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Understanding Optimal Pricing: Strategies for Buyers and Suppliers

This guide explores the concept of optimal pricing, highlighting how purchase prices influence buyer behavior and the factors that suppliers consider when setting prices. It details methods buyers can use to reduce costs, including negotiations and alternative purchasing strategies. Learn to calculate essential cost metrics such as edible portion cost and standard cost, and evaluate qualitative factors in purchasing decisions. By mastering these concepts, you can enhance value while managing expenses effectively.

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Understanding Optimal Pricing: Strategies for Buyers and Suppliers

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  1. 10 The Optimal Price

  2. You Should Be Able To: • Explain how purchase prices influence buyers. • Describe how suppliers determine their purchase prices. • Identify methods buyers employ to reduce purchase prices.

  3. You Should Be Able To (cont.): • Calculate cost information, including edible portion cost, servable portion cost, and standard cost. • Evaluate qualitative aspects of a potential opportunity buy.

  4. What Is the Optimal Price? • The optimal price is the price that, when combined with optimal quality and supplier services, produces the optimal value. • It represents the lowest possible EP cost consistent with the optimal value of the product.

  5. EP Cost Calculation EP cost = AP price ÷ edible yield percentage

  6. How Do Attitudes Affect the Purchasing Process? • Novice buyers overrate AP prices • Price normally follows quality • Derived demand • Sometimes price is secondary • Requesting itemized bills • A particular product represents a huge expense • Tight materials budget

  7. How Are AP Prices Determined? • A function of the suppliers cost • A function of supply and demand • A function of competitive pressure • Buyer pricing

  8. Ways to Reduce AP Price • Make or buy analysis • Provide your own supplier services • Provide your own economic values • Shop around • Lower your quality standard • Blanket orders on miscellaneous items • Improved negotiations • Substitutions

  9. Ways to Reduce AP Price (cont) • Cash Discounts • Hedging • Economical packaging • Odd-hours deliveries • Co-op purchasing • Cost-plus purchasing

  10. Ways to Reduce AP Price (cont.) • Promotional discount • Exchange bartering • Introductory offers • Reevaluate EP cost • Calculate PF, PD, and EP costs • Opportunity buys • Evaluate their benefits

  11. Opportunity Buys • Rules for taking the opportunity • Purchase in large quantity • Pay in advance or on delivery • Buyers must analyze true costs • Quantitative analysis • Qualitative analysis

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