Out of Order or Good Business Sense?

[WIMorrison]

Another reason for re-pricing old stock is to allow for the cost of storing the item since it was first taken into stock by the shop.

 

Most people dont realise how much dead stock costs to keep there, just sitting consuming overheads but generating no revenue. This cost of storage is seen most obviously when you but a spare part which may cost a significant amount, especially when compared to the cost of a complete new item - holding that widget on the shelf for 10 years costs money, just the same as a wagon, coach or loco sitting on the shelf costs the business money.

[Deltic]

Some manufacturers now state that for a certain time a Retailer can discount up to a max percentage, penalty could be that deliveries go back down the queue.

 

The interesting thing is that whilst it appears that many buyers expect a discount, but how do they treat the supermarkets when shopping. I can just imagine the reaction at a Till if they said "I realise that the readout shows £60.99, but would you accept £54.00". Even calling over a Store Manager would not result in any discount. Oh, but do they realise that prices change even when it is not a restock, as the prices come from the EPOS system regardless of whether the stock is old or new.

[hayfield]

The problem with supermarkets is finding out what is the correct price, two examples are

 

1 Wines, I enjoy wine from a Beaujolais producer Georges Duboeuf (Chiroubles & Flure)which retails at £10.95, every two or three months these sell at a 20% discount and worth every penny at this price, to me the correct price is £8.75 and when at this price I stock up

 

2 Coffee, I like Lor, normally £4 a packet, both Tesco and Waitrose regularly sell it at £2 a packet, I stock up when on offer, again to me the correct price is £2. I think in these pages one person says he buys his coffee direct from Holland where its half the UK price

 

What is the real price ? The first example is a regular offer which if you watch has a pattern to it, the second is a marketing agreement between supplier and shop. Both examples show how the same stock can be sold at two different prices 

[Colin_McLeod]

The "correct" price or the "lower" price?

[WIMorrison]

The correct price is the one that you are willing to pay the retailer - if it wasn’t the correct price then you wouldn’t be buying it

 

Now correct cost is something different and that is what changes the price between different retailers. Each retailer will negotiate the best price from the manufacturer, supplier it wholesaler which becomes his cost and it is his skills in that area, plus minimising the overheads that determines the price he will sell it you you at.

[Colin_McLeod]

If I was willing to pay only £10 for the latest sound fitted high quality locomotive, would that make £10 the correct price? I think not.

[WIMorrison]

If I was willing to pay only £10 for the latest sound fitted high quality locomotive, would that make £10 the correct price? I think not.

 

That would be the correct price for you, i.e. what you are willing to pay - unfortunately you wont be able to buy one for that price, therefore your price which maybe correct for you isn't viable for purchase, but it is still correct for you.

[dogbox321]

Some manufacturers now state that for a certain time a Retailer can discount up to a max percentage, penalty could be that deliveries go back down the queue.

 

The interesting thing is that whilst it appears that many buyers expect a discount, but how do they treat the supermarkets when shopping. I can just imagine the reaction at a Till if they said "I realise that the readout shows £60.99, but would you accept £54.00". Even calling over a Store Manager would not result in any discount. Oh, but do they realise that prices change even when it is not a restock, as the prices come from the EPOS system regardless of whether the stock is old or new.

 

Think this whole thread brings in some interesting points.......

 

Haggling in shops - That does not really happen in real life - people shop around before going into the supermarkets, hence the increase in the fortunes of the likes of discount supermarkets (but they are often only cheap on own brands and not the big brands!).  Likewise, there are usually deals to be had on many products.   If you go to only one, some you will win, some you will loose on.  People can try to “win” by shopping around.

 

Some retailers and markets are notorious for what can only really be called dubious pricing- Electricals, Double Glazing being too great examples.  The other week our washer broke down, in a certain shop the one we wanted was £450 – with 10%, so £405, the next week 599.99!  I actually picked one up elsewhere, after checking other websites and got one for £390!  We were going to buy one, but at £599.99 looked elsewhere because of the rise, I got it even cheaper, by shopping around, and the original retailer lost out.  Likewise some Double Glazing sales people with their catalogue of prices, then they have to work out the correct price, give a discount and if you don't wish to buy something, they ask you how much you are prepared to pay, and ring their manager, to see what they can do!  

