There are a lot of factors that affect the decision of price-pointing any given product. We studied some of the major these factors in the 1st part of the story here:
https://saurabhkautilyagupta.blogspot.com/2020/03/pricing-factors-market-competition-quality-cost-supply-chain-hops-profit-margin-product-management.html
After collecting the above data points, let us start pricing calculation...
From the Manufacturer's perspective:
Manufacturing cost = $100
Innterests & taxes = $50
Supply chain cost (warehousing, packing, shipping) = $20
Assuming we want to keep a net profit margin of 10%, we should price it at =
Cost + 10% margin.
Cost = Sum total of all costs =
($100 + $50 + $20) = $170
So, we would price our product at =
$170 + (10% of $170) = $170 + $17 = $187
So, the price at which the Manufacturer will sell the product to the Wholesaler =
$187
******************
From the Wholesaler's perspective:
Cost of Good = $187
Interests & taxes = $3
Marketing cost = $5 (initially - this will/might go down as sales increase)
Supply chain cost (warehousing, packing, shipping) = $5
Totals costs = $200
Assuming s/he wants to keep a net profit margin of 5%, we should price it at =
Cost + 5% margin =
$200 + (5% of $200) = $220 + $10 = $210
So, the price at which the Wholesaler will sell the product to the Retailer =
$210
******************
From the Retailer's perspective:
Cost of Good = $210
Interests & taxes = $5
Supply chain cost (warehousing, packing, shipping) = $5
Totals costs = $220
Assuming s/he wants to keep a net profit margin of 5%, we should price it at =
Cost + 5% margin =
$220 + (5% of $220) = $220 + $11 = $231
So, the price at which the Retailer will sell the product to the Customer =
$231
******************
Let us assume, that the competitors' product's price = $250
So, the MRP of our product can be kept at = $240
At $240, we are cheaper and better (assuming we are offering better features) than the competition, and the wholesalers & retailers are also making a decent margin. The retailers can offer the remaining $9 (=$240-$231) to the customers as a discount.
******************
Additional pointers:
If the product is also expected to generate revenue (this logic is not valid for all physical products, but for a product like Kindle which is not just a product - it is also a platform for selling more products), the Manufacturer can decide to reduce its initial Margin by $10.
After launching the product, we can change the prices multiple times (in the name of discounts, flash-sales, promotions, offers, etc) - Lower the prices if expected sales do not happen (or if customers give us feedback/suggestions about lowering the pricing) & increase the prices if the sales is increasing - Take note of the demand at each price point and decide the best price-point of our product.
After collecting the above data points, let us start pricing calculation...
******************
From the Manufacturer's perspective:
Manufacturing cost = $100
Innterests & taxes = $50
Supply chain cost (warehousing, packing, shipping) = $20
Assuming we want to keep a net profit margin of 10%, we should price it at =
Cost + 10% margin.
Cost = Sum total of all costs =
($100 + $50 + $20) = $170
So, we would price our product at =
$170 + (10% of $170) = $170 + $17 = $187
So, the price at which the Manufacturer will sell the product to the Wholesaler =
$187
******************
From the Wholesaler's perspective:
Cost of Good = $187
Interests & taxes = $3
Marketing cost = $5 (initially - this will/might go down as sales increase)
Supply chain cost (warehousing, packing, shipping) = $5
Totals costs = $200
Assuming s/he wants to keep a net profit margin of 5%, we should price it at =
Cost + 5% margin =
$200 + (5% of $200) = $220 + $10 = $210
So, the price at which the Wholesaler will sell the product to the Retailer =
$210
******************
From the Retailer's perspective:
Cost of Good = $210
Interests & taxes = $5
Supply chain cost (warehousing, packing, shipping) = $5
Totals costs = $220
Assuming s/he wants to keep a net profit margin of 5%, we should price it at =
Cost + 5% margin =
$220 + (5% of $220) = $220 + $11 = $231
So, the price at which the Retailer will sell the product to the Customer =
$231
******************
Let us assume, that the competitors' product's price = $250
So, the MRP of our product can be kept at = $240
At $240, we are cheaper and better (assuming we are offering better features) than the competition, and the wholesalers & retailers are also making a decent margin. The retailers can offer the remaining $9 (=$240-$231) to the customers as a discount.
******************
Additional pointers:
If the product is also expected to generate revenue (this logic is not valid for all physical products, but for a product like Kindle which is not just a product - it is also a platform for selling more products), the Manufacturer can decide to reduce its initial Margin by $10.
After launching the product, we can change the prices multiple times (in the name of discounts, flash-sales, promotions, offers, etc) - Lower the prices if expected sales do not happen (or if customers give us feedback/suggestions about lowering the pricing) & increase the prices if the sales is increasing - Take note of the demand at each price point and decide the best price-point of our product.
a sample Sales-ad by Jabong (now part of Walmart group)
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