English Cut is a poster child for blogging success but they’ve hit a brick wall. Over the weekend marketing and sales partner Hugh McLeod posed a classic question about the next step in scaling a resource constrained business – in this case bespoke tailoring. The question seems simple – having established a strong position in the market and pretty much reached production limits, should we raise prices and restrict output to maximise revenue from core activities while reducing costs – especially international travel?
Here’s an opportunity for all those that want to change their professional business model to one that emphasises value added advisory services. This was my two penn’th on the basis of the limited facts in Hugh’s post:
- There’s an assumption that labour – the principle cost component – is absolutely constrained. That may not be the case. Indeed, raising prices and creating an air of greater exclusivity could be a attractive. To potential trainees, English Cut could then say: “Come to the only industry with full employment” – if that’s true. that would be a way to scale AND retain exclusivity and so protect the existing price point.
- The market determines the upper limit on price based on perceived and received value. A bespoke suit is a unique product. Can you therefore restrict output and brand it – as Hugh proposes – to “100 Suits” per annum? I think the comparison he draws between suits and limited edition fine art is risky because the individual nature of each suit might be perceived as alienating a portion of the market. I’d want to test that among existing customers.
- To date, they’ve sold on value. Would a price hike alienate existing loyal customers unless there is genuine value compensation? If so, would the additional time devoted to customers reap a proportionately greater reward (I feel a spreadsheet coming on at this point!)
- Hugh claims English Cut products are of a higher quality than competitors who sell at higher prices. That’s subjective. What do customers say? Has EC done a good enough job communicating its values such as will create that additional sense of exclusivity that warrants a price hike?
- Finally – would travel – a significant cost component – actually fall? I doubt it if EC wants to spend more time with customers.
Professionals know that price is the single most important determinant in profit/cash flow models. Hugh’s thinking seems intuitively right from a supply/demand/price perspective but the theory should be tested. To me, the next step is some sensitivity analysis. And I haven’t talked a single number – yet. What say you? Drop a comment over there. Who knows – you might get a call. Here’s another incentive. Hugh counts among the world’s most influential bloggers for those who operate at the business to business level.
UPDATE:
David Terrar’s already thrown in his 2 penn’orth
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