8 reasons why the price of the same product is different

By justchinait
January 14, 2021

Why are there price differences between different suppliers for the same product? Is it so-called price discrimination, or does it exist objectively?

Let us analyze the reasons from the perspective of cost composition:

1. Differences in R&D Expenses

R&D expenses are mainly for products commissioned for design or collaborative development. The supplier invests in research and development manpower, software resources, experimental resources, debugging costs, etc. at the initial stage of development. This part of the cost is mostly reflected in the product selling price by way of apportionment. But if you have a mature plan that has been frozen, go to another supplier for development. Compared with the original supplier, the price of the new supplier must have an advantage. Why is the price of genuine products several times more expensive than imitations? In addition to naked price discrimination, on the other hand, it takes several years for a product to develop to mass production and cost a lot of money.

2. The difference in material cost

Suppliers of the same product may cause differences due to the different costs of raw materials. For example, the cost of ABS plastic from B and S for the same phone holder is quite different. The impact of the MOQ and the urgency of the delivery cycle is not considered here.

Regarding the feelings of cooperating with large suppliers, I believe everyone has some feelings. Even if you think that the demand is large, you are often in a passive position at the negotiation table. If there are these differences in the raw materials used by the two suppliers, there will naturally be a certain difference in cost. Products made of high-quality raw materials are definitely better in quality.

3. Differences in processing costs

Suppliers of the same product may cause differences due to differences in processing equipment. For example, for the same blank of constructional steel, one supplier uses a four-axis machining center, and the other uses a dedicated line of vertical milling machines and radial drills, which naturally has a big difference. Obviously, the processing cost of the four-axis machining center is definitely higher than the latter, but again, the machining accuracy and consistency of the machining center are better than the former. Therefore, the difference in processing costs is also objective.

4. Differences in labor costs

There are indeed some difficulties in employing workers in China southern enterprises, especially for technical jobs. Young people are keen to work as web anchors, e-sports, micro-business, Didi, food delivery, etc., and their income is good, and some people even get rich overnight. These jobs have been generally recognized by social values. There are indeed fewer and fewer young technicians willing to stay in front of the machine tool. Therefore, in order to attract young people, employers will naturally adopt measures such as raising salaries. The labor cost will naturally increase, and the supplier will allocate these costs to the cost of the product.

5. Differences in shipping costs

It often happens that the freight is higher than the unit price of the material. Different packaging, shipping locations, and logistics companies will cause differences in freight rates.

6. The difference in marketing expenses

Those so-called training fees, conference fees, hospitality fees, etc., the supplier’s finance will all include these as sales expenses. For rigorous companies, it will be divided according to the customers, but more companies will be directly allocated to all customers, and the difference in this part of the cost is also quite large.

7. The difference in profit margins

Traditional manufacturing has already passed the era of huge profits, so the difference in profit will not be very large. But different types of enterprises have different requirements for profits. If it cannot maintain high profits, the factory will also be restricted in the allocation of production capacity and the development of new products.

8. Differences in other expenses

Other expenses also include administrative expenses, financial expenses, taxes and so on.

As in the above analysis, splitting the direct material cost, it can be seen that the same product may have price differences between different suppliers. Of course, these do not exist independently, but are the result of multiple factors intertwined. But the problem that ultimately manifests in price is that the same product has different prices.

The price is never high or low, but only about reasonableness!

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