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Comment by patio11 | Hacker News Reader

Frew, who apprenticed with a Savile Row tailor, can — all by himself, and almost all by hand — create a pattern, cut fabric and expertly construct a suit that, for about $4,000, perfectly molds to its owner’s body. In a city filled with very rich people, he quickly had all the orders he could handle.

You don't have to be Wall Street to figure out the bleedingly obvious solution to being a starving artist who has so much work they have to turn work away. Raise the prices. Then raise the prices. Then when you're done with that, raise the prices.

At some point you'll be too expensive for the typical businessman, which will make you absolutely crack for a certain type of person common in New York, thus defeating all efforts at being less busy. So it goes. I guess you will have to raise prices.

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No offense, but this could be really bad advice. Maybe the customers who'd pay 10k for a suit won't go to some guy's living room for fittings. Or maybe the price of top bespoke tailors in town is comparable, because they make better use of lower-paid assistants. Or maybe, to convince a bank to make the loan he needs to move into a nicer place, he needs to show the bank he has a large backlog of orders. Or maybe he's in the middle of following your advice, just raised his price, and will shortly raise it again because he's still getting enough orders.

I'm not saying you're wrong. I'm just saying we don't get nearly enough information to decide! And that's ok, because that's not the point of the article.

And maybe it just might work...

He doesn't have to jump from $4k to $10k. There's a demand curve and by raising prices from $4k to $5k and up he'll figure out where he can sit.

More importantly, he's already at $4k. The person that spends $4k on a suit isn't going to sneeze at $8k. The person who spends $120 for a suit, throws a fit at $240.

> There's a demand curve

That's commonly believed by mainstream economists, as an article of faith. That there is a demand curve, and it always goes down. It's not always true, unless a huge number of axioms hold (none of which are true).

It's most obviously not true for prestige goods, which go up in demand as price rises (and then go down as no-one is able to afford them). Demand curves can be wacky, even discontinuous ... and don't always go up.

But if they don't go up all the time, then 99% of analytic macroeconomics (as it's taught) isn't analytically correct, and the communists might win.

I'm not sure we disagree that much.

I would argue that:

1. There is a demand curve, or at least we can plot demand. I would agree it can be wacky.

2. It is very likely that even if we get the exact demand curve wrong, it is probably a net win for him to raise his prices given that he is turning down work.

You need only one axiom to get a demand curve:

The universe of potential purchasers consists of a set of agents (i=1...N) and each agent has a reserve price R[i]. If a good is priced <= R[i], Agent[i] will purchase it. If it is priced > R[i], Agent[i] will not.

The problem is that demand is not as simple as "agents will buy goods below their reserve price." Real world experience shows us that there exist luxury and inferior goods.

We can quite simply see that there are (many) agents who could buy any number of walmart jeans, but would never set foot in the store. Another chunk of agents currently buy, say, Levi jeans, but likely wouldn't buy those either, if those exact jeans were a third the price and sold in a discount store.

Similarly there are agents who don't give Levi a second thought, but will line up for jeans of similarly quality, trivially variable style and 10x the price.

The real world demand curves for blue jeans don't look like the simple axiom suggests.

I didn't claim the law of demand was perfect or that substitute goods don't exist. I was merely pointing out that wisty was wrong to claim the law of demand requires that "a huge number of axioms hold (none of which are true)." You need only one axiom which is, generally speaking, reasonably accurate.

Further, your example of jeans is trivially explained by noting that "jeans" is a broad category of goods, not a good itself. I.e., there is one demand curve for Levi jeans, a separate demand curve for hipster jeans, and a third demand curve for genuine levi jeans (not jeans that appear at first glance to be Levi, but sold by a shady discount store).

Your critique of the demand curve for jeans applies much better to various demand aggregates in macroeconomics, not the law of demand for specific goods.

The point of discussing multiple types of jeans was to compare and contrast their demand curves. My apologies if that wasn't communicated clearly.

I simply disagree that the one axiom gives us anything close to a reasonably accurate picture of what's going on.

The simple curve suggests that price is it. And it's quite clearly not.

I'm not sure this is correct. I remember in one episode of Mixergy, Andrew Warner said something to the effect of "X was the most expensive, so I bought it thinking they'd be the best and they sucked! Don't buy x."

