Big Idea From a Small Business: A Market-Based Pricing Model

Lessons Learned From a Fledgling T-shirt Brand That Might Help Ease Consumers' Fear of Spending

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At 19, Jeremy Parker took $7,000 he'd saved from his bar mitzvah and turned it into a production budget for a film called "One Per Cent," about America's wealthiest citizens. "One Per Cent" won the audience award at the Vail Film Festival in 2006. When he came out of Boston University's College of Communication, Parker took the money he made on the film together with cash he'd earned over the previous few summers, and started his own business, TeesandTats, last July.

"I figured the best way to learn business was to run one rather than keep studying," he said. He saw an article in GQ about renowned Portuguese tattoo artist Marco Serio and spent three months badgering him until he got in touch and agreed to come up with designs for high-end T-shirts. Each T-shirt would be a limited-edition piece signed by the artist and would retail at $110. Like so many youngsters going into business, Parker also built in a cause from the beginning, in this case promising a share of every sale to Artworks, a charity that provides access to art programs for children and young adults suffering from chronic or life-threatening illnesses.

He was soon moving five or six shirts a day through and boutique clothing stores. In the first three months, he pulled in $35,000 and established good personal relationships with a number of retailers. Then last September the recession suddenly started to bite, and sales dried up. Could it be that people just went off the T-shirts? Parker didn't think so. "The buyers said they loved the designs and that they'd sold well, but people had just stopped spending in their stores, so they stopped ordering."

"I needed to come up with something to get people over their nervousness about spending," said Parker. "I needed to come up with something that'd allow me to survive." But he also knew he couldn't just hack prices, at least not if he wanted to ever get them back up. So, just over a month ago, he hatched what he called his Customer Recession-Proof Plan: When people bought a T-shirt, they'd be given the closing price of the Dow for that day. For every 100 points the Dow dropped within two months after the time of purchase, they'd receive a $5 refund.

Whether this was the insurance some of the buyers needed or whether they just admired his ingenuity, they started buying again. Sales are back to pre-recession levels. Meanwhile, Parker has been negotiating with a large retailer to create a line of similar but cheaper T-shirts that can be sold under the retailer's brand. For now, at least, it looks as if Parker's fledgling business will make it. Whether the world needs another T-shirt brand is up for debate, but America definitely needs hard-working, ingenious young entrepreneurs like Jeremy Parker.

And other marketers might like to think about his idea of a market-related pricing model, because it shows sensitivity to the customer's situation without doing the damage to brand and profit that a price cut can.

One other marketer has already cottoned to this. Michael Colombo is marketing director for ProActive, a physical-therapy and personal-training business in Tucson. He came across mention of Parker's scheme on Mark Cuban's Blog Maverick and loved it. "In today's economy people are more worried about putting food on the table than spending money on personal training, so I've been looking for ideas to get them to sign up," he said. Maybe I'll tie it to the market, like Jeremy, or maybe we'll offer them discounts based on how much weight they lose. Lose weight, gain money -- an incentive that works for them."

"Either way," added Colombo, "what we know is that we need to think about different ways of doing business, and Jeremy's idea could be a big one for us."

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