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For business owners, going after lucrative clients can always be tempting. It is more rewarding to take an order for $10,000 for 1,000 widgets, than to sell one widget for $40. If your variable costs are $5, did you really make any money from the first sale? If you do not properly know your overhead costs, you could be losing money.
Bulk Discounts from a Consumer Perspective
A poor bulk pricing strategy can lose valuable clients.
From a consumer perspective, I have not bought items because the price changed so drastically from buying one unit to buying two units. I have seen items priced at $15 for one item, or $20 for two.
The main problem with this pricing strategy is that I had no need for two of the widgets. The price was advertised as $10 each, and suddenly I found myself not wanting to pay $5 extra. Instead of feeling the discount of the bulk sale, I felt the punishment of only buying one item. Was the $5 extra worth losing the sale of the first item? If the item was merely priced at $15 I may have bought it.
Bulk Discounts from a Company Perspective | Carpet Cleaning
In the carpet cleaning business companies fight over apartments. The apartments have large amount of units that need to be cleaned on a regular basis, and require little marketing to acquire the business (compared to the volume).
It is common to charge $100 for residential carpet cleaning, and to charge $50 for the same unit for commercial customers. The advertising costs for the two market segments justifies this somewhat. However, when companies get in price wars over the large customers, they can soon by selling their service at a loss.
It is easy to lose sight of how profitable a customer really is. This should never be calculated of off gut feelings. It is easy to make mathematical calculations that state exactly how valuable different customer segments are.
Bulk Discounts from a Company Perspective | Cereal
I was talking to an executive at a large cereal production company. They were giving a certain large company a very, very large discount. When his did the math on how profitable the large companies really were, they were actually losing money on the sale. When they discovered this, they quickly stopped the drastic price discounts.
Such actions had a negative effect on the relationship. This damage could (and should) have been avoided by proper pricing in the first place.
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