Why exactly are things cheaper by the dozen?
It's probably a very basic question for Economics people, but *I* don't get it - why is it so?
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I'd assume it's to encourage you to spend more - and because you're buying more, there's more (absolute value) profit so they can afford a bigger discount. I guess also if you need 8 eggs, and they only have a 6 egg box and a 12 egg box, you're more likely to buy the 4 extra (unneeded) eggs because of the discount than you are to make do with 6.
Just some thoughts, I may be wrong! I guess another aspect of it is that it is now normal to do so - so people might think it strange if a shop didn't do so (or even, the shopowner may not properly think through the reasons for doing so, and just do it because "that's the way things are") |
Imagine your customers didn't know what you typically charge and you had a way to charge each customer the maximum amount that customer was willing to pay, turning away only those customers who aren't willing to pay more than your cost. You would make far more profit than you could at any fixed price. A low fixed price makes you very little profit per sale. A high fixed price makes few sales.
In most sales situations, you can't come anywhere close to that kind of custom pricing. You know too little about your customers and they know too much about you. But you usually can do a little better than a single fixed price. If you can offer the same product two or more different ways with differences in cost and convenience, you can make higher price sales to customers who aren't as worried about the cost, while also getting some sales to customers who aren't willing to pay that higher price. The simplest and most common way to offer different prices on the same product is to have a group price lower than the multiple of the unit price. There are a variety of other small efficiencies to selling in larger amounts less often vs. more frequent smaller sales, but the primary seller motivation for most such pricing decisions is to fragment the market and charge less for those customers who aren't willing to pay more. |
production is cheaper and more efficient in long runs
storage, warehousing and distribution is usually cheaper packaging, shelving all come into it |
In the not too distant past this phrase was coined. It sprang from basic shopping for home goods. A common amount was 12 or in the case of bread 13, where they coined the phrase a bakers dozen. When you bought 12 they gave you another. It was cheaper by the dozen.
It represents the cost associated with a sale. If, for example, you said that your cost to sell a single item is $5 then you add that and the price you paid for it together. It also takes the exact amount to sell one as it does 12. So you can afford to give your best customers a break on larger purchases. Gold is not an example of scale of economy. Diamonds are however. |
Basically what everyone above has said:
Generally things get cheaper with scale. If you sell alot of things at once, it guarantees a certain profit from this customer (as opposed for example to you buying 6 now and 6 later from a competitor). More importantly, the costs associated with a single purchase, (retail staff, you're time in the line (consuming cashier times), etc.) are all fixed, no matter the number you buy. |
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http://www.amazon.com/Passion-Natura.../dp/B005MR3IVO |
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Ahh, John you've put your finger on it - but after the internet we CAN, right? That's how cheap internet airlines work....? (and of course, they do price their tickets higher the closer you get to the flight date, but that's a different thing altogether). What IMPLICATIONS does this have for us? Is there anybody RESEARCHING this type of thing? It sounds Extremely Fascinating to me! |
... because people like my parents are easily convinced that a gigantic box containing boxes of breakfast cereal or toilet-paper or pork 'n beans are "a really good buy." (Fortunately, they have a big garage to go along with their lifetime membership in Sam's Club.)
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I buy the multi-bag giant boxes of cereal at Costco, the giant box of boxes of tissues, the big box of cans of chili (different in detail, not concept, from your pork 'n beans). All of those are good buys. None of it ever reaches its expiration date before we use it up. I know what those products cost at the supermarket and I buy them at Costco because that beats the supermaket per unit sale price. I don't buy the TP at Costco, because the sale price at Market Basket is better. I buy more loose rolls at once during that sale than three of the bulk Costco packages, so it will last until the next sale. Some of the bulk packaging is just a trick for consumers who can't do simple math. The bulk prices at Costco might be more per unit than the regular price at Market Basket. Market Basket also has some bulk packaged items and they don't necessarily have a better unit price than the same brand of the same item at the same time sold individually. Segmenting the market by math skill can be more profitable than segmenting the market by tolerance for the minor inconvenience of bulk. If your parents are convinced those bulk purchases are a good buy, just because they are bulk, then that is the point you should have made. But if you just look down on their saving a little money through some extra effort shopping and storing products, then shame on you. Just thank them for whatever extras they were able to give you through similar care and effort when you were younger. BTW, I'm lucky to live in a part of the country with a regional super market chain that beats almost everyone's prices on everything. I buy clothes etc. at Walmart, but when I look at Walmart's grocery prices (that in other parts of the country clobber ordinary supermarkets) I almost never see anything competitive with Market Basket. When I have checked out Sam's club with the occasional short time free membership or accompanying a friend, I have the same reaction. Why would I pay for the right to go to extra inconvenience for purchases that don't beat MB's ordinary prices. Even Costco is only worth while because I remember prices and know which few are better than MB and have three sons living at home (fourth there as well, this month) so we use a lot of those things. |
John? Do you want to react to what I said?
What is Costco? And Market Basket? Why're you guys assuming that everyone here is American? |
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I already gave my opinion that the market segmentation effect of a bulk price is more important to the seller than the direct efficiencies of bulk. More basic concepts related to this are in the "explanation" section of the Wikipedia page on "price discrimination" http://en.wikipedia.org/wiki/Price_d...on#Explanation Quote:
http://en.wikipedia.org/wiki/Sam%27s_Club |
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2. Desire for liquidity (cash is liquid, apples (or cars) are not). Rather than having value tied up in an illiquid asset, I can sell the asset and transfer that value into cash (liquid asset). Hence I have an incentive to sell as much as I can in each transaction, in order to: a) reduce transaction costs, and; b) move as much inventory (illiquid asset) as possible in one go. 3. Related to #2 is the fact that there are carrying costs for illiquid assets that are not present with liquid assets. If I borrowed money to buy the asset for sale (apples, cars), I have a carrying cost -- interest on the loan. I also have a carrying cost for the maintenance of the asset -- a store, parking lot, employee wages, etc., that I can avoid, or spread over a larger number of units sold, by selling in bulk. As a practical matter, the efficiencies of production scale and the reduction of transaction costs per unit sold make for most of the reduction in price. Bottom line: "Cheaper by the dozen." |
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So Economies of scale in production have no direct link to economies of scale in transaction size. Quote:
Offering a significant quantity discount increases the week to week variation in your sales. So the extra amount you need to keep to maintain a given low probability of going out of stock is increased without a corresponding increase in total sales. Also, the decrease in average unit price would increase the relative carrying cost even if the less predictable sales rate hadn't increased the absolute carrying costs. Quote:
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Sales projections are very accurate, and are not the source of most variations in sales that lead to bulk sales. Hence Costco, bulk seller, and WalMart, ditto, probably have low sales variations, and those variations are not caused by bulk sales to customers. They also know enough to come in out of the rain: If the season for an item is over, they don't order it. Quote:
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