Some Thoughts on Pricing

It warms my heart to see young people getting into agriculture in my country. Our national security depends on it. We are all nation builders. With the rise of youth-owned businesses, I find the need to comment on the counterintuitive pricing strategies they sometimes employ. Here is one such example, and my recommendation. This entrepreneur posted the eggs and pricing as follows:

• 48 eggs = P79.00

• 24 eggs = P39.00

• 12 eggs = P19.00

• 6 eggs = P9.00

For reference, as of today, US$1 = BWP 11.75.

My feedback on pricing is as follows. Pricing should always incentivize the customer to buy the larger quantity items than the smaller quantity items. In other words, the more eggs the customer buys, the less they should pay per egg.

As currently priced,  the per egg price in each of the sizes is:

• Half Dozen: P9.00/6 eggs = P1.50 per egg 

• One Dozen: P19.00/12 eggs = P1.58 per egg, a 5% increase from the half dozen pack in the per egg cost.

• Two Dozens: P39.00/24 eggs = P1.63 per egg, a 8.67% increase from the half dozen pack in the per egg cost.

• Four Dozens: P79.00/48 eggs = P1.65 per egg, a 10% increase from the half dozen pack in the per egg cost.

The bottom line is the half dozen pack is cheaper. So if I want to 12 eggs, instead of buying 12 eggs for P19, I am incentivized to buy 2 x 6 eggs for 2 x P9.00 = P18.00 (saving P1), or instead of 24 eggs for P39, I am incentivized to buy 4 x 6 eggs for 4 x P9 = P36 (saving P3), or instead of 48 eggs for P79, I am incentivized to buy 8 x 6 eggs for 8 x P9 = P72 (saving P7). These are nontrivial savings, especially in the local economy where people do not have that much money to spend, to begin with. 

Perhaps in increasing the price each time the size increases, it is an attempt to capture the idea that the cost of packaging the eggs is increasing. But I think that is a cost that can be absorb by the business.

If the goal is to sell each egg at P1.50 per egg, I recommend selling for the following prices:

• 6 eggs = P9.00

• 12 eggs = P18.00

• 24 eggs = P36.00

• 48 eggs = P72.00

If the goal is to incentivize people to buy the larger quantities, I would add P1.50 to all those other prices. P1.50 was chosen arbitrarily, so an entrepreneur can choose whatever amount to add that yields the target per egg cost distribution of their preference. So:

• 6 eggs = P10.50 (P1.75 per egg)

• 12 eggs = P19.50 (P1.63 per egg)

• 24 eggs = P37.50 (P1.56 per egg)

• 48 eggs = P73.50 (P1.53 per egg)

This pricing strategy effectively gives the customers a quantity discount. If business is slow and people are buying only the smaller quantities, the bigger margin on those smaller quantities compensates for the low sales. If business is good and they are buying the larger quantities, even though there is a slightly smaller margin this is compensated for by the increased sales volume.

Of course this is just my opinion on it, they are welcome to price their goods however way they please. But the original pricing is inconsistent with microeconomic principles, and the half zone price dominates all other prices for the different values a typical customer can have - price and quantity. (A customer who is assumed to act rationally).