How to determine trade price vs retail vs commercial

[Green&Blue]

I'm hoping for some advice on price setting. We have a product which we sell both to direct retail and to trade. It works as a standalone unit product but can also be used in building. We are now developing a strategy around targeting the more commercial market in the building sector and I'm struggling with how best we set our prices.

Do we treat this as a completely different pricing structure outside of our previous retail and wholesale prices and have tiers where, for example, you buy 15 at x amount, 100 at x amount. But if we did this would we need to be careful that this comes in lower than our trade price to avoid upsetting anyone? Does anyone have experience of a product that crosses sectors in this way and any advice on working out prices. Obviously we need to make our margins throughout and this will help inform how much we can give away but I don't have experience of price setting based more on bulk and in the construction sector.

Hope that makes sense and someone can provide some advice, thank you!

 

[Talay]

I'm no expert in the field but I do tend to think of whether the product is a consumable or a one off purchase. With a consumable, you can achieve market penetration which delivers higher profits at lower margins but if it is a single purchase, you may be able to reach your target audience quicker at lower margins but you would do so at the expense of future profits, made on sales of the same product to the same people at higher prices. Whether that can open up wider markets you need to consider carefully.

 

[IanG]

What is your trade doing with it?

If its to re-sell then they're typically going to want a 30-50% margin on retail to stock it.

Are there any other products that you're competing with in that market?

What are the projected volumes for these trade sales and are you happy taking a similar revenue on the bulk order for doing more work compared to low volume high margin.

Is this more lucrative in terms of revenue, or does this compete with your retail efforts?

Can you tolerate a loss in retail income if that gives you a better economy of scale on your costs? Is that your aim?

First and foremost do what is going to work for your business. Secondly don't be afraid to upset anyone, I'm sure if you get it wrong you'll find out fairly soon.

 

[JEREMY HAWKE]

As much as you can get

 

[GoPromotionalUK]

Retailers and wholesalers receive a discount from the manufacturer for buying in bulk. Bulk discounting gives the manufacturer leeway when determining the list price of a good. If a good is in high demand, but in limited supply, a higher list price can be set. A lower suggested retail price can be set for a good whose supply is plentiful and in limited demand.

 

[Philip Hoyle]

If you sell exactly the same product, in exactly the same packing, to both wholesalers and commercial users, then I'd suggest your pricing strategy should be the same, i.e. % discount bands according to size of the order. So that if a wholesaler wants 1,000, they pay the same as the commercial user who wants 1,000. If you don't you're leaving yourself open to them complaining about different pricing for similar order quantities.

However, a cleverer way to stop people comparing prices would be to have bulk packs to sell to commercial users, where they're not individually packed, so you save the costs of multiple retail packaging, instructions, etc. That way you can sell to commercial users in bulk at a lower price than you sell to wholesalers, the grounds being that it's a different product. Like anything, a bulk product will be cheaper than individual or smaller packs - you can say that your bulk pack is only available to commercial users and not sell it to wholesalers on the grounds that the contents can't be sold individually as they're not packed separately and don't have instructions etc.

Quite a few manufacturers are starting to think along these lines with the modern problem where they or their retailers sell both online and physically in shops. If the product is the same, people complain why they pay more in a shop. Same with a manufacturer who sell direct that causes friction with their retailers when the customer can buy cheaper online directly than through the retailer. What they do is create a different product - have one product available direct and a slightly different version available through retailers, or two different versions for the retailer so they can sell one in shops and another online. Once you've created variations, you create a little confusion and it stops people making direct comparisons.

A very easy one I saw was a baby monitor. One version was available in shops, and another that looked identical was available on the manufacturers website. But they cleverly had slightly different packaging, a slightly different model number, and the shop version didn't include an optional mains power transformer whereas the online direct buy one did include it. The retail price was the same, making the shop one look competitively priced, whereas in reality, it was an inferior product because you had to use batteries or buy a power supply separately.

 

[Green&Blue]

Thanks everyone for some really useful advice. Philip Hoyle I think yours rings the truest. We will retail this product individually as a standalone item and then sell it in larger quantities to wholesale customers to retail individually but then also sell it to commercial customers who will buy in larger quantities to build with. But i think by making a commercial bulk pack size which is packaged differently to our standard way this will allow us to vary our pricing more. Thanks again.