 

Model Railways are a good price comparative market, in that you can actually hunt around for some good deals if you wish, based on SRP.  However, in many cases I am not sure that the SRP/manufacturers pricing is so good.  A classic example would be the variation with two manufacturers manufacturing Seacows, and the price variation of the two manufacturers!  Likewise because of how the market is built on only a few manufacturers, pricing has become I fear rather "exploitative".  Is there really that much work and many components in a 4mm VDA to warrant its price?  Look at the 4mm TEA tanks on the market, whilst it were a great model - is two plastic bogies, a barrel, with a few bits of detail really worth an SRP of £40+?  And to add objectivity - I think the same can be said of the much older TEA.  Likewise a 3 pack of wagons in a "budget range" were £24.99 in 2017, but in 2018 went t a SRP of 49.99.

 

We have been told so many times about price rises, and yes things do go up, but if wages rise 5% thats a 5% rise on that cost, not the whole product, although an allowance is required for this rise regards logisitics, suppliers etc.  Ditto, when metals and plastics went up in price and then stabilised, prices never came down!.  As I always say - a percentage is relative - 50% of not alot, is still not alot!  I think the internet has also fuelled manufacturers price rises too - Manufacturers are savvy - if a manufacturer in China sees a Loco they produce sell for £200 on ebay, then they are going to say, well if thats what people will pay, thats the price the model should be priced towards at RRP, why should I sell it for say £40, the distributor sell it for £80 and the retailer sell it for £120?  If the customer is prepared to pay £200?  The rise in prices is Exactly the reason that I believe we have seen so many manufacturers enter the market in recent years - the escalation of prices and the opportunity to make money.  As my old Economics professor used to say - The highest monopoly profit leads to the quietest life - Model Railways have left this realm, and so other manufacturers have entered the market, and making products, and now what used to be the big 2-3, have very little control, because of the new entrants, and more worryingly for them, fewer sales as people spend some of their modelling budget with competitors. 

 

Regarding the minimum prices that certain Distributors are now policing the market with, by saying you wont get stock if you discount by more than 15% in X weeks.  Personally, I do not believe it should be happening, and should be against competition laws to mandate a price.  Secondly, its actually driven up manufacturing costs.  In the past I pre-ordered many items - now I do not.  So, if the box shifters are not selling as much, when a product first hits the shelves - two things are happening, firstly production quantities are going down which is perhaps making manufacturers have smaller production runs which are costing more per unit, plus there is then the storage, warehousing and storage issue.  As a manufacturer, you want to produce a batch at its most efficient - if sales are not sufficient, and orders are lower, prices go up.  You could actually argue, that the "box shifters" actually subsidised the hobby, or at least had an impact on keeping SRP prices lower for all shops!  And actually, when the box shifters  have sold theirs, the small model shop who may be less competitive, firstly sells some to his regular customers and the rest are then snapped up those who missed out.  If box shifters are still holding stock for long periods of time, then the market for some model shops pretty much falls on its face!  Thirdly, how can some manufacturers say the minimum price its to help small model shops survive. When in the next breath they are supplying box shifters with clearance stock……

 

Regarding manufacturers putting price rises up – then with products that are “keep in stock” items such as track, then it makes sense for the prices to rise at a certain point.  If however, it’s a batch production like a locomotive, if the supplier has a loco in stock and has not sold it based on an RRP of £139.99, then raising this price to £159.99, to me makes no sense, apart from to possibly make the odd person panic buy “bargains” at retailers with old stock!  But from a retailers perspective – if you couldn’t sell it in a reasonable timescale based on a £139.99 retail price, would you really want to buy any more, based on an RRP of £159.99, or count yourself lucky thay you flogged a locomotive that were sitting on the shelves.  And to be honest Lima did limited editions to raise prices and enhance collectability, and more recent Limited Editions actually seem to be about shifting a few lots of 512 locos, and whilst the supplier has possibly sold out, there seems to be quite a few sitting on retailers shelves.  Likewise – in perspective – why does something such as a “Newly Tooled” Class 68 have an SRP of circa £145, whilst a good few year old Class 37 or 47 with many fewer components have an SRP of £159.99?  Surely post since the announcement of a new Class 66 for £150, the Class 47 and 37 is ripe for another manufacturer to produce.....

  

Bottom line is, Cost and Price have little correlation, it is purely what the market will bare, what the seller is happy to sell the product for and what a person is prepared to pay. 

 

Also perhaps as a last point, as once again to quote my economics professor “Caveat Emptor – Let the buyer beware”.  Nothing in this world is ever free, so if it seems to good to be true it probably is, but likewise, if you are happy to spend time searching (particularly with the internet) you probably will manage to save a few pounds, but do it too much and you’ll loose all your modelling time too!  A bargain, or good price is subjective to us all, depending upon how we view customer service, the product, possible lead times to having items posted, time and costs associated with possible faulty returns etc..  Potentially, and it may be infrequent, but as an example -  what I am saying is, you could buy a locomotive for £10 cheaper, but have to send it back, the retailer then be out of stock and then have to purchase it somewhere else! Whilst the guy down the road, went to his local model shop, got one for a few pounds extra, saw it working, bought it and had it working within minutes.  I think the real question for us all, is what is a “Fair price” and "value", but likewise, needs to be in the context of the what the different manufacturers offer and their respective prices.

 

Regards,

 

C.

[meatloaf]

On 30/05/2018 at 16:58, Andy Y said:

Remember the days when the Chancellor would announce a petrol and diesel price increase in the Budget statement which would come into effect at say, 6pm, that evening? There would be queues of cars at filling stations on the way home. I don't know how they ever worked out what was sold before or after 6pm but that was, in effect, a price increase on something that was already in stock. It was the government so it must have been legal.

 

I used to work at a petrol station. On the day end reports it had all sorts of info about how many litres had been dispensed from each pump and it gave a price for the fuel sold as well. It also knew when the price had increased or decreased so the report would say x amount of litres at old price and x amount at new price.

[Vistisen]

On 10/01/2021 at 16:16, meatloaf said:

 

I used to work at a petrol station. On the day end reports it had all sorts of info about how many litres had been dispensed from each pump and it gave a price for the fuel sold as well. It also knew when the price had increased or decreased so the report would say x amount of litres at old price and x amount at new price.

In Denmark we had a price war a few years ago. Each day the prices would start at the normal high price, later during the day one of the major providers would drop their prices by about 10%.  Every manned station sent an employee round on a bicycle each hour to check on their competitors’ prices and drop theirs to match og beat them. At the end of the day all prices would rise again to the original start point. 

It did not take long for even the stupidest motorists to learn to wait until the afternoon to tank up. Every few months the petrol companies would agree a truce. But after a few days of still no one buying petrol in the mornings, someone nerve would break and the whole circus started again, This went on for several years. As you can see from this bemused tourist

https://www.tripadvisor.com/ShowTopic-g189512-i216-k5672472-Fluctuating_Petrol_Prices-Denmark.html

[meatloaf]

9 hours ago, Vistisen said:

In Denmark we had a price war a few years ago. Each day the prices would start at the normal high price, later during the day one of the major providers would drop their prices by about 10%.  Every manned station sent an employee round on a bicycle each hour to check on their competitors’ prices and drop theirs to match og beat them. At the end of the day all prices would rise again to the original start point. 

