Price gouging...

A

AV8R

Joined
Aug 28, 1999
Messages
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Continuing from where we left off in the other thread....

I agree that a custom knifemaker has a right to price his knives wherever he sees fit, as long as he honors previous committments. He has the right to charge what the current market will bear. It's his choice. However, sound business practice involves periodic price increases to cover things like inflation, costs of materials, even intangibles such as name recognition.....so that the maker can recoup higher costs of putting out the product and also increase his net income as time goes on. Tying your prices directly to the secondary market is not a sound business practice. It's kind of like Dodge saying, "wow, the new Viper is bringing $75000 on the secondary market. Let's boost the MSRP" from $45000 to $75000! Not a good business practice. The definition of a "bubble" in a market is when prices are going up because prices are going up. Bubbles eventually burst. 100% price increases in a 1 year period are indicative of a bubble effect. Les Robertson told me of a maker who's folders got pretty hot on the secondary market. The maker increased his prices pretty much in parallel to the secondary market. Secondary market demand eventually cooled and this maker now sells knives for considerably less than he once did. How would you like to be the one who bought from him at top dollar only to see him selling to others now, for considerably less? Bad business practice. The various knifemaking organizations (KMG, ABS, etc...) promote good business practices as part of their overall goals. There's a reason for this. A stable industry is a successful industry. When dealing directly with the maker, investors can lay down their $5500 for a Ron Lake folder, or whatever, with confidence that their investment is real. Not bubble. That's the difference. If there was a Guild show involving the 10 hottest makers in the world, all charging the inflated aftermarket prices, would you want to attend? Some would, some wouldn't. The ones that did attend would be referred to as "speculators", not investors. Anyway, I'm rambling, but the bottom line is that the whole bubble thing will erode the knife industry if it exists at the makers level. The makers that I referred to know this and don't care. That's why I mentioned the word "honorable" in the last thread. They don't care about their industry or knowing that their knives represent solid investments for their clients.

The secondary market is a "buyer beware" market, just like all secondary markets. None of this applies and everything is fair game, as long as people are not deceiving each other. It's nice and something that we should not take for granted, that we have a high number of extremely honest purveyors who deal knives on the secondary market. We trust people like Les, John Hanlon, Knifeart, AZCK, etc....that their prices accurately reflect the secondary market.

This is getting long winded, so I'll wrap it up by saying that secondary market prices for true collectables need to be higher than the maker's price. Let's say a maker has a 4 year wait and charges a certain price for a knife. A purveyor like Larry or Les charges a bit more on the secondary market. The buyer is paying for the immediate availablilty. If the maker sees this and raises his prices to match, you can see where it goes. The two makers that I specifically referred to have raised their prices enormously whether you order or buy at a show. If a maker has an "order price" and a higher "show price" I really don't object to that as long as you can order and actually receive the knife within an understood time frame.

I'm interested in how others view this and would like opinions. I've been dealing with collectables (mostly cars) all my life and find this kind of thing interesting. Pipe in with your opinions....

Pete
 
I don't disagree that a healthy market is probably one where the initial buyers can at least recoup the amount they've spent, adjusted for time-value of money, etc. However, I am interested in knowing your opinion of what should be a healthy % premium for the instant second hand market. I'd think 10% - 25%. Makers whose pieces are selling for 200% - 300% are just leaving money on the table.

Second, I want to say that I don't believe price gouging exist, either in the case of knives or gas or anything. I don't care of the circumstances, you always have a choice to buy or not. Any transaction, by definition, is mutually beneficial, otherwise it wouldn't take place at all.

Third, it is the buyer's responsibility to assess how much a given piece is worth to him. Yes, prices go up and down, and if you choose to buy at the peak of the market, you should take your responsibility. Anyone whining that they bought at an inflated price will get nothing but contempt from me.

Finally, I will say that there is a difference between a smart business decision and an honest one. Rasing your prices with the market is never dishonest, but it can be the wrong business decision. Pete talks about good and bad business decision, but titles this thread "Price gouging..." which tells me that he doesn't understand the difference between the two - or maybe he tries purposefully to mix the two. I find this regrettable.
 
