August 13, 2012
During the Olympics, all eyes turn to sports. We hold our breath to see who out-touches who, or who nails a routine, or who’s on pace to a world record time. In New York, however, these sports take a back seat to another sport: real estate.
This week, another penthouse was listed for sale over $95,000,000. That’s right—95 with six zeros! Most real estate markets in the US are beginning to see slight rebounds, but even to me this seemed a little excessive. It’s also a $40M increase in list price in just 2 years! Which got me wondering: What’s in a list price?
List Prices Signal Value
Who knows what a sort of discount off list this unit will trade for, but the key is the value you are trying to communicate to the market place. If your competitor’s list price is $100 and your list price is $110, it is to communicate the added value of your product vs. the competition: Bigger! Smaller! Lighter! Faster! More Efficient! Whatever that added value is, it is communicated in the list price.
List prices help customers understand the relative value of your products
I hear from customers all the time, “Our customers don’t understand our pricing.” Some older products sell for more than newer products; more technologically advanced products sell for less than other less technologically advanced products. Prices need to be aligned so that customers can intuitively understand your good, better, and best products by looking at their prices. Which brings me to my final point….
List prices need to be actively managed
I had a prospective customer tell me the other day they had an 8GB Memory card that they were selling for $450. When they dug into why this was happening, they realized it had been in inventory for 20 years and was priced using the 20 year old cost of 8GB of memory! If the reason you have list prices is to signal value, and to signal relative value, then you have to update lists prices continuously. If you don’t update them in 20 years, then they stop making sense to everyone. This becomes even more complicated in this age of acquisitions where you have to align your list prices to products prices of companies that were once competitors and are just another page in your catalog. It’s not good enough to just keep different discount structures to make sure net prices are the same. You need to start by making sure the list price makes sense.
Which is why this new New York City penthouse is on the market for $95 million. They are saying ‘this is better than any other unit in the building, and better than every other unit in New York (well, except the one listed for $100 million a few weeks ago). But as with any New York apartment, you can’t have everything. Which is why, even at this price point, the broker will have to point out to the buyer at some point ‘oh, well it doesn’t have that….”
– Dan Bormolini