Have you ever wondered what goes into everything that makes up the final retail price of an item? There's more involved than you might have thought. We begin with costs. The primary cost that is involved, is the price that the retail store pays directly from the manufacturer. Manufacturers will set these prices in order to pay for the cost of making the product, paying employees, and paying for materials, as well making some profit. Labor is another large factor in this process. Manufacturers will set their prices based on how much they believe the labor of their workers is worth, and in turn retailers will do the same.
Another cost that factors into the retail equation is called overhead. Overhead costs may encompass paying rent, costs of supplies or technology, and more. Higher overhead costs will equate to higher retail prices. Lastly, the final factor at the retail level involves supply and demand. For example, If a retail store knows that their product has a high demand, they can decrease supply and raise prices. Retailers will set their prices depending on the supply of the specific product, and the demand for the product in the current market.
By: Cole Dolan
- University of Massachusetts: Retail Pricing Strategies
- Management Study Guide: Retail Pricing - Different Types of Pricing Models
- Pricing Strategy; Tim J. Smith
- Retail Analytics; Emmett Cox
http://smallbusiness.chron.com/retail-pricing-work-60314.html
I have actually always wondered how some stores have cheaper prices and other places are more expensive, so this definitely helped me a lot. I have not learned about the overhead costs before so I really don't understand how those costs are incorperated or why the customer has to pay for that. I always thought that was a separate cost.
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