Inspiration can come to you all of a sudden.
I had already talked with lahikmajoe about prices and tea and when we met in the 1st ITTC, he told me a story about two identical teas that had a huge difference in price, all depending if you buy in one store or in another.
Interesting no?
Then I read a couple of articles about tea, price and value:
Generation Why: The price of tea in Teavana by Hilary Matheson from the Journal Standard posted on July 17, 2011 http://www.journalstandard.com/lifestyle/x920793235/Generation-Why-The-price-of-tea-in-Teavana
Price and sustainability: What is Overpriced Tea by Alex Zorach from the Alex Zorach’s Tea Blog posted on August 1, 2011 http://cazort.blogspot.com/2011/08/price-and-sustainability-what-is.html
The Price of Tea by Lainie P from Lainiesips.com posted on July 19, 2011 http://www.lainiesips.com/2011/07/the-price-of-tea/
and I thought, perhaps it is time to answer lahikmajoe’s question or rather to try to do it.
In order to be able to do it, I will make a couple of simplifications since otherwise, it would bring us too far away from the price topic.
-
My example (and it will remain that) will only focus on two different “generic” companies,
-
I will assume that they get the same amount of non-blended tea at the same price from the same company. I know this is a big If but getting into the auction system or the direct buying and coming up with hypotheses based on that would just add complexity to this post,
-
I will use wrong figures but I think they still make sense.
So let’s start!
We have two companies selling teas: A and B (quite imaginative, no? ;))
Both have an online store but A has three stores in different towns while B has only one.
A is widely known for its top quality products while B is nearly unknown outside of its usual customers.
Due to its reputation, A also opened tea houses in its stores while B is still focusing on selling and did not venture in something else.
The scene is set and now we can come to the price.
I will use the price of the tea bought by the two companies as the basis for my calculations (see point 3).
Why? Simply because it is a way of having costs that you can compare.
To make things easier, I will call this price X (another display of my daring imagination).
|
|
A |
B |
|
Tea price (including shipping costs) |
X |
X |
|
Renting the stores |
10%X (the increased percentage is because they need more space because of the tea houses) |
3%X |
|
Sellers’ wage |
12%X (because you have two different categories: those selling tea and those attending the customers) |
2%X |
|
HQ paperwork |
1%X |
0.5%X (done by one of the sellers that might own the shop) |
|
Logistical network |
10%X (with 3 different stores even if they were in the same town, you would need a small warehouse) |
0 (supplies are kept in the store) |
|
Margin |
4%X (since they have a good reputation, they can charge more there since people are willing to pay more for this “better” quality, because of the perceived value) |
2%X |
|
Total and final price |
137%X |
107,5%X |
With this oversimplified example, you end up with a tea that is 1.27 times more costly in A stores than in B one, meaning that if you buy it for 5€/100g at B, you will pay 6.137€ for the same amount of the same tea at A.
August 18, 2011 at 9:32 pm
Impressive.
This is exactly the sort of question I’d contemplate but never actually get down to crunching the numbers. Very well thought out and concisely explained.
August 18, 2011 at 9:50 pm
Thanks for the comment and I wrote this post following our Saturday morning discussion around a cup (several would be closer to the truth) of tea.
Unfortunately, those figures are wrong but I hope this post provides the reader with the first basic elements to think about prices and pricing.
August 19, 2011 at 7:02 am
Thanks,
Something to consider
August 24, 2011 at 6:41 pm
You are welcome.