16.02.2018 at 16:37 h / Edited 06.07.2018 at 16:36 h
joshua Finance expertise offsite/on demand
We are sensitive to price and its reflection of quality. How should we think about pricing for volume discounts of physical goods to retail/wholesale accounts?
For Wholesaler or Distributor: A distributor/wholesaler will decrease the price of a product while re-selling in bulk quantity. Design a pricing strategy for volume discount such that it maximises channel profit (maximum profit for both manufacturer and retailer). You can ask for distributor selling price for different volume or looking for the selling price of similar products in the market.
For the retailer, the price should be constant as they get margin on the product. Now, there are several possible problems with selling in large volume to the retailer and it depends on the type of retailers. Some may not have proper storage space for your products thus can damage product, others can offer a discount on your product. Again, it will be difficult for you to monitor the demand for the product. This can affect the manufacturing and supply chain.
Talking about the relationship of volume with quality. It depends on your competitors and incentive for the customer to buy in bulk. You can map the customer's product line up using price piano framework. This will help you to place the product in a better price range. Secondly, you can plot a consumer incentive graph to understand pricing for an increase in quality or volume. FMCG companies use this logic to understand consumer psychology. Look at the price of Heinz ketchup bottle for a different size, you will see a trend in pricing.
Please note that for industrial product, these strategies would be different.
George George Lellis✔CIM Chartered Marketer for profitable brand and business growth ►Food & Drink | FMCG & OTC | Consumer Tech
You should think of bottom-line profit-focused and make a break-even-volume analysis per customer not per product so as to see how you will split the volumes and how you will customise your pricing strategy. The price is highly dependent on the lifestage of the product but if you don't want to sacrifice quality, it is good to consider the GM rate as a constant.
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