Setting the right price

When you start to be transparent with customers about your costs and how you use your profits some very interesting things happen!!  It strips away the artifice around how value is created and reveals how inflated the retail price has become.

With the internet you would expect the relationship between cost of production, wholesale and retail prices to be more transparent. Yet largely we only look at retail prices. Why is that? In the UK it has become normal to know the cost of milk production, but this is only because it is a news story that the supermarkets are buying the milk below the costs of production. In this instance the producer loses out.

Someone has to lose out. Someone in the chain is usually punished: manufacturer, distributor, wholesaler, retailer, customer. But there is better way.

jerry-has-arrived

Our business is designed to make a profit but it is how we use this profit that makes a difference.

Let’s talk about water bottles. Many of the standard plastic bottles in the supermarket cost a pound to manufacture and ship, but are sold for retail at £5. It is expected that the wholesaler and retailer get to double their money. Maybe that’s just the way it is. The customer then weighs up value by comparing retail prices with comparable products. That sense of ‘value for money’ is in our heads, and it is influenced by our background and wealth.

At jerry our stainless steel bottles cost just under £5 (including overheads), and we put aside a minimum £5 donation to water projects around the world. This provides a £10 wholesale cost. Our prices are competitive against comparable products: The difference between us and our competitors is where the profit goes.

Here is where things get interesting. Normally when negotiating with retailers you conceal your true costs of production and margin and get bargained down to the point where you say, “we can’t go below that.” With jerry it is going in the opposite direction. We are starting at the point we can’t go below, and saying to the retailer, “how much can you give us?”

We will let you know how it goes.

PS. Meanwhile if you buy directly from us, we can make an even greater contribution to water projects around the world.

GQ Magazine January2016

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