Technology Mark-up

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Ultimate Geek
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#1758041 7-Apr-2017 11:30

BTR:

joker97:

sxz:

Thought you guys might find this interesting:

Video Baby Monitor - retails for $NZ250
The Warehouse RED ALERT deal sold this for $175 (or thereabouts). I was (am) very pleased with this price for this model.
It arrived this morning and included an invoice from the manufacturer to the warehouse(!) showing the manufacturer only charged the warehouse $NZ127 (including GST). Shipping must have come direct from the manufacturer in OZ.
I don't work in retail, so generally have no idea what markup retailers make on products, but I was genuinely surprised that even on the RED ALERT deal the warehouse still made nearly $50 from me. At $250 they would be making $123 (gross) on every product sold.

This is the model in question: https://www.noelleeming.co.nz/shop/computers-tablets/smart-home/baby-monitors/vtech-bm3500-safe-sound-video-audio-baby-monitor/prod144963.html

Edit: to clarify the manufacturer's charges included GST

You think every time there is a Red Alert TWH is then throwing money at you? Of course they make money. In a retail store, they make money even at 60% off.

I think you are missing the OP's point, what is a fair markup? I know Apple Products only have 5-6% margin in them which is why you very rarely see them on sale. I think anymore than 30% margin on a electrical item around that price range is criminal.

But we do live in a capitalist society where its not about the store making a profit to maintain business but to make their shareholders as much money as possible and if that means ripping people off so be it. That is why so many people import goods from overseas.

Exactly right. I still am completely happy with the price I paid, I was just interested to see the markup was so high (or perhaps I was interested to see the actual cost to the manufacturer was so low). I guess this is why you see some newer manufacturers selling directly (i.e. pebble watch - which didn't actually turn out so well for them).

I presumed (naively I guess) that Redalert type deals relied on bulk sales and low margins, or a function to move old stock.

Geektastic

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#1758067 7-Apr-2017 12:11

Fred99:

There's no such thing as a "fair" markup.

In setting selling price, you charge the maximum price that "the market" will bear. You're not running a charity.

That might be limited by competition or buyer resistance, might have short-term goals when you've got a one-off transaction with a customer you'll never see again, or it could be a market where repeat business is important, rip off a potentially good customer on one item, risk losing them forever.

Retailers will sell things at below cost - loss leaders, it's a well-established concept in FMCG.

The aspects about markup I don't like are when you're held over a barrel (the thread on replacement electronic car keys for example), the fact that variable margins applied on FMCG at supermarkets etc can make it nearly impossible for new suppliers to break into markets - thus limiting competition (and consumer choice), and "profit shifting" by global corporations used as tax minimisation. None desirable, and IMO it's "market failure", but almost impossible to effectively regulate and/or police.

Quite. We lose out in NZ due to a lack of competition - and when we the consumers find the competitors overseas, the home grown ones just bleat "not fair"....

Then there are complex issues like Air NZ. On the one hand, we hear them tell us how much 'dividend' they returned to the Crown. Yay.

On the other, that 'dividend' could have been zero and we the consumer could have paid that much less for our flights. Boo.

networkn

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#1758069 7-Apr-2017 12:15

Geektastic:

Quite. We lose out in NZ due to a lack of competition - and when we the consumers find the competitors overseas, the home grown ones just bleat "not fair"....

Well, there are plenty of larger countries with larger populations that have plenty of competition, but personally, I'd take the smaller competition and less crowded location.

Then there are complex issues like Air NZ. On the one hand, we hear them tell us how much 'dividend' they returned to the Crown. Yay.

On the other, that 'dividend' could have been zero and we the consumer could have paid that much less for our flights. Boo.

Thing is, if they didn't return a dividend, and just lowered fares, NZ in general would be worse off. The Dividend will get used by the Government to supply the entire country with money, rather than just those who fly with Air NZ.

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#1758082 7-Apr-2017 12:25

networkn:

Geektastic:

Quite. We lose out in NZ due to a lack of competition - and when we the consumers find the competitors overseas, the home grown ones just bleat "not fair"....

Well, there are plenty of larger countries with larger populations that have plenty of competition, but personally, I'd take the smaller competition and less crowded location.

Then there are complex issues like Air NZ. On the one hand, we hear them tell us how much 'dividend' they returned to the Crown. Yay.

On the other, that 'dividend' could have been zero and we the consumer could have paid that much less for our flights. Boo.

Thing is, if they didn't return a dividend, and just lowered fares, NZ in general would be worse off. The Dividend will get used by the Government to supply the entire country with money, rather than just those who fly with Air NZ.

Speaking as both, I am happy enough to see the money spent lowering my fares - which is why I so rarely end up flying Air NZ when going outside NZ.

I generally disapprove of government involvement in business to that extent - in particular because it lowers the likelihood that they will ever step in and take action in favour of consumers due to a conflict of interest.

MikeAqua

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#1758085 7-Apr-2017 12:28

The issues with pharmacies in NZ is there are restrictions on ownership. So there aren't any sizeable chain pharmacies, just franchised brands. The pricing reflects that.

