MEANING OF WHOLESALE AND RETAIL PRICE
The price charged by the manufacturer or the business owner from the retailer who buy products in bulk. The goal of wholesale pricing is to earn profit by selling the goods in bulk at a price higher than the making cost.
The last price that is set by the retailer that appears on the labels for the end consumer is the retail price. It is the final selling price for the consumers.
DIFFERENCE BETWEEN RETAIL AND WHOLESALE PRICE
- Bulk purchases
Retailers buy in bulk at a lower cost from the wholesalers. This helps the wholesalers to create a profit; it can reduce shipping, handling and the overall cost.
- Retail markups
The end-user purchases the goods at a higher price from the retailer as the retailers mark up the costs of the goods they are selling after purchasing them from the wholesalers in order to make profits from the items they sell. Retail price is higher than the wholesale price.
- Advertising costs
Retailers incur advertising cost for the products they sell, whereas, wholesalers do not need to advertise their goods. A retailer should take into account every single detail essential for the customer experience.
DETERMINING RETAIL AND WHOLESALE PRICE
HOW TO CALCULATE THE RETAIL PRICE?
There are different strategies for different types of businesses that should be taken into consideration while fixing the retail price. For calculating the retail price, first we should find out the wholesale price and then add the profit margin that is aimed to be 55-65%.
One of the famous pricing strategy called SRP (Suggested Retail Price), calculates the retail price using the formula:
Retail price formula:
Retail price= wholesale price/ (1-markup percentage)
Other common retail price formula is the single-factor cost-plus model, which involves estimating the cost of goods and adding that to the target markup.
Some simple formulas can give the retailers a competitive edge in pricing and price according to their unique needs.
Retail price= Cost of goods + Markup
HOW TO CALCULATE WHOLESALE PRICE?
To calculate the wholesale price, we first need to know the COGM (cost of manufactured garments). It includes the manufacturing cost, material, shipping, handling, labour and other costs spent on the final product.
Cost of goods manufactured formula:
COGM = Material cost + Labour cost + Additional costs and overhead
Wholesale price formula
Wholesale Price = Materials cost + (Labour invested X How much you value time) + Other overheads (Rent, Fixed costs, Electricity, etc.) + Profit Margin
Therefore, it is important to figure out two important things to determine wholesale price:
- The average cost of manufacturing your products
- Preferred profit margin
So, the formula is:
Wholesale Price= average cost of goods manufactured + Profit margin
Before deciding on the price of the products, both the wholesaler and retailer must factor in costs like:
- General expenses
And, consider questions like:
- What is the demand for the product?
- Is there an average market price for similar products?
- What is the quality of the products?
- How do customers view the specific products?
- Is the product a fashion or novelty item?
WHOLESALE AND RETAIL PRICING METHODS
There are different types of pricing strategies that can be used in wholesale marketing.
- Demand-based pricing
It is also known as customer-based pricing. This wholesale pricing strategy that uses consumer demand for a product or service as the main element of fixing their price.
The prices of products or services can increase due to bad weather, festive season, or after natural disasters leading to destruction.
- Competitive pricing
It is also known as strategic pricing. This method uses the prices fixed by other businesses or the competitors as a benchmark. The store owners set the price either above the competition, at the competition, or below their competitors.
- Mark-up pricing
It is also known as cost-plus pricing. In this method, a fixed percentage is added to the cost to produce the item. While setting up the mark-up price, the cost of the raw materials and the cost of production are added to the overhead costs of a product or service. Their total is added with a markup percentage or the profit margin.
- Penetration pricing
In this method, a business uses low prices to enter a new market or to launch any new product or service. Once a customer base is established in the new market, the prices can be increased subtly to a moderate price. This strategy works best for subscription products. The businesses that use this pricing strategy are Netflix, Spotify,
- Price skimming
In this wholesale pricing strategy, the business offer a high-priced product in the initial stage to gain the most revenue, receive immediate return of production cost and earn more before the competitors enter the market.