Had X been cheaper, he wouldn't have bought it.

What am I missing?

You're missing the fact that nobody is denying that economic principles are a bit noisy in reality, and nobody's denying that demand curves are shaped by marketing and that the price itself is part of this.

And just to show how significant a 20% price increase would be:

If he raised the price just $1k, that's $2k a month, or $24k a year. That would increase his take home income by almost 50%, as he claims his current income is around $50k.

You're forgetting to figure in withholding, self-employment tax, etc... that $24K/year increase would be to his gross income, not his take-home income.

The article said he averages 2 suits a month, or $8K in gross revenue, so that extra $1K per suit would increase his gross by 25%, and his take-home by less. As a sole proprietor craftsman, there's no math that can get you a 50% increase in profit with a 25% increase in gross revenue alone.

Still, not a bad deal, assuming his customers are willing to pay it (I'm willing to bet they are).

EDIT: I shouldn't do numbers while eating dinner :). His take-home increase could be more than 25%, but it's unlikely to be anything close to all of the gross increase, particularly if he wants health insurance, which, if he has it at all, is probably coming out of that $50K.

I did misstate the percentages, as you noticed.

I don't think that whether or not he wants health insurance should matter when talking about his income. Won't his health insurance cost the same amount if he increases his pre-tax income by 25%(I'm a bit ignorant of health insurance costs, I still have TriCare through the Army). It seems to me that even if he paid about a third of the extra $24k in taxes, that he would still be adding $16k to his current take home income, which is still over 30% more than he was making.

Totally not offended by that comment, but I strongly disagree.

It is entirely possible that he's found the correct price for a suit: two hours' labor for his core customers. It is entirely possible that the devs who tell me their clients won't pay more than $20 an hour for Rails programming are accurate, and that they're correct in thinking that they're not skilled enough to work for better clients. It is entirely possible that the Rampaging Monster of Doubt actually understands how banks do loan underwriting better than e.g. the banker who you could confirm or reject that hypothesis in a five minute phone call.

But that is not the way I will bet. We're pathologically bad at this. Hiya, freelancer on HN: to a first approximation, you don't charge enough. Seriously. No information required to make that call. (This is said from a place of love. I don't charge nearly enough, either.) This guy, who produces things which rich people love and try to shove money at him for, so much so that he cannot afford to even talk to the rich people to take their money because he is so busy? This guy has our problem, too.

Starving artists who are starving because they produce something nobody wants to pay for are one problem. Starving artists who are starving because they think that they are a precious snowflake immune to Microeconomics 101 are an entirely different problem. They just need business sense.

The point of the article is to cry a bit about how the market economy is making true craftsmanship economically non-viable. (It practically tries to club you over the head with that conclusion.) The article is wrong. It has identified a problem to which there exists a trivial solution that will work.

From the last part of the article I quote the following: "Even the richest customer simply has to wait — sometimes months — before the new suit is finished. No wonder so many pass up a $4,000 bespoke suit for a ready-to-wear Kiton version at twice the price."

So customers are clearly willing to pay more, but they are not too keen on waiting two months for the suit.

I guess there are clients that buy a given amount of suits every year and have time to wait, but there are other clients that buy a suit when they need one and do not think 2+++ months up front.

The question is if the former group is large enough to sustain his business, and if they are willing to pay more than $4,000. The latter group have clearly the dough, but don't want to wait, so they are really not a segment he can focus on.

So while hiking the price might work, it might be that the real problem here is time to market.

Edit: Spelling

Direct benefit of drastically increasing pricing to best fit offering to profit curve: ability to hire skilled labor to accelerate delivery of offering to customers.

Without going to full automation I guess there are basically two process options here: 1) Add more tailors that work with the suit from start to finish, thus duplicating the work of the lone tailer Mr. Peter Frew in the article.

2) Split the process of Mr. Frew's work among different tailors.

One other company mentioned in the article, Greenfield, is implementing option 2): ". . . there are huge efficiency gains when one complex process is broken down into constituent parts and each worker specializes in one thing. At Greenfield, one worker sews pockets all day long, and another focuses entirely on joining front and back jacket pieces."

