Good afternoon to all of my (two or three) readers!
It's a bright and sunny day here in Fujieda city (not that I would know because I'm stuck in the office at the moment) and I've come back to Let's Talk Internships to talk more about pricing. I'm going to be drawing on points from my previous entry about pricing so I hope you will check it before you continue on with today's article.
So last time, I was talking about Marutaka Techno's pricing policies, and how pricing policies change depending on whether you are a manufacturer, wholesaler, distributor or retailer. Perhaps my last entry was a bit ambiguous, as I was talking about the price at which Marutaka Techno wants its products to be sold to the consumer. The price that Marutaka Techno quotes to its buyers (the distributors and retailers) is a whole different kettle of fish!
Pricing is mainly based on the type of customer to which Marutaka Techno sells. This is true because different customers will order in different volumes. Let's say that Marutaka Techno is selling the Foot Refresher (working title) to its customers. You might ask what the price is but that is a sticky question. If we're talking about the price for consumers then it will be about JPY80,000.
As mentioned in the previous entry, Marutaka Techno employs a minimum pricing system to ensure that all distributors/retailers sell its product (in this case the Foot Refresher) at a certain floor price (80,000 Yen in this case).
Before the product gets to the consumer, it will have been sold to the distributor/retailer by the manufacturer. This price is what I am focusing on today. For the distributors to make a worthwhile profit on that JPY80,000 they need to be buying for less.
But let's not forget that Marutaka Techno also needs to make a profit to keep trading.
As the final retail price is more or less set at JPY80,000, the profit made by the retailer/distributor will depend on how low they can get Marutaka Techno to go on the trade price. This is where Marutaka Techno works its magic! The price quoted to the retailer/distributor depends on how many units they decide to order.
Marutaka Techno has to buy parts from a supplier in order to actually make products, and the price it pays for those parts also depends on how much it orders. If it orders parts to make 300 units, the price per unit will be lower than if it orders parts for only 100 units.
How does Marutaka Techno determine when and how much to order? Simple. They simply wait for orders to come in and then order parts based on orders received and forecasts for the coming month or two months. This is related to Lead Time, but I will delve into that topic in another entry.
Since Marutaka Techno can get parts for cheaper when buying in bulk (the same applies for most industries), they can transfer this discount (not 100%) to their customers. As the price at which retailers can sell Marutaka Techno products is practically capped (as explained before), the only way for them to make more profit is to buy in bulk from Marutaka Techno and achieve higher margins.
Let's imagine three different types of customer:
1) If we consider a door salesman buying Marutaka Techno's products, he is only going to be buying a maximum of 10 products at a time (due to his low volume of sales). With an order as small as 10 units, Marutaka Techno will have to pay a relatively high amount for the parts, resulting in a higher production cost and lower profits for both the manufacturer and the reseller.
2) Next, let's consider a medium-sized distributor that might only order 100 units at a time. At this volume, the distributor will get a discount over the door salesman, but the production cost will still be relatively high, meaning a low profit margin for the reseller.
3) Now, let's consider a television shopping channel or a mail order magazine. These types of customers might place orders for 1000+ units. At this volume, Marutaka Techno receives a substantial discount on the parts, and this is passed on (in part) to the customer.
I hope that example made sense!
Through this clever system, Marutaka Techno (and many other manufacturers) can manipulate prices to encourage larger orders of its products and therefore reap bigger profits. In simple terms, this is a win/win situation for the manufacturer and the reseller.
That's all I have time for right now, and I might be gone for a short while! There's a national holiday here in Japan for a week. Since I don't access to the internet in my apartment, I won't be able to access the world wide interwebs until next Friday! (17/08/2012)
I hope you'll miss me because I'll miss you!
It's a bright and sunny day here in Fujieda city (not that I would know because I'm stuck in the office at the moment) and I've come back to Let's Talk Internships to talk more about pricing. I'm going to be drawing on points from my previous entry about pricing so I hope you will check it before you continue on with today's article.
So last time, I was talking about Marutaka Techno's pricing policies, and how pricing policies change depending on whether you are a manufacturer, wholesaler, distributor or retailer. Perhaps my last entry was a bit ambiguous, as I was talking about the price at which Marutaka Techno wants its products to be sold to the consumer. The price that Marutaka Techno quotes to its buyers (the distributors and retailers) is a whole different kettle of fish!
Pricing is mainly based on the type of customer to which Marutaka Techno sells. This is true because different customers will order in different volumes. Let's say that Marutaka Techno is selling the Foot Refresher (working title) to its customers. You might ask what the price is but that is a sticky question. If we're talking about the price for consumers then it will be about JPY80,000.
 |
| The Foot Refresher (or in Japanese: リフレフット) |
As mentioned in the previous entry, Marutaka Techno employs a minimum pricing system to ensure that all distributors/retailers sell its product (in this case the Foot Refresher) at a certain floor price (80,000 Yen in this case).
Before the product gets to the consumer, it will have been sold to the distributor/retailer by the manufacturer. This price is what I am focusing on today. For the distributors to make a worthwhile profit on that JPY80,000 they need to be buying for less.
But let's not forget that Marutaka Techno also needs to make a profit to keep trading.
As the final retail price is more or less set at JPY80,000, the profit made by the retailer/distributor will depend on how low they can get Marutaka Techno to go on the trade price. This is where Marutaka Techno works its magic! The price quoted to the retailer/distributor depends on how many units they decide to order.
Marutaka Techno has to buy parts from a supplier in order to actually make products, and the price it pays for those parts also depends on how much it orders. If it orders parts to make 300 units, the price per unit will be lower than if it orders parts for only 100 units.
 |
| sorry about my face! |
How does Marutaka Techno determine when and how much to order? Simple. They simply wait for orders to come in and then order parts based on orders received and forecasts for the coming month or two months. This is related to Lead Time, but I will delve into that topic in another entry.
Since Marutaka Techno can get parts for cheaper when buying in bulk (the same applies for most industries), they can transfer this discount (not 100%) to their customers. As the price at which retailers can sell Marutaka Techno products is practically capped (as explained before), the only way for them to make more profit is to buy in bulk from Marutaka Techno and achieve higher margins.
Let's imagine three different types of customer:
1) If we consider a door salesman buying Marutaka Techno's products, he is only going to be buying a maximum of 10 products at a time (due to his low volume of sales). With an order as small as 10 units, Marutaka Techno will have to pay a relatively high amount for the parts, resulting in a higher production cost and lower profits for both the manufacturer and the reseller.
 |
2) Next, let's consider a medium-sized distributor that might only order 100 units at a time. At this volume, the distributor will get a discount over the door salesman, but the production cost will still be relatively high, meaning a low profit margin for the reseller.
3) Now, let's consider a television shopping channel or a mail order magazine. These types of customers might place orders for 1000+ units. At this volume, Marutaka Techno receives a substantial discount on the parts, and this is passed on (in part) to the customer.
I hope that example made sense!
Through this clever system, Marutaka Techno (and many other manufacturers) can manipulate prices to encourage larger orders of its products and therefore reap bigger profits. In simple terms, this is a win/win situation for the manufacturer and the reseller.
That's all I have time for right now, and I might be gone for a short while! There's a national holiday here in Japan for a week. Since I don't access to the internet in my apartment, I won't be able to access the world wide interwebs until next Friday! (17/08/2012)
I hope you'll miss me because I'll miss you!
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