The Problem With 'Just Below' Pricing 

Almost everyone does it, but setting your price just below a round number can backfire.

Good morning!

Please note, this will be the last Morning Report this week. We’ll be back right after Labor Day. In the meantime, I’m going to take a little break while also taking time to ponder the many excellent suggestions I received from Morning Report readers over the weekend. Many thanks to all who took the time to read my post—“How Should I Monetize 21 Hats?”—and to respond. It really means a lot. (And it’s not too late to weigh in!) -- Loren

Here are today’s highlights:

  • In Texas, there’s a salsa gold rush that’s going to disappoint a lot of people.

  • Manufacturers are piling up unfinished goods on factory floors.

  • Now hotels are mandating vaccines.

PRICING

Setting a price just below a round number (only $39.99!) can backfire: “Researchers found that this ‘just-below’ pricing makes consumers less likely to upgrade to a more expensive version of the product or service, such as a bigger size or higher-end trim on a car. The just-below price that makes a product itself seem like a good bargain also makes the leap to the premium product seem too expensive, said Junha Kim, lead author of the study and doctoral student in marketing at The Ohio State University's Fisher College of Business.”

  • “‘Going from $19.99 to $25 may seem like it will cost more than going from $20 to $26, even though it is actually less,’ Kim said.” READ MORE

FINANCE

Small business lending expert Ami Kassar got a check from the U.S. Treasury last week: “Here is the challenge: I don’t know what it’s for. There was no explanation. While I assume it is for my employee retention credit, it doesn’t reconcile with my records. I called my accountant and asked him what to do and how to account for it in QuickBooks. His advice was to book it as ‘other income’ and wait for further guidance. That's precisely what I did.” READ MORE

STARTUPS

In Texas, a lot of people are trying to turn family recipes into salsa businesses: “While pretty much any Texan with a grandmother has a killer dip recipe, most don’t have the courage, stamina, stomach, or requisite dash of entrepreneurial madness to launch into a business that rarely yields more than quarters per jar in profit.

  • “‘It is definitely not financial,’ says San Antonio–based Dominic Mendiola of the reward gleaned from his company, Dom’s Chop Salsa. ‘It’s bled more from personal finances than it’s ever been a gain.’”

  • “The couple worked in the tech industry, and Dom’s smoky sauce made from grilled tomatoes and poblano peppers was a favorite among coworkers, who went from begging for its presence at company events to purchasing it by the gallon.”

  • “When his salsa got some good press in November 2015, Mendiola received a game-changing call from H-E-B’s ‘Boss of Sauce’ condiments manager—a sought-after figure in the salsa start-up world—the same day.”

  • “‘The next thing you know, we’re in H-E-B offices talking about how we can go from making a thousand jars for people at work to making twenty thousand jars.’ By April 2016, they were on H-E-B shelves and on the road to peak production of around 100,000 jars a year.” READ MORE

SMALL BUSINESS TECHNOLOGY

Restaurant tech firm Toast looked like it might be toast: “Just 16 months ago, Toast chief executive Chris Comparato laid off about half the company’s employees, cutting 1,300 people, furloughed hundreds more, and slashed executive salaries. Restaurants using Toast’s payments and ordering software saw their sales cut by one-quarter, and the company forgave $20 million of fees its customers owed, it revealed Friday. But by developing software to help restaurants quickly add capabilities to accept online orders, arrange deliveries, issue gift cards, and do marketing via email, Toast bounced back much more quickly than the overall recovery in dining out.”

  • “Toast filed paperwork Friday to make an initial public stock offering for what will be one of the most anticipated deals of the year.” READ MORE

MANUFACTURING

Awaiting missing parts, manufacturers are stacking unfinished goods on factory floors: “Companies determined to keep factories open are trying to work around shortages by producing what they can, at the same time rising customer demand has cleaned out store shelves, dealer showrooms and distribution centers. As a result, manufacturers are amassing big inventories of unsold or incomplete products such as truck wheels and farm tractors. Companies that are used to filling orders quickly now have bulging backlogs of orders, waiting for scarce parts or green lights from customers willing to take deliveries.”