I can't disagree with anything that you posted. It behooves a maker to keep his pricing as reasonable as possible, no matter what the secondary market is doing. A maker's selling price should reflect the cost to make the knives and his position in the hierarchy. Secondary market pricing can go up and down, but once a maker has raised prices, it will be very detrimental to his business to lower them.

What this says is that makers should take courses in running a business.
 
Keith Montgomery said:
What this says is that makers should take courses in running a business.
Click to expand...

Amen to that, brother!!

BUT.....for a lot of makers, as I have said before, they do the best they can with what they have, otherwise, they might very well be working a cushy job somewhere, 9-5, with weekends off, healthcare benefits, and healthier(not breathing steel, ivory, pearl and phenolic dust) lifestyles.

It is hard enough to make knives, I know, but for a great many of our esteemed makers out there, business acumen is a dream. Firstly, you have to be INTERESTED in the concept of busines, secondly, it is as important as making good knives in the long run, and is very draining.

I don't think that there are a lot of makers "price gouging", but I can't tell you how many times I have heard a maker say "I just don't know what to charge for that one". So I tell them what "I" think it is worth, if asked or if I am interested in buying it.

It would be nice if there were more education to collectors that what Les does, if they take him up on it, and would also be nice if there were more dealers like Les, and especially Paul Charles Basch, who ALWAYS shares his time and knowledge with knife knuts, buyers or not.
Best Regards,

STeven Garsson
 
Kohai999 said:
It would be nice if there were more education to collectors that what Les does, if they take him up on it, and would also be nice if there were more dealers like Les, and especially Paul Charles Basch, who ALWAYS shares his time and knowledge with knife knuts, buyers or not.
Best Regards,

STeven Garsson
Click to expand...


I'll give you an "AMEN!" to that one.

Like Joss, I simply don't see a maker pricing his knives in accordance with the secondary market to be "gouging". It may or may not be a smart business move, but gouging it is not.

Roger
 
I just used the word for lack of a better way to try to describe what I'm talking about. Maybe not the best word to describe it. I think my post itself pretty much says what I meant it to say.....

Pete
 
With a 3 year old and a 17 month old yelling their demands at me, I'm lucky to have typed anything even halfway coherent at all. Don't get too wrapped up with the "gouging" stuff......

Pete
 
To try and address your question of percentages, return etc... here's my take. The maker can't dial in to any specific percentage of the second hand market price. My whole point revolves around the fact that the second hand market can be inconsistent in the long term and it's the maker who has to creat consistency on his end. The 200 to 300% you mentioned could evaporate in some cases. An old Texas boy told me, "do what you think is right and let the chips fall where they will". Pretty unscientific, but that would be my way. In fact, that IS my way.

Pete
 
AV8R said:
An old Texas boy told me, "do what you think is right and let the chips fall where they will". Pretty unscientific, but that would be my way. In fact, that IS my way.

Pete
Click to expand...

That might also be what those makers are doing. They might just be thinking that pricing their knives based on what they bring in the secondary market is the right thing to do.
 
As we enter the 21st Century more makers are (primarily because of the knife Knuts on the Internet) paying attention to both the aftermarket and business aspects of custom knives.

This is especially true on the ABS side of the house, due primarily (if not totally)to the selfless efforts of Jerry Fisk.

Most custom makers have difficulty with pricing because they do not know where they fit into a particular market. They rely on established makers to set the standard. Some watch the aftermarket for pricing adjustments. Those who believe the press of the day are generally hurt by this approach.

One of the things I have been impressed by was the fact that Ernie Emerson did not buy into the aftermarket hype and kept his knives pretty much the same price over the last 5 years or so. Same can be said for Ken Onion and now Kit Carson (if you are lucky enough to get one from him).

Most makers who have what seems inflated prices are those who make very few knives in a year (part-part time) makers. The chances that they will ever fill all of their orders are slim and none. Consequently, those who crave the knife will pay a premium to get it. Like a game of musical chairs the music stops. In this case you get the chair but you are also the only one at the table and find yourself being the peak of the price range. Subsequently, the prices only go down from there.