According to the article their suits sells for $2000.

Without testing it out it is hard to say if process option 1) will necessarily be seen as more valuable than process option 2) from the customers perspective. It is also hard to say if Greenfield's suits are of lower quality compared to those of Mr. Frew.

At the end of day the story the tailor(s) can create about their workmanship are as important as the prices and processes they put into action. Price is just one element in the marketing mix and can't been seen as separate from the rest, http://en.wikipedia.org/wiki/Marketing_mix

I think the point of the article (which wasn't very clear; maybe Adam Davidson should stick to radio) was that even at a price most of us would consider expensive, this guy doesn't make much money. And the reason is that, as the modern economy makes everything else cheaper, things that depend upon people's labor get relatively more expensive.

So bespoke suits have gone from being a huge part of the suit industry to being a tiny part of it (not non-viable, just not very important). If bespoke tailors want to keep from becoming ever more expensive/niche, Davidson speculates, they will have to adopt at least some labor-saving techniques.

Note your solution--raising prices--is exactly what Davidson is annoyed about. As tailors raise prices, fewer and fewer people can buy bespoke suits. Which is bad. I'd like a custom-built suit, but I definitely won't bet getting one.

You've jumped into this assuming Davidson is writing about a business problem. But I think he's coming at it from a consumer point of view. He doesn't spend a lot of time trying to figure out if the bespoke tailor can raise prices because, well, higher prices reduce consumer surplus, so that doesn't solve the problem he's concerned with.

>Or maybe the price of top bespoke tailors in town is comparable

Yup. You'll get a beautiful bespoke (not M2M, truly bespoke) suit in an elegant showroom in Manhattan with fantastic customer service for the same money. I've bought basic suits for two-thirds the price, in fact. He might have an attractive pedigree via his apprenticeship, but that's not worth three times the price to me. There is real, legitimate, similarly credential competition here.

The real question is why hasn't he done this already? It's a fairly obvious solution. I suspect that there is some other force at work here, though I'm at a loss to guess what it might be.

It's too bad that the NYTimes didn't raise this question.

Absolutely. I hate it when otherwise compelling articles fail to even raise a screamingly obvious question, much less answer it. The cynical me wonders if it is because the writers actually do know the answer, and it somehow weakens or distracts from their point. Or perhaps requires the telling of an impolite truth.

yes, things are not so simple. This man is not an idiot. He understand that raising the price could bring in more money with the same number of clients.

I am guessing the customer base is already small. And given most of his business would come recommendations and leads.

'He just increased his price'- Is not very nice if you want to get new customers.

    'He just increased his price'- Is not very nice if you want to get new customers.

Raising prices may actually increase sales. I think some of the problem is a lot of us are seeing this relationship between the tailor and his clients through the lens of software or service providers. For any right thinking business person there is no pride in going into hacker meetup and saying "I just had to upgrade from the 28 dollar a month plan to the 39 dollar a month plan at saas-of-the-month.com". Guys that buy 4000 dollar suits are operating in a different world. They pay 500 bucks for the custom fit, and the other 3500 bucks pays for being able to say they paid 4K for a suit AND you can't get one when it comes time to play "biggest dick on table" at the next board room meeting.

As patio11 often points out you're wrong about software & suits being in different worlds.

Any real software business is happy to upgrade from the 28/mo plan to the 39/mo plan if it gets even the tinniest benefit. I routinely approve those sort of expenses without spending more then 2 seconds thinking about them.

> Any real software business is happy to upgrade from the 28/mo plan to the 39/mo plan if it gets even the tinniest benefit.

But I'm not referring to benefits, I'm referring to "bragging rights". Say your company was utilizing a SaaS that offered a "Freelancer" tier and an "Agency" tier (where "Freelancer" costs less and offers less than "Agency"). Now if your company's needs could be serviced by the limits of the "Freelancer" tier would you pay more for the "Agency" tier just for the prestige of saying you pay for the "Agency" tier? No, you wouldn't. However that does happen with suits (or watches or luxury cars or other luxury goods), it's signalling.

http://en.wikipedia.org/wiki/Signalling_(economics)

FWIW: I was reading an article from Patrick / Patio11 just the other day when he talks about having experience with large companies upgrading their SaaS package just because the upgraded name sounded better on an expense report.