  • “Executives expect the shortages and delivery bottlenecks, exacerbated by overwhelmed transportation networks and a lack of workers, to stretch into the fall.”

  • “The delays are costing manufacturers sales and pushing some companies to revamp the way they put together their products, executives said.” READ MORE

Airlines have responded to the supply-chain crunch by adding more cargo flights, even repurposing passenger planes: “Packed planes pose a challenge for shippers, airlines and airports entering the traditional peak U.S. season for moving goods, when demand increases for consumer electronics, household items and clothing ahead of the holiday-shopping spree. Pinch points include overflowing airport cargo warehouses, spilling goods into off-site facilities and exacerbating the shortage of staff to sort, load and unload jets. Airlines have responded by expanding cargo flights beyond the biggest gateways to such cities as Columbus, Ohio, and Tampa, Fla., to avoid congestion.” READ MORE

The shortages are unlikely to end any time soon: “At her kitchen supply store in Brookings, S.D., [Kirsten] Gjesdal has given up stocking place mats, having wearied of telling customers that she can only guess when more will come. She recently received a pot lid she had purchased eight months earlier. She has grown accustomed to paying surcharges to cover the soaring shipping costs of the goods she buys. She has already placed orders for Christmas items like wreaths and baking pans. ‘It’s nuts,’ she said. ‘It’s definitely not getting back to normal.’”

  • “Just as the health crisis has proved stubborn and unpredictable, the turmoil in international commerce has gone on longer than many expected because shortages and delays in some products have made it impossible to make others.”

  • “At the same time, many companies had slashed their inventories in recent years, embracing lean production to cut costs and boost profits. That left minimal margin for error.”

  • “‘We have this vicious cycle of all the natural human instincts responding, and making the problem worse,’ said Willy C. Shih, an international trade expert at Harvard Business School. ‘I don’t see it getting better until next year.’” READ MORE

FROM OUR SPONSOR: APPLIED ECONOMICS

Yes, it’s true that employees don’t use any of their own money to buy ESOP shares but can retire with 10x their average annual salary: Following our recent 21 Hats Conversation about ESOPs (What’s In It for the Owner? A Skeptical Conversation about ESOPs), we’ve received many requests for more information about the tax savings and other benefits that result from installing an ESOP.  If you have questions about how it works, please reach out to Applied Economics, LLC, one of our trusted partners and sponsors. Applied Economics works with established lower-middle market companies to assess the feasibility and appropriateness of an ESOP.  GET RESOURCES AND CONTACT INFO

THE COVID ECONOMY

Some hotels are mandating vaccines: “Accommodations such as PUBLIC Hotel, Equinox Hotel and Wythe Hotel, all in New York City, Urban Cowboy Lodge in Big Indian, N.Y., a hamlet in the Catskill Mountains, and Pilgrim House in Provincetown, Mass., are among the first in the United States to announce that they will require evidence of vaccination, via a physical card or a digital verification, from their guests.”

  • “After being closed for more than a year, PUBLIC reopened in early June and has seen a significant boom in business, [Ian] Schrager said. Recognizing the risk to business by mandating vaccines, he said the decision was about his responsibility to protect his staff and guests, as well as the future reputation of his hotel.

  • “‘There are some people that are not going to be happy with it,’ Mr. Schrager said. ‘I’m not looking to force them to do anything they don’t want to do. But I do have the right to say: If you want to work here, if you want to come here, you have to be vaccinated.’” READ MORE

THE 21 HATS PODCAST

Episode 74: ‘Every Day, I Have to Force Myself to Get Out of Bed’: Our most recent conversation takes an unexpectedly dark turn. We start out talking about Laura Zander’s efforts to manage personnel conflicts and Dana White’s visits to potential salon sites on military bases and Jay Goltz’s bizarre battle with his phone company, and we think we know what we’re talking about. But we keep talking until we realize that some of the issues we are discussing are more complicated and more painful than we’d understood, as is often the case with matters of mental health. You should know this conversation contains frank discussion of depression and suicide.

If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren