Fools Pay Retail Price

There is a saying among the more savvy shoppers that no one should be paying retail prices. If you take in the mark ups, the many add ons throughout the delivery value chain of any product, to finally arrive at the retail price, most will be shocked as to the actual cost of making/producing/generating the product or service.


Take for example a bottle of Coke, which may be RM1.50, if you can dissect up all costs, the cost is actually probably less than RM0.20 cents to Coca Cola, but of course they probably spend another RM0.50 sen for marketing. Another is coffee at Starbucks, a single shot of Americano sells at RM6.00 and I am pretty sure it cost Starbucks less than RM0.80 per shot, they probably spend at least another RM2.00 for amortisation for stores build up and marketing though.


Generally whatever you pay at retail price, the thing probably cost less than 20% to build/make/manufacture, another 20%-30% is for delivery, amortisation and maybe marketing, then there is middlemen mark ups from importers to wholesalers to channel distributors/agents and then retail, plus rental and storage costs along the way.


The cost for perishables are even more ridiculous as they have to rid their products within a very short time frame, you do the math when you actually get into the nitty gritty side of business. Which is why a Birkin bag is really ridiculous ...


The one company that can really justify getting very very fat margins is Apple because of its uniqueness, the apps and acceptance ... Apple gets to keep the bulk of the huge markups unlike most other companies. Naturally the question is can Apple keep those margins for a very long time? Samsung and HTC are making good inroads but still not denting Apple's iPhone's dominance. Its an enlightening chart below to dissect the cost of an iPhone. Naturally as well, after having a solid product, Apple is very very adept in wringing massive cost savings from the suppliers. Everyone wants to supply to iPhone with their volume and they have to bend over backwards to do so with very punitive penalties when they fail to deliver on time have need to have very low "failure rates" as well.

Asia is also an

Comments

Mangkuk Ayam said…
You Ignore the COST of MAKING THE OVERALL PRODUCT, that inclusive of INNOVATION. Innovation is in all stages of product delivery.

I believe with your experience, you may understand, it's very hard to get something innovative to the market. E.g. Viagra. People might spend years and some even decades to get the product right. Here we need the cost for scientist.

So when the product is finally out, then we need the marketing people to get the right ideas on how to deliver the product message. Here we need cost for copywritter, designers, and Ad firm.

Then you need the salesperson to lay the sales network throughout the market. here the need the cost
for sales person, and packaging.

that is all COST la bro.

AND

your pure surface analyst is a bit disappointing. For me, I'm as a business person, I earn what I think I deserve.

If Berkins can sell a Handbags at RM100K/piece. That prove that Berkins has the capability to do that and some don't.

they are able to convince buyers that the RM100K/piece of handbags is worth the money. I see no wrong in it.

SO

If everyone takes the advise and think like what you comment, I think overall society will not grow.

And I think all ppl will stay the same and we end up in a socialist society.

this is just very surface analysing stuff.
Salvatore_Dali said…
mangkuk ayam,

chill man, it is obviously a tongue in cheek posting, not serious la ... of course u r right ... i am just making the point that the actual cost of a product is very low compared to the px we pay at retail for almost everything ... of course this does not mean i will stop shopping, its a fun article ...

i mean not many ppl know that the Coke soda cost less to make than the aluminum can it is in ... of course there are other costs involved like you said ...

all in the name of poking fun
clk said…
cost of branding, packaging etc. often costs more than the actual DIRECT production costs.

when one throws the aluminium can after a drink, that's probably one of the highest cost component in the can drink; the water, flavour and sugar probably costs less than 10sen/can....

so does China want to continue to slave itself for the world as a manufacturing hub?
Mangkuk Ayam said…
actual cost of product inclusive of innovation cost...inclusive of everything.

just like doing business in everywhere....the cost of the JUST DELIVERING THE COMPONENTS IS CHEAP...but the soft part is freaking expensive

example, Bribing be make up 10% of the house you staying now
Mangkuk Ayam said…
not fun at all, it attacked my profession as a business person. This is a a very socialist view, i couldnt agree ANY with you on this.

businessman work hard, designing of the structure, not for themselves, FOR EVERYONE, A WIN-WIN-WIN scenarios

The retail customers WIN in getting a good deal/experience

the resellers WIN in pushing it

and they win in ensuring the retail customers WIN

key is, this is a circle, without willing party, there won't be any goods in the market

example: if a customer is paying a
cost price for a prostitution experience, then you imagine la:-

1. what is the cost of the male/female prostitute
2. what is the cost of the promoters

customers may pay RM5 for the whole experience, arguing that they wan to do it under the tree(free) and buy 2 packets of RM2.50 nasi lemak for both the prostitute and promoter.

Are you willing to participate in this type of transaction? (put aside moral judgement)

you tell me
Mangkuk Ayam said…
clk,

china will be strong one day, but definitely not as an innovative country, maybe the biggest consumption country.

how to be innovative? when human are under huge pressure, or having the strong will, then human will get motivated to be innovative.

china and most chinese ppl, even in the Asean, sad to say, the face is always No. 1, that's why ppl say "die also wan to have face"..
in fact, the most no face time, is when you r hungry...

(haha....off topic liao)

china slave, i think will still be there, for sometime, same as malaysia, also got malaysian slave, working for RM600/mth in some rural places in sarawak/sabah and even in KL!

point is, as a whole society structure, there is always slave and master..just like Singapore LKY policy, only 20% can go Uni, if everyone go Uni, who will do the Sh!t job....hahahahaha