Those makers who chase aftermarket prices or fail to find their position in a market and price their knives accordingly eventually fall to the wayside. As tastes change and the maker who was getting $2,000 for what should be a $600 knife is no longer the flavor of the month. The prices for their knives drop in the aftermarket and they see a direct correlation to the drop in orders and sales in their primary market.

The aftermarket prices are of course driven by the consumer. If the collectors won't pay the maker won't ask that price. Econ 101...Supply and Demand. Once the demand is met the price falls. As well the market leaders knives eventually succumb to commoditization as others capitalize on their efforts and lower the price point.

I agree whole heartedly with Kohai about Paul Basch what a wealth of information. I have known him for 22 years, set up next to him at shows, judged with him at more shows than I can remember and talked with him at countless shows. I never failed to learn something in a conversation with Paul.

WWG
President
Arbitrage Custom Knives
 
The maker who sees his knives sell more on the seondary market than what he charges should increase his prices because he may have got his prices wrong and not charging a market price.

He also know that he will not be popular forever and need to catch the wave before his buyers move on to a different maker and his prices fall so needs to increase his prices quickly to make enough for leaner times. Of course the maker could have many waves of popularity because he brings out new designs or he is "discovered" again after a few years and his knives come back into vogue.

The maker should also increase his prices to help sell his knives. A buyer would look at both the price from the maker and the secondary market, if the makers' prices stays the same while the secondary market increase, the buyer might think the maker has no confidence in his knives maintaining thier value and decline to buy them.
 
We're on the same page here. Can you go a step further for me? I didn't start the discussion talking about new makers who need a college course in business. Rather, makers who have been around for 35+ years. What's your take on why a maker who's been pretty logical with his pricing policies for decades and is obviously nearing his "golden years", all of a sudden boosts prices by 100% or more? Knowing there's a strong possibility that his knives at current prices are no longer a safe or solid investment for his customers, is he compromising any of the professional integrity that he's spent the last 35 years building? Or, as Keith rightfully pointed out, does he maybe think this is the right thing to do for himself and his family after struggling through a long career in this business? And, I'm not discounting this last question, as it could very well be the case. All of these makers have contributed greatly and have chosen a tough road professionally and I give them credit.

BTW, I've been asked privately to name the makers that I refer to here, but I won't and that's not the point of this discussion. I'm just trying to discuss an aspect of the industry.
 
Factors I consider in buying a knife are as follows:

  • Design and aesthetics - does it look good to me.
  • Quality - Materials, fit and finish.
  • Does it fit my collection - style, how its made, maker.
  • Price - See Discussion point below.
  • Price/Investment Risk - Likelihood it will it retain or increase its value, if it will its a low risk: See Discussion point below.

The last two elements of my list are dynamic and dependent.
  • A low price combined with low risk is a no brainer of a purchase if the top 3 criteria are met.
  • High price/Low risk means that I would buy if the funds are available.
  • Low price/High risk means I may buy if I love the piece or its a user.
  • High Price/High risk means I walk away.

Price "gouging" as it is described increases my risk angainst a high price (point 4 in my list above), so I won't buy, if other collectors think the same way demand will drop quickly both in the primary and secondary market. So in a rational economic environment price "gouging" is a very bad strategy for all involved.

Note I use the word "rational" ............ is custom knife collecting "rational"? :D ;)

Stephen
 
Stephen,
That's probably the clearest, best organized/writen decision making
criteria I've yet seen.....!
 
Yes, emotions play a big part in buying stuff we want but dont need.

I really dont understand the prices some people put on their products, which tend to be double or even triple what they should be (in my opinion of course)

Charging what the market will bear or what one thinks he can get will only screw you in the end........it would seem......but there are those that keep doing it, and profiting handsomely........if we could only see the future


then we would probably stay home!!!
 
Stephen F said:
[*]Does it fit my collection - style, how its made, maker.

Stephen
Click to expand...

I agree with all your factors and nicely stated.

Your point above particularly interest me, as many collections are very erratic (anything and everything goes).
Personally, I like to see a collection that is well thought out and meets your "does it fit" criteria.
 
