From a business point of view, the only sensible thing to do is to sell every product at the best possible price. The problem is that when the price goes up, demand goes down, and conversely, when the price goes down, demand usually goes up. The best price is the one that produces the best gross margin, i.e. the amount left over once the product's manufacturing costs have been deducted from the selling price excluding VAT. At that point, demand and price are in optimal balance. The catch, however, is that at our current margins, if we cut prices by, say, 30 per cent, sales would need to grow by 80 per cent, which is a really steep increase.
Perceived quality and brand image
Raising or lowering prices affects a lot more than just demand, though. There's a saying that price is the first sign of quality: when a product is expensive, we automatically assume it's better than a cheap one. I'm sure you've stood in a shop looking at some everyday item, say two cheese slicers, and wondered why one costs considerably more than the other when they look practically identical. We're wired so that our first assumption is usually that there's a difference in quality.
The other big factor is brand image. Every brand has some kind of image in consumers' minds, and the price of its products is a significant part of it. When the price is moved up or down, that image is thrown into crisis. I don't know, dear reader, whether you're as old as I am, but remember when Skoda was a car brand in the same league as Lada and Wartburg? Skoda, however, pulled off something few have managed: it rebuilt its brand from the ground up and climbed into a much higher class in terms of brand image. A slightly more recent example: when a product is taken into the range at, say, Prisma (a Finnish hypermarket chain), I'd argue its brand image suffers a touch of inflation compared with when it's sold only online and in bricks-and-mortar shops.
Other effects
If we assume prices were cut by that 30 per cent and demand grew by 80 per cent, it would also mean significantly higher logistics and warehousing costs. The number of returns and the need for customer service would presumably grow too. So there would be lots of other costs arising purely from around 80 per cent more products passing through.
There might also be some small savings if we could order larger quantities of garments from the factories. However, I don't see any need to increase production volumes from where they are now, as that would simply mean a longer selling period for the whole production run.
I should point out in particular that in this thought experiment, the 30 per cent price cut would apply to our current products with no compromise on quality whatsoever, meaning the same materials, the same factories and so on.
Papu's sales
Like so many other women's clothing brands and high-street shops, we've had sales over the summer. The purpose of a sale is often to clear out products that have been in the range for a while and are no longer moving, i.e. selling. Papu, however, has only been trading since February following the bankruptcy, so everything we have is fairly new.
Even so, Papu's sales have shown just how powerful a discount is. Thanks to the July sale, revenue was nearly double what it was in June. I worked out the average discount across the sales and it came to around 33 per cent. That got me wondering whether we're too expensive after all, if things sell this well when they're discounted.
Price point
That said, Papu's price point is pretty much the same as that of other Finnish clothing brands. Price point means that its prices for similar garments are on a par with those of other comparable makers with a similar brand image. But that doesn't mean Papu's price point is exactly right. It could, for example, mean that the price point of all comparable makers has crept too high, which might also explain why Finnish clothing brands aren't very profitable, or are downright loss-making.
The discount percentage does the selling
One possibility is that it's the discount percentage itself that gets people buying. This is, of course, shamelessly (and illegally) exploited by artificially inflating prices and then lowering them back to their normal level for Black Friday. Certain furniture chains also use never-ending sales as a marketing tool, meaning their products are permanently on sale. But a tactic like that is a noose around your neck, because once you start, it's very hard to break free, as nobody expects to pay full price at those chains.
So it could mean that even if we cut prices by, say, 30 per cent, sales wouldn't be the same as if the product were marked -30% with a sale tag on it.
Margins and profitability
The general thinking is that if the gross margin is high enough, the product can later be sold in a sale too, while the average margin for the product line still stays high. We looked at our gross margin percentages and found that they're at a very high level. Not quite the highest in Papu's history, which was about 5 years ago, but significantly higher than in, for example, 2024-2025.
Profitability doesn't depend on margin percentages alone, though. It also comes down to keeping overheads low, and since Papu's bankruptcy and fresh start we've cut them as far as we knew how. On the menswear side, at Saarni - Gentlemen's Boutique, our gross margin is significantly lower than Papu's, and yet menswear is a notably profitable business. Of course, we have to remember that one is a clothing brand and the other is a bricks-and-mortar shop and online shop. Saarni also hardly ever has sales.
Where we landed
We talked this through with the Papu team. We came to the conclusion that we need to be more dynamic in how we price our products. This means that for basics, which we stock in larger quantities, we can work with lower margins. In plain English: sell them for less. Then for products made in smaller quantities, which are more the cutting edge of Papu's range, we'd take a normal or even higher margin. For customers, this would show up as a wider price range, with a far more varied spread of products from affordable to more expensive than there is today.
Finally
So pricing isn't just a matter of maths. Price affects demand, the brand, customers' perception of quality and the company's profitability, all at the same time.
What's your impression of Papu's prices? Are we too expensive? If prices were lowered, how big a reduction would it take for you to buy from us more often? Send me your thoughts at tuomo.saarni@papudesign.com