It did not take long for even the stupidest motorists to learn to wait until the afternoon to tank up. Every few months the petrol companies would agree a truce. But after a few days of still no one buying petrol in the mornings, someone nerve would break and the whole circus started again, This went on for several years. As you can see from this bemused tourist

https://www.tripadvisor.com/ShowTopic-g189512-i216-k5672472-Fluctuating_Petrol_Prices-Denmark.html

We still used to do that in the morning. On the way into work we had to drive via the closest 3 stations and report to HQ who would advise of any price changes required

 

[RJS1977]

My parents went on a coach trip across Europe some years ago. Somewhere in the Low Countries, there's a road which runs along a national border, where one side of the road has nothing but petrol stations cheek by jowl for several miles, and none on the other side. Apparently the fuel duty was so much cheaper on one side of the border than the other, that all the petrol stations located along that side, and there was a constant flow of customers coming across the border to fill up!

[Colin_McLeod]

Thats like the petrol station in Strabane (Northern Ireland) and one in Lifford (Ireland) with just a bridge between them.  Whichever country had the better price got all the business, then something would change and the other got the business.  Either way there are often queues on the bridge itself.

[Damo666]

50 minutes ago, Colin_McLeod said:

Thats like the petrol station in Strabane (Northern Ireland) and one in Lifford (Ireland) with just a bridge between them.  Whichever country had the better price got all the business, then something would change and the other got the business.  Either way there are often queues on the bridge itself.

I was more familiar with the Belcoo (NI) and Blacklion (IRL) crossing. One petrol station would be doing roaring business whilst the other looked like it was deserted years ago. At one time it was worth driving 40 miles there and back just to get a full tank (although there was the added bonus that you could get groceries in the North that you couldn't get in the 'Free State'). I remember such boring shopping trips as a captive child to Wellworths (not a typo) in Enniskillen.

[GWR-fan]

On 30/05/2018 at 19:37, Trains4U said:

In the event of larger increases, if prices are not put up, you lose your selling margin on replacing the stock just sold.  so in order to stay in business and pay the bills, prices must go up.

I do not understand this statement although the argument is used by most retailers who increase the price of all stock onhand when a price increase is announced on that stock.  To sell at the pre-price rise cost the retailer is still making the same percentage markup intended before the rise.  By raising the price on old stock he is increasing his profit margin at no cost to himself.  By stating that if he did not raise the price on old stock then he would need more money to purchase new stock over the old wholesale price,  thus implying that he would be "losing" money selling at the "old" price.  The seller still needs to purchase stock regardless of a price rise or not.  In effect a retailer is financing his new stock purchases by increasing the price of old stock still onhand.  This is a standard practice but I do not believe it is ethical.  When selling the new stock he is still making the profit markup percentage prior the increase,  so in effect by selling old stock at new prices his percentage markup has increased without additional cost.

 

Quote:  "...... if prices are not put up, you lose your selling margin on replacing the stock just sold. ........................."

 

How is the "selling margin" less on old stock sold at the pre-price rise when replacing stock?  The retailer is still making the same markup on old stock sold at the old price to new stock sold at the higher price.   The old stock was purchased at a lower wholesale price.   When replacing stock the wholesale cost will be higher than that paid for the onhand stock but how does the price of old stock directly impact the selling margin other than the retailer would be making a greater profit margin by raising his price?  The new stock is not relative to the old stock onhand.  The retailer knowing a price increase was intended could withdraw stock from sale until after the price rise thus increasing his profit margin.  Using the analogy of a loss in selling margin,  then any onhand stock sold prior the price increase is losing the retailer money as he knows that replacement stock after a price rise will be higher. 

Edited January 19, 2021 by GWR-fan
Additional info

[Trains4U]

Ok

I’ll try and make it simple.

 

I have a locomotive that cost £50, with an RRP of £75. (Im leaving VAT out if this as it makes it messy)

 

because of market forces, I price it at £62.50, giving a £12.50 profit margin.

 

I can expect to buy a replacement for £50.   Of the remaining 12.50, I have to pay rent, rates, wages, insurance, tax etc.

 

the manufacturer raises the price of a replacement product by 10% (there have been larger increases) to £55 and the RRP to £82.50, I put the sale price of the item £70

 

if the retailer doesn’t raise the price of the existing model on sale, the cost of the sale, including replacement of the item, means you only have £7.50 to pay your costs.

