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Describe the Costs of Your Product

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Customers tend to prefer material costs as the basis of prices rather than supply and demand. Material costs are more predictable, and customers are generally willing to pay for certainty. They also consider the cost of delivery as a part of the price.

Table of contents:
  1. Example
  2. Conclusion

Customers prefer pricing set by material costs rather than supply and demand (Xia, Monroe, & Cox, 2004).

The costs of producing a product are referred to as product costs. Direct labor, direct materials, consumable manufacturing supplies, and factory overhead are all included in these prices. The cost of labor necessary to supply a service to a consumer can also be counted as part of the product cost. Product cost should include all expenses associated with a service, such as wages, payroll taxes, and employee benefits in the latter scenario.

Example

When selling food online you can simply share the cost per product. For example, to create one cookie:

  • Production: EUR0,69
  • Packaging: EUR0,20
  • Transport: EUR0,01
  • Taxes & fees: EUR0,20
  • Profit: EUR1,00
  • Total price: EUR 2,10 per unit

Conclusion

Consumers are generally unaware of a seller's actual expenses and profit margins... As a result, it is beneficial for sellers to make high cost and quality information available. This claim was put to the test by Harvard researchers. It does, in fact, work. In an email blast, a store increased purchases by outlining the expenses to their pocketbook.

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