left us longing for this element of social interaction. From meeting with our customers, talking to vendors, and hearing from speakers at recent events like InVigorateU and iLandscape, it’s clear that inflation and the relentlessly rising cost of goods are the leading issues on everyone’s mind right now. I think we all want to know how much longer this will go on and when we can expect some relief from the constant pressure of supply chain issues and labor shortages.
To cope with the rising costs of labor, freight, plastic, fertilizer, and other inputs, many of us have been forced to raise prices significantly in order to maintain our margins. With any price increase comes some uncertainty about the impact on sales and potential backlash from customers, and it has left some of us asking where the price ceiling is. There’s no doubt that the demand for nursery stock is higher than we have seen in recent history, especially on long- term crops like large evergreens. But, although there is generally less resistance to price increases in times of inflation, there is still a limit to what customers will pay.
When we think about establishing an effective pricing strategy, we know that we need to first understand our costs and establish a price floor. But after the Great Recession hit in 2007, many nurseries were forced to sacrifice their profit margins and slash prices in order to move plant material. Although the recession officially ended in 2009, the effects have lingered, and some nurseries have only recently begun to see their prices rise to pre-recession levels. Perhaps one upside to our current economic situation is that it has forced us all to examine our inputs and costs and reconsider our pricing structures to ensure we are making a fair margin.
Whether we’re determining pricing structures for wholesale, rewholesale, or garden center sales, our perception of value is mainly influenced by our knowledge of the costs that go into producing or procuring the plant material. Since our end customers don’t know the actual costs of production, their perception of value is likely much different from ours in most cases. That’s why it is so important to think about perceived value when we consider how much a customer is willing to pay for an item. In order to buy something, we need to feel that the price we’re paying is less than the value of what we’re getting in return, and that’s where our marketing efforts can really pay off.
At lower price points, customers are generally basing purchasing decisions primarily on price alone. But at higher price points, they are influenced by all the added social, environmental, and health benefits that go along with those plant purchases. We’re seeing that, more and more, younger generations are being motivated to buy plants because of these added benefits associated with gardening, and that is being driven in large part by social media and the profoundly successful marketing strategies of companies like Proven Winners®. The houseplant industry has also been adept at utilizing social media to create online communities and emphasizing the mental health benefits of indoor plants, subsequently increasing the perceived value of their products. We can apply these same tactics by, for example, marketing Asclepias as a pollinator plant that will provide crucial habitat for migrating butterflies rather than simply focusing on its physical features like flower color, size, and habit.
Most of us are in this industry not only because we’re passionate about plants, but also because we believe strongly that the goods and services we provide have a positive impact on our customers and society as a whole. In order to be successful and continue doing what we love, we need to ensure that we are making a fair margin while simultaneously educating our customers about the true value and benefits of the plants we produce.
