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The (Non) Relationship Between Volume & Price

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Ken Bradley
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Re: Why ?
Ken Bradley   4/19/2012 3:55:06 PM
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Thanks for your interest in this blog. Many of you have raised questions that I would like to address with this reply and in my next blog. Here are three of my thoughts:

1.       The scatter gram shows components with low volume prices that are lower than high volume prices. The high volume prices appear to me to be in the middle range of pricing. The volume vs price myth doesn't hold.

2.       There is a relationship between cost and volume. This disappears when translated into pricing because most pricing is not cost plus. In most cases, once negotiations start pricing goes down.

3.       Suppliers operate with margin goals, tiered pricing structures, product subsidies and other distortions. All this kills or masks any volume - price relationship.

Another thought, if there is a strong price-volume relationship, why would anyone negotiate? Also, why isn't there be greater price transparency, why is it so secretive? Maybe it's because some negotiate great pricing and others don't.

Johnny
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Re: Why ?
Johnny   4/18/2012 9:03:59 AM
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Sorry to spoil the party, but... how is it clear from the graph that there is no relation between volume and price?

To me it seems like the larger the volume, the lower the price...? I'm probably missing something?

Jacob
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Supply Network Guru
Re: Why ?
Jacob   4/18/2012 6:20:47 AM

Ken, but normally we experienced that pricing are inversely proportional to the quantity. I mean for lesser order, pricing may be little bit higher per piece and for bulk order; the individual pricings are kept in lower side. Again, the pricing is based on demand and availability.

Himanshugupta
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Re: Why ?
Himanshugupta   4/18/2012 5:22:16 AM
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Until one look at the data closely, it is difficult to say with certainity what is happening. I do not think that it is crystal clear from the above graph about the assertion that there is no relationship.

Himanshugupta
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Re: Price and volume
Himanshugupta   4/18/2012 5:18:49 AM
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Rather than saying that there is no relation between volume and price, i would assert that the price spead decreases with the volume. The high price spread at low volume depends on many factors, as also stated in the article but with high volume purchase the buyers can put more chips on the table and negotiate harder.

GeoffThomas
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Volume is only relevant if special preparation is required to make your product
GeoffThomas   4/17/2012 11:18:52 PM
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There are always prejudices, with volume pricing there can be the prejudice towards an agency, but these days, agencies get short shrift, - unless they provide other significant value adding items there is no respect as such, and really no reason for it, and with all companies doing business over the internet, almost nobody holding significant stock any more, why should a manufacturer do anything but sell according to their product manufacturing cost, the cost of packing, and the freight.

Cheers,

Geoff Thomas. 

Nemos
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Why ?
Nemos   4/17/2012 8:26:15 PM
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It is very clear from the above graph that volume is unconnected with the price. But if that is true the question is why that is happening ?

Barbara Jorgensen
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Price and volume
Barbara Jorgensen   4/17/2012 9:04:04 AM
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It is difficult to let go of the perceptions we have on pricing--that it is a fixed price determined by cost to manufacture plus markup. Like Ken, I don't have the math background to go much deeper than that, but the factors he mentions, such the supplier's desire to do business with you, is very much a part of the equation. The data seems to illustrate the point more drastically than I would normally imagine, but for folks that require data to illustrate a point, the chart above is pretty compelling.

FLYINGSCOT
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price
FLYINGSCOT   4/17/2012 7:57:38 AM
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I reckon price does drop in general as volume increases but I agree it is the price spread that really drops as volume increases.

prabhakar_deosthali
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Supply Network Guru
Re:
prabhakar_deosthali   4/17/2012 6:34:34 AM
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If the price is an ART FORM where no formula fits then it is difficult to quantify the gain or loss for a buyer enetring into the negotiations with a supplier. Because each party will be applying its own criterion onto what price is the best.

Ultimately as long as you recover that price from the products you make with a healthy profit margin , that price should be good.

So in my opinion the buyer should decide the best purchasing price first and lead his/her negotiations with the supplier in that direction.

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