Go to a pharmacy in the US and there are big pharmacy chains that employ registered pharmacists. everything non-prescription is (US) supermarket cheap. The one I went to in Monterey Bay even sold hard liqour and ... adult toys. Meds were handed over by an actual pharmacist complete with a verbal consult and detailed written instructions. The prescription meds were pricey, but that was my insurer's problem not mine.

Mike

Fred99

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#1758137 7-Apr-2017 13:50

Countdown seemed to have worked within regs to have joint-venture pharmacies in store. Not sure how they split revenue - the "pharmacist only" medicines and prescriptions are paid for at the pharmacist counter, the rest of the stuff in the pharmacy area can be taken through the normal checkout - yet that's probably the main source of revenue for successful pharmacies. My closest pharmacy folded - too small to survive on revenue for mainly prescriptions - despite being next door to a busy GP practice - and premises too small to expand to offer all the money-making crap sold by larger pharmacies.

Countdown discount prescriptions ($3 instead of $5 ???), but the OTC stuff seems to be the same price as independent pharmacists. I'd be a bit wary of using a loyalty card when paying for scripts, just in case you'd consented to give away privacy rights. Probably paranoid of me - but not paranoid enough to bother finding out - when it's easier to just not use the card.

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#1758181 7-Apr-2017 15:34

MikeAqua:

The issues with pharmacies in NZ is there are restrictions on ownership. So there aren't any sizeable chain pharmacies, just franchised brands. The pricing reflects that.

Go to a pharmacy in the US and there are big pharmacy chains that employ registered pharmacists. everything non-prescription is (US) supermarket cheap. The one I went to in Monterey Bay even sold hard liqour and ... adult toys. Meds were handed over by an actual pharmacist complete with a verbal consult and detailed written instructions. The prescription meds were pricey, but that was my insurer's problem not mine.

1st time posting here. I manage a Pharmacy. In terms of mark-up of prescription items, we are bound by Government co-payments for funded items. Pharmacies can set their own prices for non-funded items and it really can vary. Depending on the item, it can be 25% mark-up to lots more if the pharmacy decides they can sell it at that price. Countdown's are allowed to drop the $5 charge to $3, however if a medicine like Paracetamol tablets are given out on prescription and the value is only $1.50, then the Pharmacy must give back the MOH $3.50. We don't keep that money. The same for Countdown, so they would lose on that item.

In terms of retail items, again Pharmacies can vary, but it would be common to have a 60% mark-up on the normal wholesaler price. If you are part of a franchise, then the buying power of that group can bring the wholesale price down and then the retail price can drop (or not) too. This is a very basic view of things, and sometimes you can get dispensary items/packs being sold in retail. Generally, the price of these has been driven down by Pharmac, so the retail mark-up on these can be quite large

Things like location, competition from other retailers, demographics of the population in area etc will play a big role in retail pricing and also the stock you carry. Just like any other retailer

MadEngineer

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#1759270 7-Apr-2017 21:52

Except from: http://makezine.com/2012/04/30/makes-exclusive-interview-with-andrew-bunnie-huang-the-end-of-chumby-new-adventures/

(Buy this book: https://www.amazon.com/Hardware-Hacker-Adventures-Making-Breaking/dp/159327758X)

A second piece of advice I’d generally give to hardware companies is: when it comes to pricing, aim high. It’s virtually impossible to raise your pricing if you start too low, and there’s nothing like a sale to get people to buy.

The ill temptation for startups that are principally selling their hardware on-line is to set the pricing expectation as low as possible to drive buzz and improve initial sales. The temptation to sell your $35 device for $49 direct on-line is huge — that is, after all about a 28% margin (neglecting that your BOM hasn’t factored in soft costs). That’s great, until you’ve dropped off the front page of Engadget and your sales are plummeting.

Engaging a retailer may help bring in more, and more consistent, sales (although your mileage may vary). However, a retailer, particularly if they are a boutique retailer selling in low volumes, will initially target between 40% to 60% margins off of MSRP. This means they want to buy the product from you for $49, and sell it at $99. But, if you’ve already sold a bunch of units at $49, there’s no way the retailer can sell it for $99. So to access retail, you have to cost-down your $35 product down to $25, so the retailer can sell it at your pre-established price of $49. Even if you’re successful with such a drastic cost-down, you’re still left making no money!

If you had just introduced your $35-cost device at $99, you may have garnered fewer customers initially, but your initial margins would have been spectacular and now you have the room to cut-in a retailer, or run sales of your own to get more customers.

Keep in mind part of the reason why MSRPs are so high is because retailers also love to use sales to make units move, and a $99 unit priced down to $69 feels like a smart buy – but at $69, the retailer is now only making 29% margin.

As you can see, if you aim too low on pricing, you effectively rob yourself of the opportunity to go to retail as a possible distribution channel; and you simultaneously rob yourself of the opportunity to have sales and promotions. Sales and promotions are so important because viral marketing can only get you in front of a customer maybe once or twice at best, and once you drop off the front page of Engadget, so does your sales. You need a new message to deliver once your virality wears out, and there’s nothing like a price drop to get new customers interested in your product.

