How do you explain to your customer the fact that price is going to increase again, although economy is as slow as ever? That’s our new dilemma in recent 20% price increase from our main supplier. We however, happily comply and in due course will pass on the increase to our customers.
The way we look at it, the cost at which we can acquire the goods matter a lot. However, it matters more that we can still sell them at good margin without losing any previous profits. When we start to struggle to recoup our margins then we can be sure that the price increase cannot justified, i.e market determines otherwise.
This same principle applies even when suppliers drop their price. It might sounds fantastic knowing cost of goods are dropping, but guess what – the end results might not be so great. Because it might be an indications that market price is also dropping. The big question is then, are we selling at the correct pricing point? And if we’re not, can we recoup the margin if we do sell at correct pricing point?
Seems like at the end of the day, it’s not really about choosing the cheapest suppliers out there. Maybe it’s more important to choose those suppliers that we can work with, where we can get market insights, who can appreciate long term relationships, and definitely not those ‘playing the games’.
So, is pricing related to cost of goods, sales price, and margin? Or is it more closely related to which suppliers you get your goods from?