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Too good to be true pricing

Posted by: Editor on 5/18/2011

This is the second part to our previous post on incubators.  The topic, however, is one that for us has lessons that extend well beyond the world of reptiles.  Last year we stumbled upon a man running a small business building hollow-core PVC caging and cabinet incubators, similar to those constructed by Habitat Systems.  His advertised prices were half those of Habitat Systems, so we decided to give him a shot and buy one large cabinet incubator, with potentially more orders behind if he could deliver on the product.  This is a cautionary tale of what happens when a price is too good to be true.

The product in question was a six foot tall hollow-core PVC cabinet incubator.  The advertised price was $1,400 plus a couple of hundred dollars in shipping for an all in cost of around $1,700, with a promised delivery time of four weeks.  We compared this to a similar incubator at Habitat Systems that was twice the price and twice the lead time, so we decided to give the individual in question a shot and placed the order. 

From the beginning our expectations were somewhat tempered.  The individual in question did not have a long track record in business and only had one incubator that he had constructed out in the hands of a breeder in the market, so there were basically no references available to confirm that a) he had successfully built functional incubators in the past and b) that he had been able to deliver product on the terms advertised.  That being said, the individual was up front with the fact that he was essentially a start-up, and we’re very sympathetic to the chicken and egg dilemma of honest people trying to break into new markets without a long-term track record.  We sent him our 50% deposit and basically left him alone for four weeks. 

We did not hear from him with any progress updates, so when we finally reached out to him after four weeks we weren’t overly optimistic.  When we finally did speak with him, he actually hadn’t begun our incubator yet, as he was trying to finish several other cage orders that had been ahead of ours in his order book.  To make matters worse, he had used our deposit to buy materials to complete these earlier orders because a personal matter had forced him to use some of the deposit money on the early orders for some sort of “personal crisis.”  This was frustrating, to say the least.

Ultimately, after much discussion, we sent him enough additional money to buy the supplies needed for our incubator with the agreement that he would prioritize our order over everything else he was working on.  This was a bit of a leap of faith on our part, as it involved sending him more money than the originally contracted sale price, but in the end we wanted the incubator.  After quite a bit of back and forth, we were convinced that what we were dealing with was a “bad” businessman as opposed to a “dishonest” businessman, and we had enough sunk cost to make it worth working with him to get the project over the hump.

How was he a bad businessman?  The first sign was his need to offer “to good to be true” pricing in the first place to win business.  Second, he mingled personal expenses with business expenses, and clearly had no viable business plan to work from in making sure he could deliver on his commitments.  When he got behind on previous orders, he needed to offer “too good to be true” pricing to bring in more deposit money to complete his previous projects, a strategy more representative of a Ponzi  scheme than a viable business model.  In the end, there was no way for him to catch up and were we not willing to send him more money, we likely would have lost our deposit and walked away with empty hands. 

We originally invested with this individual because he advertised a best in class product at half the cost, delivered in half the time.  We were hoping for Habitat Systems quality at half the price and at half the lead time.  In the end, this is what we got:

Price:  we ended up paying close to twice our originally agreed upon price
Lead Time:   12 weeks vs. the promised 4 weeks
Product Quality:  the incubator works, but it is not “Habitat Systems” quality – we got a 2nd tier product

Had we not put in more money we would not have gotten a product, period.  We don’t see this individual advertising cages or incubators anymore, and we’re not surprised.  Again, we did not walk away from this experience feeling that the individual in question was “dishonest” in any way.  Rather, we walked away from this experience vowing to be careful of discounts.  Sometimes products or services are discounted for a reason.  The moral of the story: beware of “too good to be true” pricing – sometimes a higher price can actually be the better value (price vs. value is a topic we intend to return to in the future). 

Disclaimer:  we have absolutely NO relationship with Habitat Systems.

HVH

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