So: aim high on initial pricing; strive for 3x over BOM. You’ve put your heart and soul into your product, price it like you mean it.

You're not on Atlantis anymore, Duncan Idaho.

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#1759271 7-Apr-2017 21:54

MikeAqua:

The issues with pharmacies in NZ is there are restrictions on ownership. So there aren't any sizeable chain pharmacies, just franchised brands. The pricing reflects that.

Go to a pharmacy in the US and there are big pharmacy chains that employ registered pharmacists. everything non-prescription is (US) supermarket cheap. The one I went to in Monterey Bay even sold hard liqour and ... adult toys. Meds were handed over by an actual pharmacist complete with a verbal consult and detailed written instructions. The prescription meds were pricey, but that was my insurer's problem not mine.

What restrictions and why?

Geektastic

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#1759272 7-Apr-2017 21:55

Fred99:

Countdown seemed to have worked within regs to have joint-venture pharmacies in store. Not sure how they split revenue - the "pharmacist only" medicines and prescriptions are paid for at the pharmacist counter, the rest of the stuff in the pharmacy area can be taken through the normal checkout - yet that's probably the main source of revenue for successful pharmacies. My closest pharmacy folded - too small to survive on revenue for mainly prescriptions - despite being next door to a busy GP practice - and premises too small to expand to offer all the money-making crap sold by larger pharmacies.

Countdown discount prescriptions ($3 instead of $5 ???), but the OTC stuff seems to be the same price as independent pharmacists. I'd be a bit wary of using a loyalty card when paying for scripts, just in case you'd consented to give away privacy rights. Probably paranoid of me - but not paranoid enough to bother finding out - when it's easier to just not use the card.

Could they not simply employ pharmacists and open a pharmacy of their own?

solutionz

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#1759276 7-Apr-2017 21:58

@Geektastic, in NZ every pharmacy must be at least something like 50% owned by a pharmacist.

FWIW, IT retailer I work with works on a 10-15% average margin.

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#1759281 7-Apr-2017 22:35

Geektastic:

MikeAqua:

The issues with pharmacies in NZ is there are restrictions on ownership. So there aren't any sizeable chain pharmacies, just franchised brands. The pricing reflects that.

Go to a pharmacy in the US and there are big pharmacy chains that employ registered pharmacists. everything non-prescription is (US) supermarket cheap. The one I went to in Monterey Bay even sold hard liqour and ... adult toys. Meds were handed over by an actual pharmacist complete with a verbal consult and detailed written instructions. The prescription meds were pricey, but that was my insurer's problem not mine.

What restrictions and why?

Pharmacies have to be owned by a registered pharmacist. They can't be a business owned by an investor who just employs pharmacists,

Batman

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#1759300 8-Apr-2017 00:13

Handle9:

Geektastic:

MikeAqua:

The issues with pharmacies in NZ is there are restrictions on ownership. So there aren't any sizeable chain pharmacies, just franchised brands. The pricing reflects that.

Go to a pharmacy in the US and there are big pharmacy chains that employ registered pharmacists. everything non-prescription is (US) supermarket cheap. The one I went to in Monterey Bay even sold hard liqour and ... adult toys. Meds were handed over by an actual pharmacist complete with a verbal consult and detailed written instructions. The prescription meds were pricey, but that was my insurer's problem not mine.

What restrictions and why?

Pharmacies have to be owned by a registered pharmacist. They can't be a business owned by an investor who just employs pharmacists,

Wow they could do that with GP practices - there are a few consortiums buying up many many GP practices and hiring random GPs to fill in a kind of a roster.

solutionz

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#1759302 8-Apr-2017 00:30

joker97:

Wow they could do that with GP practices - there are a few consortiums buying up many many GP practices and hiring random GPs to fill in a kind of a roster.

Same thing is still happening with NZ pharmacies.. (being taken over by large "pharmacist owned" groups)..

Geektastic

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#1759457 8-Apr-2017 13:53

Handle9:

Geektastic:

MikeAqua:

The issues with pharmacies in NZ is there are restrictions on ownership. So there aren't any sizeable chain pharmacies, just franchised brands. The pricing reflects that.

Go to a pharmacy in the US and there are big pharmacy chains that employ registered pharmacists. everything non-prescription is (US) supermarket cheap. The one I went to in Monterey Bay even sold hard liqour and ... adult toys. Meds were handed over by an actual pharmacist complete with a verbal consult and detailed written instructions. The prescription meds were pricey, but that was my insurer's problem not mine.

What restrictions and why?

Pharmacies have to be owned by a registered pharmacist. They can't be a business owned by an investor who just employs pharmacists,

Sounds like the sort of thinking appropriate to about 1976.

What material difference does it make who owns it? Provided the drugs are only dealt with by qualified pharmacists, the paper ownership and employment status of those pharmacists strikes me as wholly immaterial.

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