So it sounds like some SaaS upgrades may, in fact, be linked to the name of the package and nothing more!

Quit possibly it is ignorance or fear.

I know an African woman who used to go to the living room of some lady that charged her 20 pounds for work that she could easily charge 50 for - African hair can take a lot of work. This lady never raises her prices.

But she gets booked full 3 months in advance, and everyone who goes there raves about here and thinks she is ridiculously cheap.

Now, granted, a lot of those clients would disappear if she charged 30 or 40 or even 50. But she could afford to lose a lot of them, and even at 50 she'd still be cheaper than most similar quality competition in the area.

Simple solution to testing the prices? Hold back some time slots and offer a "rush" service to those willing to pay extra. Use a sob story about how this is family time she is giving up for you. Worst case she books slightly fewer slots for a while, and gives up on it.

But she is too scared to even try because she is terrified of customers going elsewhere... Despite the fact that people are willing to schedule 3 months in advance to get their hair done in her living room instead of walking into their local salon the same day.

I believe that is was from you I learned about a book, "The Strategy and Tactics of Pricing", which I think everyone in this thread should read.

Why speculate about how to set a price when you can apply some structured, thoughtful analysis to the problem?

It turns out that pricing is at once a slightly mysterious art and yet can be grasped in a few hundred pages. And that almost nothing else has as much leverage over profitability.

The book was actually overkill for the reason I bought it (settling on prices for a SaaS project); but I've started recommending it to every small business owner I know. It's that good.

Patrick,

Just wanted to point out that was my first thought as well. Also, wanted to say that I make it a point to read your comment feed on HN. You're one of the 4 folks who I read regularly because of comments like this help me change how I view charging and valuing my work and others.

patio11, pg, tptacek... who is the fourth?

I'm on the lookout for more very high quality contributors; sticking to their feeds instead of the front page (I still check front and new, just not as often) has greatly increased the value of this site for me.

(Thanks Patrick, Thomas, and Paul!)

edw519, cperciva, cletus, jrockway, swombat, mark_l_watson, andrewcooke, ...

  >> I'm on the lookout for more very high quality contributors;

As am I.

Yeah was surprised a few of these names hadn't come out yet.

Patio11, Tptacek, Danso, and SatvikBeri

I don't read pg, because a lot of his comments come across as babysitting HN, which is necessary for him to do, but not something I want to spend my time on.

I believe that what you put before your eyes, becomes what is in your brain, and you can only think about what you've seen before. What you think about is what gets written on your heart, and our actions are based on our heart. So, I value what I put before my eyes pretty heavily and that's why patio11, tptacek, and SatvikBeri are good reads. Danso is really interesting.

patio11 -- Important because he reminds us (me!) about what we're really worth as programmers and beyond that if we want to increase our worth moving bits better isn't the most efficient way to do that.

tptacek -- I don't always agree with him, but I think his world view is probably the most accurate of anyone on HN. The reason why this matters to me, is If I'm being honest with my self, hugely reliant on mental models. I use tptacek as a source of mental models about the world.

danso -- He has some pretty interesting comments, and I find when he does weigh in, it's usually from personal experience. Photography, Journalism, and data are his big topics of interest.

SatvikBeri -- I've never met the guy, but if you can get past his telling of how he saved his employer $2MM in a single year (http://news.ycombinator.com/item?id=4419277) over and over again, which I find very easy, he's worth reading. He doesn't post as much as the others, so I usually check in once a week or so. In a lot ways though, I think the $2MM story, is worth reading over and over again. It holds a lot of wisdom in how to approach business for the nerd-sphere.

I read HN on cell phone about 95% of the time, and have 127.0.0.1 news.ycombinator.com in my host file, so I just have these guys bookmarked on my cell phone and check in with the top two daily, danso every couple days, and SatvikBeri about once a week.

I also read yummyfajitas and mechanical_fish as well, but far less regularly. Usually, when I see a comment they make, I'll click on their username and read through their comments if I have time.

Holy cow, I'm flattered! And, uh, I'll try to diversify my comments a bit.

One thing to keep in mind is that that comment is what made me start following you in the first place, so it does get folks attention. I wouldn't worry about comment diversity too much, after all I keep coming back!

&/or follow the best comments http://news.ycombinator.com/bestcomments

Yeah I am also of the same opinion about high quality contributors. I have a Hacker News Reader iPhone/iPad app on the market and I just had a feature idea from this.

It would be awesome to tag users as favorites and then view their comments from the home page.

Also it would be beneficial to tag some users as annoyingly political so that their comments get hidden automatically.

As I was reading the article I hoped I'd find a dose of common sense in the comments, and indeed, here it is. Good as always, Patrick.

Guys, take notes, this also applies for contracting.

Most of the time proponents of price-elasticity make me laugh. And, I do say this with respect. I used to be one of these proponents. I inhaled business book after business book once done with engineering school. And, I played the game. And I got my ass handed to me.

In the real world price elasticity works within a very narrow range that is industry and product specific and can --and usually is-- highly dependent on a huge number of external factors.

Discounts are one of my favorite. Believe me when I say that I've played that game multiple times. I used to own an electronics manufacturing business that made products for industrial and professional applications. I had to face the reality of product from Korea and China entering the market at half my price and offering 60% of my value. The result, no matter what I did, was the huge sucking sound of sales leaving for the competition.

Lower your prices you say? Did that. Multiple times. In multiple creative ways. Eventually matching their prices and accepting lower profits. "We'll make it up in volume". Bullshit! Maybe I sold 1% more product. That's it.

OK, how about more value. Did that. Multiple times. Added features. Added mind-numbing technology. No-go.

We are talking about products costing thousands of dollars per unit here. The fact was that people, particularly as the economy got worst, wanted Walmart, not Gucci. And so the business went to what they perceived to be the cheapest they could get.

Don't get me started on Asian companies dumping to kill-off competition. Nasty.

OK, well, how about the high end. I had very high end product as well. $50K per unit and above. High performance. The best of the best. Volume, just like the taylor in the article, sucked. We could make these "Ferrari's" but it was sheer pain and suffering, financially speaking. The general theory was that we'd sell a high-end unit and also sell a lot more lower-end units along with them. Nice dream.

So, raise prices? Sure. Why not? The problem is that people are only willing to pay so much for what they are buying. The "how much" is a multivariable problem that is nearly impossible to solve. This is certainly true for a taylor who only makes a few dozen suits per year. He can't experiment with pricing too much as word of mouth would destroy his business. If customer B learns that he paid more for the suit that his friend, customer A bought all hell breaks loose.

I know I sound very negative about this. I am just looking at it from the perspective of having experienced failure in price elasticity due to the product I was pushing existing in a very narrow trading margin. Volume couldn't really scale at the bottom or at the top due to different factors and price at the top was limited by what people were willing to pay for the product category.

Perhaps he can charge more for additional services that he might not be monetizing. One example might be to extend the delivery time on his standard $4,000 suit and charge a $1,000 fee for faster delivery. In effect he would be raising his actual per-unit price, but it would be in the context of easily communicable value. In the prior example, customers A and B would have on issue with what each paid because the conversation would quickly identify that B got his expedited, which costs money.

He could also take in an apprentice and see about offloading some of the work. My family owned several clothing manufacturing plants and so I am also familiar with aspects of this business. There's a lot that can be done by less skilled workers if one is smart enough to setup systems to make this happen.

Finally, he might be very well served taking his problem to a local business school to see about getting help from one of their various programs. His business could very easily become the subject of a class and he could have a small army of consultants helping him move it out of the garage.

> He can't experiment with pricing too much as word of mouth would destroy his business. If customer B learns that he paid more for the suit that his friend, customer A bought all hell breaks loose.

