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🗓 01/07/2022 👤 Biggy Le 👌 Simply

Price adjustment: KoRo’s products are getting 5 % cheaper on average

Wir ändern wieder die Preise für den Großteil unserer Produkte. Und zwar im Schnitt um minus 5,34 % – es wird also günstiger! Was sich im Detail geändert hat sowie Insights zum technischen und betriebswirtschaftlichen Hintergrund erklären wir Dir in diesem Artikel.

Price adjustment: KoRo’s products are getting 5 % cheaper on average

Why are we changing our prices again?

As you know, we are constantly working on adding new products to our range; but we don't just focus on new products. We also try to offer you our existing range at a better price. 

The competition never sleeps, and the market is constantly changing. To keep up with it, we regularly evaluate how we are positioned and whether we need to adjust our prices to the market. 

That is one of the reasons for the price adjustment. Another is our newly developed calculation base, which we will use to calculate our prices in the future. We will go into this further below, but, first of all, let us explain the basics of price adjustment and price calculation.

Which products' price is now changing?

The good news first: with this price adjustment, we have an average (sales-weighted) price change of minus 5.34%. 

However, as the price of some products falls, there are also products whose price will rise. For example, the price of our dried pineapple in its one-kilo bag is dropping from € 20.50 to € 18.00. On the other hand, we have had to increase the price of our popular lentil crisps from € 2.00 to € 2.50. The aforementioned price change of around -5% is then calculated on average for the shop. 

Here is an overview of selected price changes for our most popular products:

Product

Old price

New price

Percentage change

Bean and pea mix 1 kg

13,50 £

11,00 £

-18,52%

Ginger shot 200 ml

3,00 £

4,00 £

+33,33%

Premium almonds 1 kg

14,50 £

16,50 £

+13,79%

Cashew nuts 1 kg

12,00 £

10,50 £

-12,50%

Hazelnut butter 500 g

10,00 £

10,50 £

+5,00%

Organic date and hazelnut cream 500 g

11,50 £

10,00 £

-13,04%

 

As we always want to be as transparent as possible, you can check the price trend for each product clicking on “Price development”, on the product page:

Preishistorie-2

How to determine the price

 Graph_02_EN

 

How has our price calculation changed?

The principle with the minimum margin and the sales prices of the competition has basically not changed. Here is again summarized: 

We calculate the lower price limit with our minimum margin and the purchase price. The formula is:

Formel-1

We then compare this lower price limit with the price of the cheapest competitor. If the competition is cheaper than our lower price limit, then our price is equal to the lower price limit. If the competition is more expensive than our lower price limit, we choose a price that is below that of the competition.

Formel-2

(PU = Price floor; GK = Lower competition price)

 

New vs old calculation

Let us now explain the difference between our old calculation and the new one:

1.       Minimum margin / price floor: In the old calculation we had a "rigid" minimum margin: products with a purchase price of less than € 10 had to have a minimum margin of 60%, products with a purchase price between 10 and € 20, a minimum margin of 45%, etc.

 It was not an optimal approach. We have therefore come up with a formula for calculating the minimum margin that guarantees a smooth gradation. This formula now looks like this:

Formel-3

Where a, b and c can be chosen freely. Depending on how you choose the values, the course of the curve changes. 

The value for a indicates where the curve starts, a realistic value for us would be between 0.5 and 1.5, while b indicates how steep the curve is at the beginning (in the 1 - 10 € range). At values below 0 the curve is steep, at higher values it becomes flatter. For us, a realistic value is between 0.5 and 3. c is also relevant for the case of the curve; a value between -1 and 0 should be selected here. The larger the value, the faster the curve flattens out. 

So, how do you choose the parameters? It is helpful to choose around 10 products at the beginning and consider the minimum margin you want for these products. Then you play around with the parameters a bit until you have found a curve that roughly outputs the minimum margin for the products that you have considered, which is a fine adjustment of the values. 

In the sample graph below, we have used the values

a = 0,9    ,    b = 1,48    ,    c = -0,3 

Margenverlauf

You can see that products with a purchase price of less than € 2 have a significantly higher minimum margin with the new formula than with the old calculation. For the most part, this high margin serves as a buffer to cover additional costs such as transportation and shipping. These costs are significantly heavier in the case of very cheap products. 

With a purchase price between € 2 – 10, however, this new calculation gives us a lower minimum margin than before. This can be seen particularly well in the large difference with a purchase price of € 9: according to the old calculation, we would have a minimum margin of 60%, while, with the new calculation, it is around 15% less. With a lower minimum margin, we are much more flexible to keep up with the competition, and can offer you an even more attractive price.

2.     Competition: According to the old calculation, we have always chosen a discount of 10%. However, 10% is often not much of a difference, and we want to give you a bigger price advantage, if our margin allows it. 

As a result, we will no longer sell at the competitor's price minus 10% - if the competitor's selling price is higher than our price floor. Instead, we calculate the difference between the competitor’s price and our lower limit, multiply this difference by a factor between 0 and 1, and add this difference to our price floor.

Formel-4

A small factor means that the additional surcharge is relatively small, which means that you as a customer get a better price. A larger factor means that our additional premium is larger, but the difference between our price and that of the competition is no longer that great. 

Now, it all depends on the strategy. As we want to offer you a bigger price advantage and forego a little profit, we choose a value between 0.3 and 0.6. 

In the example, we have chosen a value of 0,5.

Graph_02

What does this mean? If, for example, our price floor is 10 € and the competition sells for 20 €, then we no longer sell (according to the old calculation) at 18 €, but at 15 €. 

We then have a lower margin, but can offer you cheaper products. 

Summing the whole thing up, we determine the price with the following formula:

 Formel-5

Here you can select other parameters and see how the course of the function of the minimum margin changes. You can also use some sample products and values to see how the calculation changes if you change the parameters, enter other competitors, or change the purchase price.

 

Why do some products get cheaper and some more expensive?

The calculation for a price includes several factors that may have changed since the last price adjustment.

Graph_01_ENpoAVXpQGb0Dyh

On the one hand, there is our purchase price. Since last year's growth was so strong, the purchase quantities we got from our suppliers grew larger, therefore enabling us to often negotiate better purchasing conditions. We would like to pass this purchase advantage on to you.

However, exactly the opposite has happened due to corona. Many suppliers could not deliver to us and, as a result, we had to switch to other suppliers, who in turn had worse purchasing conditions, which then increased the sales price.

Another factor is the new calculation that we have already explained. The consequence of this is that some products, which may have been too tightly calculated before, now receive a larger buffer. In this way we ensure that we do not make any losses with the products. This mostly applies to products with a purchase value of less than € 5.

The competition also plays an important role. If the competition drops their prices sharply, we try to keep up and lower our prices as well. 

It may also be that the prices of the competition have not changed much, but we want to give you a greater price advantage with the new calculation, and therefore lower the price. 

As you can see, there is not just one reason for the change in prices, but rather it is a combination of numerous factors that ultimately lead to the price adjustment. 

We hope that we could give you an insight into our pricing! Feel free to share your feedback in the comments.

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