- Economy pricing
This wholesale pricing strategy is basic and volume-based where items are priced-low and the revenue is based on the number of buyers. This method is applied in the commodity goods market i.e., supermarket store brands, budget airlines as they aim to earn through a large number of buyers on a daily basis.
- Psychological pricing
In this type of wholesale pricing strategy, the price displays are set lower than a whole number. A minor difference in prices is a huge difference for customers and it attracts the customers.
For example, an item that is listed as Rs.999/- only may be seen as much cheaper than a product or service priced at Rs.1000. In this case, consumer take decisions based on their emotions rather than rational thinking.
- Discount pricing
In this strategy, the business owner sells low-priced goods in large volumes. The original price of the product is reduced to increase demand and drive the sales. Businesses use this strategy to decrease the costs and stay competitive in the market.
This type of wholesale pricing strategy is divided into 4 types:
- Quality discounts
- Promotional discounts
- Seasonal discounts
- Loss leaders
Electronics retailers use this strategy often. Computers, gaming consoles, smartphones are the most expensive when they are newly released. But when the next model comes out, the previous models are sold at low prices.
- Geographical pricing
In this pricing strategy, the prices are charged according to the different prices fixed in different geographical locations or markets for the same product or service.
- Price bundling
It is also known as product bundling. This strategy is used when two or more products or services are packaged together at a single price. Few common examples of bundle pricing are Christmas baskets, Diwali hampers.
- Value- based pricing
In this pricing method, products are priced depending on their value in the eyes of customers and their willingness to pay. The value-based pricing strategy is applied for premium and luxury segment products. Value-based or premium pricing works best when your product quality and customer service can match the expensive price tag. Companies that use this strategy are: Rolex, Ferrari, apple.
- Loss-leading pricing
This is the approach of attracting the customers by offering a discount on the product they want, and then encouraging them to buy more products along with the original product.
MONITORING OF PRICES
PRICE MONITORING DIVISION (PMD)
The prices of selected essential commodities is monitored by the Price Monitoring Division (PMD) in the Department of Consumer Affairs. Price Monitoring Division is responsible for monitoring the retail and wholesale prices, evaluate future prices of selected essential commodities on a daily basis. Price monitoring division studies and analyses the price situation and gives feedback in advance to take preventive measures to help the policy interventions at appropriate time in order to prevent any shortfall in the availability of essential commodities.
Price is monitored for twenty two essential commodities (rice, wheat, Atta, gram dal, tur(arhar) dal, urad dal, moong dal, masur dal, sugar, Gur, groundnut oil, mustard oil, vanaspati, sunflower oil, soya oil, palm oil, tea, milk, potato, onion, tomato and salt) based on the data collected from 167 market centres across the country representing North, South, East, West and North-eastern regions of the country.
Price Monitoring Division also monitors other variables at a national and global level that are likely to impact prices. National level variables that are monitored include Wholesale Price Index , Consumer Price Index , Prices of major vegetables in India , Minimum Support Price, Spot and Future Prices of food and non-food items in India, Production of major crops. Global level variables that are monitored include: International Food Price Index, Consumer Price indices of different countries, Data on trade and commodity prices and World Agricultural Supply-Demand estimates.
The Price Stabilisation Fund (PSF)
The Price Stabilisation Fund was set up with an initial aggregate of Rs.500 crore to tackle inflationary trends of Agri-horticultural commodities i.e., onion, potatoes and pulses to protect the interests of the consumers. These commodities are acquired and stored for regulated release to help in moderating the prices and such government intervention would also prevent any speculative activities.
The price charged by a manufacturer to a retailer is the wholesale price and the price charged by the retailer to the consumers is the retail price.
There are several types of pricing methods or strategies that are used by the manufacturers or the retailers to fix the prices of their commodities. It is essential to consider the cost used in making the product depending on whichever pricing strategy you choose.
Pricing Strategies, A marketing Approach by Robert M. Schindler
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