I agree he would need to be careful. But in this case because there are so many trivial ways in which he can differentiate the products in ways that will sufficiently justify price differences:

* Use more expensive materials. And mark it up heavily. * Provide a luxury service: Visit the client for measurements with a couple of pretty assistants instead of having them come to you, and make the service look more upscale. Send someone over with samples and pictures to get feedback a couple more times than usual. * Make things take longer to give the impression of more effort. There's a shoemaker in London that takes 6 months to produce your pair of shoes. They can optionally provide additional pairs to the same measurements, for a measly additional sum of 500 pounds per pair - the price for their first pair is not listed. I'm sure there are more - that's just one I stumbled over. But this one presents the long time it takes as a mark of quality and status: Most people just go to a store and buy shoes, but you, your shoes take 6 months to be ready. Of course it costs. * Add on lots of stuff that indicate higher quality but that the client has no idea of the real cost/effort for: Finer stiching; more complicated patterns; more detailing inside. etc.

As you point out, he could also charge extra for faster delivery (on top of making his new "premium" service take longer by default, even), or flat out state that due to the demand, there is a waiting list, but a limited number of "rush" order will be processed if you pay a substantial premium.

This is very different from most technology products - suits, or fashion in general, is a very visible status symbol, and beyond a certain quality level, a higher price will often make the product more desirable even when there are no quality differences other than minor visible visual cues that lets those in the know realize that you've paid twice as much.

What takes time is to create the pattern and the last for a bespoke shoemaker, so the additional pair of shoes are not that time demanding to make.

I think the economics of pricing your labour are different from the economics of pricing something you manufacture. I mean, yeah, in this case, he's manufacturing something, but his whole value proposition is that something constitutes an enormous amount of labour.

Yeah, he can hire underlings, but managing people is a completely different skillset. (I mean, to manage skilled people, you need to have a pretty good knowledge of that skill... but you also need to know how to manage people.)

Under those conditions? eh, I think that raising prices when you are turning away business makes a lot of sense. I mean, right now, I'm doing the same thing with consulting type work. I apologize and usually hand out referrals when I quote a price, but eh, I don't need the work. If I scare off the customer, good.

I think people are also more understanding about you changing the price of your labour than about you changing the price of a mass-manufactured good. Most people understand that you have busy times and not so busy times.

also note, in most expensive things? customers pay different amounts based on their negotiation skill and perceived ability to pay. I mean, I'm trying to sell co-location, and, well, mostly failing using the 'here is the price on the website; everyone pays this price' model. I even lowered existing customer's prices when I lowered the price for new customers. Nope. Nobody cares. In co-location, if you want to sell, you give 10%- for the life of the customer, including upgrades to the salesguy. (mind you, for the small fish, my customers, this guy just throws you an email and you take it from there. He does no work ongoing) Obviously, as my margin on the larger co-lo packages isn't all that much more than 10% (which is completely reasonable; it's not that much work for me... most of it goes to the data centre owner. I mostly just handle the network.)

Anyhow, I guess my point is that most customers, when buying expensive things, are absolutely used to the situation where you spend two weeks fucking around on the price, where everyone pays a different price and nobody knows what the renewal price will be. Sometimes, in fact, it seems to me like they prefer that model.

> Added features

Try removing features ;)

Incredibly in some cases this increases value, because it creates a product that is narrowly specialized and fulfills very specific need. People with that need would rather buy a product that does exactly what they need instead of something that also does it. Specialization and a higher price point serve as indicators of higher quality, and through that - a higher value.

Tried that too. Didn't work. I was Gucci. People wanted Walmart. At one point the entire thing becomes highly illogical. For example, people knowingly choosing to buy product that is known to be of low quality and unreliable. One of my resellers back then told me "if we sell ten of those, twelve come back broken". Still, people, for some reason, continued to buy that product. This is just one example of what woke me up to the reality that price elasticity only applies to specific, and sometimes only textbook, examples.

I agree, and that was the first thought I had. However, I have found that when people act in bizarre ways, it is sometimes because they are crazy, unintelligent, or ignorant. But much more often it is because they know something you don't know.

Indeed if he makes $50k off of 48 suits a year, he could nearly double his income by raising his price by 25%; if he is turning away customers that seems like a no-brainer.

It seems like the obvious solution. There must be a reason why that has not happened. People will pay hundreds of thousands of dollars for a Ferrari mainly because they are so (artificially) scarce. And still they will have to wait a long time (two years) to get it. Incredibly enough the best advice to get your ferrari a little faster than other people is to suck up to the dealer. Could it be that a big part of his problem is branding and awareness?

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