Thursday, May 12, 2016
Not Selling Yourself Short - The Importance of This in Business
People who have had their own business for even a short period of time will have no doubt noticed that there are no shortage of very demanding customers out there. These are the types of customers who go to a jeweler and try to buy a VVS1 diamond for the price of an SI, all the while trying to argue that the VVS1 prices are too high. Because most of us who have opted to own our own businesses, were attracted because we genuinely want to help people and are NOT primarily motivated by money, it can be tempting to want to model our businesses around accommodating these types of customers. However, doing so can seriously hamper the ability of our businesses to thrive over the longer term.
I have had two exchanges over E-bay this week with two different prospective customers that drive this point home.
The first was with a fellow who wanted to purchase this stamp:
This is the 20c olive green War Tax Issue of 1915, in a condition grade, that is as close to perfection as you will ever see in a lifetime of searching. These issues were intended for use on revenue documents, as the War Tax rate on mail was only 1c. Consequently the quantity of stamps overprinted was not large, so the pool of stamps from which to draw in looking for well centered stamps is very limited. Of the few well centered stamps that do exist, most were mounted into albums using hinges. So to find an example like this with pristine never-hinged gum is a once-in-a-lifetime find. It is well outside the bounds of what the standard stamp catalogues are valuing when they price this stamp.
I also have some other nice examples of this stamp that are more in line with what the Unitrade stamp catalogue is valuing when it prices a very fine never hinged example at $540:
As you can see these two stamps are very nice, but are not perfect. These are what we call very fine: much better than average, but by no means perfect. I have these priced for between $144-$395 because one is hinged, while the other is not. These are perfectly reasonable and fair prices for these stamps.
The first stamp above, I have priced at $1,400. I make no apologies for this price, as it is in line with the quality. In the Jeweler's world, this stamp is the equivalent of a VVS1 diamond with A colour. This brings me to an important axiom that applies to all businesses that carry inventory:
YOU CANNOT SELL WHAT YOU DO NOT HAVE
For all the talk about the importance of turning inventory quickly, etc, there is still something to be said for having an item for a customer who really wants it and is willing to pay for it. Most conventional wisdom about inventory turnover or drop-shipment business models applies to businesses where the product is readily attainable - all one has to do is call up the supplier and place the order. However, such is not the case in this business. While I will very occasionally come across more examples of this stamp like the two shown above, it is highly unlikely that I will ever see an example like the first one shown again once I sell it. Therefore I have to make the price high enough that I will have it when a customer who really, really wants that quality asks for it. There are many such customers like those who have the other stamps in the set in that same quality and are missing just this one, but I digress.
So earlier this week, I receive an offer from this fellow for the above stamp of $300! That is 21% of my asking price. It is only 60% of the catalogue price for the VF quality as well, so it was a really lowball offer. I responded with a counter offer of $850 and explained that this customer will never see a better example of this stamp. After a few days, he counters back with $400 saying that he is now sure there is a small defect on the gum and that this is the most he can pay for this stamp. I told him that $850 was as low as I would go, that I had other stamps in his price range and that if he wanted this quality, he would have to be prepared to pay.
This is at odds with the way a lot of my fellow dealers do business. Most would have sold this stamp for the $400 thinking that they got 80% of catalogue for a very fine stamp. The fact that they would give up the opportunity to sell it for more in the future wouldn't faze them. Their rationale would be along the lines of "I have to move the stuff to make a living." I fully agree with this line of thinking on stamps that are readily replaceable, and which I have in stock in quantity, but not on stamps like this, where I will only see them once or twice during my career.
The second exchange occurred today in regards to this stamp:
This is a very nicely centered used example of this very difficult 20c stamp fom 1904 with a very light cancellation for this stamp. You could look through hundreds of used copies of this stamp and not fine one as nice as this. Nearly all of these were used either on parcels or large registered covers with very heavy cancels. There is just one minor imperfection on this one: a small wrinkle half way up the left side. I reduced the grade for this minor imperfection and priced it for $40 against the catalogue price of $60.
This fellow, who I have never done business with before, but whose name looks familiar to me, messages me and says: "Nice stamp overall, but it is clearly damaged - left side." Why he felt compelled to send me this message is beyond me, since he clearly has no interest in buying it. Maybe he wants it at a lower price. The sense I got though was that he was trying to suggest that I do not know how to grade stamps.
Now, I will admit that I follow a grading system that I developed that is a little different from what most collectors and dealers use and I can see why many collectors would disagree with my grade on this stamp. There are many collectors who would not want this stamp because of the wrinkle. However, there are just as many who still would. Both my evaluation of this stamp and the price were designed to reflect this fact. Had this stamp been pristine, I would have priced it at the full catalogue price of $70, not the $40 I was asking. The fact that some collectors do not think it is worth more than $5, shouldn't factor into my pricing decision as long as there are a reasonable number of collectors who would pay more.
I share these two stories because I think it is really important when you are building a niche business to know your value and not allow your extremely demanding customers, who in most cases remain non-customers anyway, to erode your perception of that value. As long as the majority of your customers like your value proposition, there is no reason to turn away from it just to please a few extremists. It can be tempting to think that their opinions represent the majority because they are usually expressed forcefully. However, the truth is that their opinions usually DO NOT represent the majority of your customers and altering your business model to accommodate them will actually hurt your business rather than improving it.
I have been passionate about stamps and postal history since I was 6 years old. I am a Chartered Accountant in good standing with the Ontario Institute. I was until July 2015 a partner of a mid-sized Toronto firm. I left in July 2015 to pursue my passion of full time stamp dealing.