Let me start this blog with a question.
“How a seller view price or cost?”
“Can a seller practically derive at effective Profitability by only considering cost?”
If we are taking the opinion of the buyer, pricing would not be an issue. Buyers or consumers will typically use the terms price and cost synonymously. For instance, a purchase manager could tell to its counterpart, “The price of that Mountain Bike was only $250.” Or it could be just as easily say, “That Mountain Bike cost us only $250.”
However, from the opinion of the seller/vendor, the difference between prices and costs is quite important. A price is what a business charges, and a cost is what a business pays. Therefore, for a Store Manager may set a price of $250.00 for a Mountain Bike, may price a pair of Brake Calipers for $40.00, or may sell Disc Brake Caliper at the price of $25 per piece. But, in all situations the manager must also focus to his costs. These costs include, what he pays the manufacturer per set of disc brake, what he pays employees to stock spares on the shelves or to sell them, what he pays for rent, for display and lights, for advertising, and so on and so forth.
For effective profitability, pricing and profitability management is essential. Where, pricing and profitability management is a systematic, yet dynamic approach of recognizing the influence of pricing on revenue & margin and managed tactically over time to ensure reasonable prices for the value your businesses creates.
Accordingly based on better pricing and profitability management business can manage price negotiation effectively have better control in true profitability.
Hence, for seller/vendor, although a “price” may go by many names or unit of measure. One name it should not go by is “cost”.
In subsequent blogs, I will dig more into need and way of effective pricing and profitability management.
First in the sequel we have Without a proper understanding on pricing, can business have vision for future?