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How Wholesalers Calculate The Price For Food Commodities

Food commodities, vegetables

Many factors affect wholesale commodity pricing, making it a challenge for a restaurant supplier. If you set the prices very high, you will face the risk of losing your customers. On the other side, if you set the prices too low, you will diminish your products. You will reduce the chances of making a profit.

Finding the right price strategy to use is very vital for business success. It’s why successful sellers invest their precious time in setting the correct prices.

Are you a starter in the food business? Do you have new food products that need proper pricing? Here, you will get a detailed explanation of your strategies to set the right price.

Absorption pricing

Absorption pricing is the cost-based strategy for pricing. Wholesalers take all the manufacturing or goods procurement costs into the final price. They determine costs then they add something on top. It’s the reason why they call it cost-plus or cost-based pricing. The simplicity of this cost is a considerable advantage. It ensures you enjoy returns at a consistent rate, provided the price doesn’t change.

The disadvantage of this method is that changes in costs will lead to adjusting the price. The absorption cost doesn’t consider important factors like demand patterns and competitor strategy.

Differentiated pricing

Differentiated pricing is a demand-based strategy. It’s very flexible, enabling a wholesaler to change the price as demand changes. If the competition is small, you can set a higher price and vice versa.

Another way to apply this strategy is to reward customers buying in bulk at a reduced price. The method allows you to be flexible and change when circumstances change. Do this when you are ready for it.

Value-based pricing

Value-based pricing resembles differentiated pricing. The difference comes as it focuses on what clients are willing to pay for the commodity. In a value-based strategy, you set the prices high. If clients see the product as a luxury, then put a premium price.

Many clients are willing to pay more for the product they perceive as worth the price. The demerit of this method is that high prices mean a low market for your goods.

Market-based or competitive pricing

Here, you use the competitor price as a hint. You can decide to set the same price as your competitor or set it below to attract more clients. A market-based strategy isn’t good for starters and small wholesalers.

Bundle pricing

It’s a common strategy for grocery stores and product promotions. It entails selling at least two commodities using a single price. You reduce the costs for the two products slightly. Clients will believe they are getting them at a reasonable bundled price.

Bundle pricing is effective, especially when customers view a single product as too little to buy at a standalone price. Be keen on bundle pricing. If this pricing fails to generate enough sales volume, then you will make losses. You need to request your retailers to a minimum order quantity. You will be able to realize the sales required to make a profit.

Conclusion

The above strategies will apply in different business scenarios. So don’t force yourself to stick on one. Be flexible to try all these strategies to see which one works for you, and remember it should not run you into losses.

Before you adopt any pricing strategies, carry out market research. You have to understand your customers and if they have any interest in your products. You need to understand your competitors and the techniques they use in setting up prices.


More on this topic:

THE APPLICATION OF BLOCKCHAIN IN THE FOOD INDUSTRY

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