Pawn Stars: Marketing 101

There is a program on the cable History Channel now in its second season entitled Pawn Stars.

A reality television program, the series provides a detailed look into the workings of a Las Vegas, Nevada pawn shop owned by a father and his son, Rick, with the grandson, Corey, and his friend also involved as employees.

For a clear, simple look at how business can be presented in a very understandable manner, it's hard to beat Pawn Stars.

I don't know how many times Rick, the son and co-owner, tells the audience, by speaking to the camera, or a customer, that he will mark up what he buys from them 100%. Thus, his purchasing decisions must include a price that allows for any refurbishment, and still allow him to realize a 100% profit on his acquisition costs.

What this tells you is that Rick and his father, a/k/a "the old man," have simplified their cost accounting to cover overhead with this markup policy. They don't even begin to try to allocated employee costs, utilities, taxes, etc., to individual items. They simply know that by buying something at $100, and re-selling it for $200, on average, they'll make sufficient profits to cover slow-moving merchandise, unsaleable items, frauds, and all other normal operating costs.

On a routine basis, they are presented with some diamond in the rough, such as an old Coca Cola salesman's display case. This was bought, rusted and missing parts, for something like $75. One of their frequently-appearing experts, a guy who restores old vending machines, motorcycles and the like, took a week or so to restore the case to mint condition, and tells Rick he'll be able to get several hundred dollars for it.

As to strategy, Rick frequently tells customers who want a lot more than he will offer on some antique firearm, chest, or other curiosity, that if they choose to sell it at auction, there will be listing fees, selling fees, brokerage fees, and the risk of auction prices.

Today, I saw him refuse a quilt composed of patches which each bore an original or facsimile signature of a celebrity. Rick told the seller that he just wasn't in a position to buy the item for tens of thousands of dollars, in hopes of finding one buyer who would happen to drop into his pawn shop and buy it for twice that price.

Instead, he counseled the would-be seller to contact an auction house.

The guys at that pawn shop really have an instinctive feel for market prices and a surprising amount of knowledge across a wide variety of goods. This makes for a very transparent, accessible lesson in the basic mechanics of business.

Know your key competitive advantages, stay within them, and stick to policies and strategies which work. At the pawn shop, their available capital, in cash, knowledge of many items, and end-user pricing sense, plus a large, steady customer flow, allows them to undercut other channels of re-distribution for many niche items.

Were that many other, larger businesses so adept at knowing their limits and their key competitive advantages.