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2009-02-12 17:24:36

Getting Price Lessons From Cows

 

My 10-year-old son drinks a lot of milk, just like a gazillion other kids of the world. Somewhere around his fifth birthday, we had the talk about where milk comes from. Not exactly the hem and haw level of the “other” inevitable talk, but we covered the udder thing pretty well. We drove to a dairy farm; I pointed out the grazing beasts and explained how all the milk he drinks comes from one of those very same cows.

Which leads me to this article about your listing inventory.
 
Let’s say you have six homes listed and two are priced $25,000 higher than the 10 other similar properties on the market. Hold that thought for a moment.
 
Cut to the grocery store dairy section. As you stare at the endless sea of glass doors, you finally identify the several hundred feet that is devoted to that ever so popular drink of which you seek — milk. Ah yes, nourishment for the kids and great for smoothing out mashed potatoes. You will find whole milk, 2% fat, 1%, non-fat, chocolate flavored with 1% fat to help eradicate the guilt, lactose free milk and something called acidophilus milk, which sounds like one of the rock groups that my daughter listens to. Point is, there's a lot of milk on the shelf.
 
Soon you narrow your focus to the milk which you prefer, lets say it’s the 2% type. Well, last time I checked, my store had three different brands. Brand A was priced at $3.79, Brand B was also $3.79 and the milk with a bland generic type container was priced on sale at $2.99. Sound familiar?
 
Your first thought may be that the higher priced milk must be better quality. Wait. Let’s flash back to the dairy farm and the words to my boy; “It all comes from the same place.”
 
“Well,” you say, “The lower priced product must have something wrong with it. Maybe it’s close to expiration, perhaps it’s only ¾ of a gallon.”
 
Nope, a gallon is a gallon, so the ounces are the same. The expiration, in fact is further out than the more expensive brands, making the cheaper product even fresher. What gives?
 
Talk to the manager about it and she’ll tell you, “Yes we make less profit on that brand, but the distributor knows if he wants to have market share, he needs to be priced below the competition. He sells it to us for less and we pass the savings on to the customer. As you can see, that brand is flying off the shelves, while the others sit there and expire. Heck, milk is milk and the customers aren’t stupid. They go for the price every time. In fact, the more expensive labels help to sell the bargain brand, cause the customer has something to compare to. One more thing; it’s good for the store, because we are known as the go-to place for the best deal on milk.”
 
Back to your listing inventory. Do you have houses that are just like other houses, yet priced higher in the hope that some customer will like your flyers (sans brand) or maybe just won’t notice the difference? Do you think the other real estate agents who sell your listings won’t notice? In actuality, they will do as I have often done—namely show the several different houses (milk brands), let them look at the price tags and then make their own decision. And yes, I would tell them, a house is a house (as milk is milk).
 
Mike Butson is a real estate practiioner and a RealTown Blog member. He specializes in real estate fianance and marketing. Check out his RealTown Blog.

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