The Optimal Price

The Optimal Price10YOU SHOULD BE ABLE TO:Explain how purchase prices influence buyers.Describe how suppliers determine their purchase prices.Identify methods buyers employ to reduce purchase prices.YOU SHOULD BE ABLE TO (CONT.):Calculate cost information, including edible portion cost, servable portion cost, and standard cost.Evaluate qualitative aspects of a potential opportunity buy.WHAT IS THE OPTIMAL PRICE?The optimal price is the price that, when combined with optimal quality and supplier services, produces the optimal value.It represents the lowest possible EP cost consistent with the optimal value of the product.EP COST CALCULATIONEP cost = AP price ÷ edible yield percentageHOW DO ATTITUDES AFFECT THE PURCHASING PROCESS?Novice buyers overrate AP pricesPrice normally follows qualityDerived demandSometimes price is secondaryRequesting itemized billsA particular product represents a huge expenseTight materials budgetHOW ARE AP PRICES DETERMINED?A function of the suppliers costA function of supply and demandA function of competitive pressureBuyer pricingWAYS TO REDUCE AP PRICEMake or buy analysisProvide your own supplier servicesProvide your own economic valuesShop aroundLower your quality standardBlanket orders on miscellaneous itemsImproved negotiationsSubstitutionsWAYS TO REDUCE AP PRICE (CONT) Cash DiscountsHedgingEconomical packagingOdd-hours deliveriesCo-op purchasingCost-plus purchasingWAYS TO REDUCE AP PRICE (CONT.)Promotional discountExchange barteringIntroductory offersReevaluate EP costCalculate PF, PD, and EP costsOpportunity buysEvaluate their benefitsOPPORTUNITY BUYSRules for taking the opportunityPurchase in large quantityPay in advance or on deliveryBuyers must analyze true costsQuantitative analysisQualitative analysis