Hi Pete,

First, as it has been throughly discussed here, there is no such thing as an investment grade knife. I have been told this over and over again by collectors and makers.

Second, if there are makers who view the knives they are making to be of investment quality, they are very, very few.

Living in a capitalistic society you can ask whatever price you want for anything you are selling. The fact a maker raises his prices by 100% is totally up to that maker. Just as it is totally up to the buyer to pay the new price.

For the most part makers make knives because they view themselves as artists and this is their form of expression. For many the business aspect is a necessary evil which few if any take seriously. Probably due in large part to the fact that about 90% (or more) of the knife makers out there are part timers or hobbyists. Consequently the money they receive from making knives is just extra money. I suspect it is the same for those who make pottery, duck decoys, etc. It is something they have a talent for and that they love to do.

I suspect your hypothesis of why the 100% increase is fairly accurate. The maker is headed towards retirement and those collectors and Dealers are getting that much for his knives in the aftermarket so why not him? His knives...his prerogative.

I do think that a maker should keep the price they quoted you on a knife, even if it takes them 5 years to make it (and they quoted you a year). If they want to raise their prices this is their incentive to finish the knives in the time frame they quoted.

I have heard more complaints about the maker not honoring their price several years after the knife is due than raising their prices 100%.

It is an odd set of circumstances we see in the custom knife market right now. Primarily precipitated by the Internet and Factory Collaborations with custom knife makers. New collectors can come on board and get a huge amount of information without understanding what transpired to cause this or bring the knife, the maker or the market to the current position.

Hi Stephen,

Excellent "Points" most who visit this forum would do well to follow your common sense perspective. Of course you are a seasoned collector who has spent tens of thousands of dollars and countless hours at shows and on the Internet gaining the knowledge and experience to put together those points.

Of course you are viewing your purchases with almost a, dare I say, investment type strategy. The word "risk" is used several times. Risk tolerance is not normally associated with custom knife purchases.

I understand fully what you are implying. To the point that I plan to make changes to my business structure in 2007. First thing I am doing is getting rid of my antiquated trade in policy. I don't know if I am going to eliminate all together (to be inline with most other dealers) or offer a 6 month window with a new purchase that must be at least 30% more than the original purchase. As I have been convinced that all custom knife buyers are full grown adults and consequently are responsible for their purchases.

WWG,
Arbitrage Knives:
Big Changes coming in 2007!
 
WoodWorkGhost said:
I have heard more complaints about the maker not honoring their price several years after the knife is due than raising their prices 100%.
Click to expand...

Now THAT is a different kettle of fish. My view is that makers with long waiting lists (3 years and such) should not quote a price at the time of the order but let the customer know that when their order comes due a price will be quoted and the customer may choose to go ahead or not at that time. If they choose to give a quote, and that 3 year delivery time turns into 5 years, they may then feel like they're "giving the knife away" at the old price. Too bad, that was the deal they made.

What I don't understand is the level of anger expressed by some over makers jacking their prices, absent the circumstance duscussed above. It may be that the maker has been consistently underpricing his knives and is adjusting accordingly. It may be that the maker if feeling greedy and not wanting to see others make a quick and substantial profit on his knives. For a full time maker - you know, the kind that has to pay the mortgage, the hydro, the dental bills, the college tuition etc. out of his profits alone, I can understand it. It may (and often will) be the wrong move, but my question of the buyers is - Why get your knickers in a knot? How is it that you have been wronged, exactly? As a well-known dealer has been known to observe, nobody has ever forced anybody to buy a custom knife. Take a look around - there is no shortage of custom makers and custom knives out there. You don't like a maker's price? Fine. Move along. Don't shorten your own life span with too much blood-pressure-raising outrage.

I pretty much apply Steven's points, and you better believe that pricing / value / risk are subjects often discussed by collectors off-line. When I (and others) feel a maker is asking unrealistic prices (even if he is actually getting them in the short term) I simply take a pass. I'll still admire the knives. I'll still like the maker. I'll just spend my limited funds elsewhere.

Roger
 
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