 

as before, it’s cashflow, the potential profit of the replacement item, whilst marginally better at  £15, is tied up and not realisable until sale, and cannot pay a bill.     By increasing the price, the cost of sale, including replacement, nets to a reasonable sum to run and invest in the business.

 

However, the most important reason, and one that applies to lower value always-available items (like paint, or point motors) is that an Electronic point of sale system or website cannot differentiate between old and new stock.  One price must be used and that will be the latest, highest price.

 

 

personally, I don’t like to increase prices on rolling stock and this is not so much an issue as manufacturers are not often raising prices on existing inventory any more.  but 5-6 years ago we were seeing 10-15% increases on held inventory, and if we wanted to pay our bills, there was no option but to immediately raise prices in-line.

 

I take a different view to paint and accessories.  Old stock is priced at the new stock price, for EPOS, labelling and simplicity. 

 

Edited January 19, 2021 by Trains4U

[Bernard Lamb]

6 hours ago, GWR-fan said:

I do not understand this statement although the argument is used by most retailers who increase the price of all stock onhand when a price increase is announced on that stock.  To sell at the pre-price rise cost the retailer is still making the same percentage markup intended before the rise.  By raising the price on old stock he is increasing his profit margin at no cost to himself.  By stating that if he did not raise the price on old stock then he would need more money to purchase new stock over the old wholesale price,  thus implying that he would be "losing" money selling at the "old" price.  The seller still needs to purchase stock regardless of a price rise or not.  In effect a retailer is financing his new stock purchases by increasing the price of old stock still onhand.  This is a standard practice but I do not believe it is ethical.  When selling the new stock he is still making the profit markup percentage prior the increase,  so in effect by selling old stock at new prices his percentage markup has increased without additional cost.

 

Quote:  "...... if prices are not put up, you lose your selling margin on replacing the stock just sold. ........................."

 

How is the "selling margin" less on old stock sold at the pre-price rise when replacing stock?  The retailer is still making the same markup on old stock sold at the old price to new stock sold at the higher price.   The old stock was purchased at a lower wholesale price.   When replacing stock the wholesale cost will be higher than that paid for the onhand stock but how does the price of old stock directly impact the selling margin other than the retailer would be making a greater profit margin by raising his price?  The new stock is not relative to the old stock onhand.  The retailer knowing a price increase was intended could withdraw stock from sale until after the price rise thus increasing his profit margin.  Using the analogy of a loss in selling margin,  then any onhand stock sold prior the price increase is losing the retailer money as he knows that replacement stock after a price rise will be higher. 

But there is a cost to the retailer.

If he makes the same % profit or the same actual profit he is not making enough recovery of his costs to pay for new stock. He has to dip into his pocket to find the difference between what has put in the bank and what he has to pay out to replace his stock. Not putting up the price on old stock soon becomes unsustainable.

Bernard

[LimboBrit]

11 hours ago, RJS1977 said:

My parents went on a coach trip across Europe some years ago. Somewhere in the Low Countries, there's a road which runs along a national border, where one side of the road has nothing but petrol stations cheek by jowl for several miles, and none on the other side. Apparently the fuel duty was so much cheaper on one side of the border than the other, that all the petrol stations located along that side, and there was a constant flow of customers coming across the border to fill up!

I live within sight of the Dutch-German-Belgian border. The difference in fuel prices is such that the Dutch will cross the border to get cheaper petrol and there is a flow of German cars in the opposite direction to fill up with diesel

[hayfield]

34 minutes ago, Trains4U said:

Ok

I’ll try and make it simple.

 

I have a locomotive that cost £50, with an RRP of £75. (Im leaving VAT out if this as it makes it messy)

 

because of market forces, I price it at £62.50, giving a £12.50 profit margin.

 

I can expect to buy a replacement for £50.   Of the remaining 12.50, I have to pay rent, rates, wages, insurance, tax etc.

 

the manufacturer raises the price of a replacement product by 10% (there have been larger increases) to £55 and the RRP to £82.50, I put the sale price of the item £70

 

if the retailer doesn’t raises the price of the existing model on sale, the cost of the sale, including replacement of the item, means you only have £7.50 to pay your costs.

