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How should pricing to retailers, who buy in quantity, differ from pricing to individuals?

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Offices & Operations mentor Charlie Bodenstab responds to the following question from an inc.com user:
Is there a model to determine my company's product price to retailers purchasing in quantity versus our price to individuals? We sell to both retailers and individuals.

Charlie Bodenstab's response:
I am not aware of any "model," but in your particular case, you need to consider the relationship with your retailers. You have to make sure that your pricing policy does not undermine the retailers (i.e., you can't sell to individuals at a price too close to the price you charge retailers, or else the retailer's function becomes moot).

A good starting point is to analyze the relative cost of doing business with both retailers and individuals. For example, due to volume deliveries, the shipping and handling costs to retailers may be significantly less than to individuals. Also, determine the typical markup that the retailers charge. And finally, figure out how valuable the incremental business is that the individuals give you. If the incremental business is significant, then you will probably be willing to take more of a risk by giving individuals an attractive price. However, if it is trivial, then why risk the retailers' ire by offering individuals a price that is any better than the retailers' resale price?

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Last updated: Oct 30, 2000




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