Import Co. Limited (not its real name) imports specialised equipment from overseas manufacturers and distributes them to retailors and other users New Zealand wide. The current owners brought the existing business three years ago.
The owners of Import Co. Limited have suspicions that the profit margins on a number of their products are minimal. The owners are interested to explore how effective pricing can achieve maximum profits, without requiring any other changes to the business or its market.
This study’s aim is to select the most appropriate pricing method for Import Co. Limited. The research presentation intends to answer this aim by exploring two questions. Is there any potential for changes to the method of identifying product costs and determining mark up? And secondly, how will these suggested changes alter the company’s profitability long term?
To answer these research questions, a product sample of 76 products were chosen to be analysed. The selection process was based on selecting the most frequently sold items, while considering the product’s manufacturer.
The study calculated a suggested selling price of the sample products, based on cost plus pricing methods theory. The suggested selling prices were higher than the current list prices for manufacturers 2, 4, and 5, while suggested prices were lower than the current list prices for manufacturer 3. Manufacturer 1 presented some current prices higher, and some lower. Additionally, average current profit percentages were found for each manufacturer’s sample products, with manufacturer 3 concluded as having high profit to cost and expense ratios.
The study recommends establishing more constant shipping expenses for all manufacturers, excluding 1. It also recommends immediately increasing prices of product costs with a current profit percentage of 40% or under, and exploring the prices of products from manufacturers 1, 2, 4, and 5, where the current profit is under a satisfactory level. These changes will see a large increase in product price profitability.