 

as before, it’s cashflow, the potential profit of the replacement item, whilst marginally better at  £15, is tied up and not realisable until sale, and cannot pay a bill.     By increasing the price the cost of sale, including replacement, nets a reasonable sum to run the business.

 

However, the most important reason, and one that applies to lower value always-available items (like paint, or point motors) is that an Electronic point of sake system or website cannot differentiate between old and new stock.  One price must be used and that will be the latest, highest price.

 

 

personally, I don’t like to increase prices on rolling stock and this is not so much an issue as manufacturers are not often raising prices on existing inventory any more.  but 5-6 years ago we were seeing 10-15% increases on held inventory, and if we wanted to pay our bills, there was no option but to immediately raise prices in-line.

 

I take a different view to paint and accessories.  Old stock is priced at the new stock price, for EPOS, labelling and simplicity. 

 

 

There are two views on this aspect, You buy a product and set your profit margin on the acquisition price. then if new stock arrives if the price increases, you then increase your prices 

 

Too many firms (mostly energy) are very quick to increase their prices, but so slow in decreasing them. I think the word Greed comes to mind when this happens 

 

I guess in your case this scenario may rarely happen with your business, however its up to you how you attract sales 

[Nick C]

15 hours ago, RJS1977 said:

My parents went on a coach trip across Europe some years ago. Somewhere in the Low Countries, there's a road which runs along a national border, where one side of the road has nothing but petrol stations cheek by jowl for several miles, and none on the other side. Apparently the fuel duty was so much cheaper on one side of the border than the other, that all the petrol stations located along that side, and there was a constant flow of customers coming across the border to fill up!

Here (Luxembourg, on the Belgian border):

https://www.google.co.uk/maps/@49.8282078,5.7445106,15.92z

 

 

[RJS1977]

9 minutes ago, Nick C said:

Here (Luxembourg, on the Belgian border):

https://www.google.co.uk/maps/@49.8282078,5.7445106,15.92z

 

 

 

Thanks for this - I always wondered where it was. I think the story may have gained a little in my father's retelling of it!

[Nick C]

6 minutes ago, RJS1977 said:

 

Thanks for this - I always wondered where it was. I think the story may have gained a little in my father's retelling of it!

Don't they always - though 10 petrol stations within the space of a mile isn't bad going even without exaggeration!

[fezza]

Yes, increasing the price on old stock is about  cash flow and maintaining margins for restocking... but there is big caveat... 

 

If you can't sell the old stock at the new price and/or the product is devaluing on the shelves then there is no value is raising your price. Raising the price won't help your cash flow and the margin becomes a moot point. 

 

There is also the question of customer goodwill. For example, the fact that Hereford rarely raise prices on the stock in their bunker is one of the reasons I go back to them for new premium price models too. 

[Jol Wilkinson]

16 minutes ago, fezza said:

Yes, increasing the price on old stock is about  cash flow and maintaining margins for restocking... but there is big caveat... 

 

If you can't sell the old stock at the new price and/or the product is devaluing on the shelves then there is no value is raising your price. Raising the price won't help your cash flow and the margin becomes a moot point. 

 

There is also the question of customer goodwill. For example, the fact that Hereford rarely raise prices on the stock in their bunker is one of the reasons I go back to them for new premium price models too. 

 If you increase the price but can't then sell it you can then discount it by a greater amount to shift it. And, as modellers all love a bargain, that might help move it.

 

After taking early retirement from the motor industry I worked at the London Boat Show for a number of years, with a large online/mail order/retail shops chandler. If you could use it on a boat, we sold it. That was a real eye opener to peoples attitudes to price, discounts and perceived value.

[Jonboy]

The other area that has changed over the last 10-12 years, in the area of retail goods I work in, is that credit accounts from manufacturers and wholesalers are less common and credit card limits to businesses are substantially lower (I am aware of of one bank that has offered new limited companies credit cards with a £50 credit limit....).

This means the retailer needs the cash to buy the replacement stock up front rather than paying in arrears after it has sold.