The document discusses the importance of calculating the 'end price' that consumers will see for products, vital for market research, competitive analysis, and sales strategies. It provides a formula for calculating the end price through various distribution channels, emphasizing the need for understanding margin requirements at each stage. Furthermore, it offers a case study example to illustrate the implications of pricing decisions and the potential impact on market reach.

1. Marketing Essentials
2021
Professor Steven Litt
@StrategySteven
Ready to be a Marketing professional?
Calculating the ‘End Price’
©2021 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

2. Who needs to anticipate the price at which
an item will be sold to the consumer?
You do! For
• Consumer research (purchase intent without a specific price? Good luck!)
• Competitive analysis
• Calculating Market Potential
• Profit analysis
• ‘What if’ scenarios
• Channel decisions
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

3. Researchers and Analysts must know how to
calculate End Price
• You are in Research; several new concepts must be tested.
You estimate the COGS but need the ‘Consumer’ Price or
Manufacturers Suggested Retail Price (MSRP) to put before
study participants.
• You’re analyzing competition; a rival has a cost savings
advantage your organization lacks. How much of a difference
might that make to the price a consumer sees?
• You see a potential new ‘path to market’ or cost reduction
platform; how much of a difference might that make in
consumer price?
Note: If uncertain what ‘Margin’ is, see my Practical Tips
‘Understanding Margins’.
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

4. Entrepreneurs, Manufacturers & Sales professionals
must know how to calculate End Price
• You’re a Manufacturer, whose VP says to take a price increase; you want to
see if downstream partners (retailers) can still reach the ‘Hot’ price points at
which ‘deal-sensitive’ consumers are used to buying.
• You are a Manufacturer selling direct to retailers; each of whom takes different
% margins; consumer research says your item must sell at eg $2.99 or less, or
sales volume will be very low. Which of your retailers might to sell to
consumers at that MSRP? (ie with which retailers might you put priority on
requesting a Pitch meeting?)
• You’re a Wholesaler; a new item you carry might be a winner, but only if
Retailers you sell to, resell at a certain ‘Hot’ price. Which of them will be able
to do that, given the margin structure of each?
• You’re an Entrepreneur or in Sales, about to Pitch a new Retailer; your price
list is with you; this boutique retailer takes a high margin (90% of MSRP).
What ‘suggested’ retail prices should you show in your Pitch?
• You’re an Entrepreneur considering 2 types of possible channel partners;
those with Everyday Low Pricing, and High-Low Stores. You want to know
what each of the possible channel partners will end up pricing your product at.
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

5. If a wholesaler you sell to, at $1.05/unit, takes a 30%
margin on your product, and the retailer they sell to,
takes a 50% margin, how much is the ‘End Price’ a
shopper sees it at, on the shelf?
Your Research study promised wonderful consumer
interest at a price of $2.49.
So… is that a reachable price?
Uh-oh. Do I have to do…. MATH?
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

6. Your ‘End Price’ calculator! Here’s a formula to use at each point in a
distribution chain; as long as you know each player’s % margin requirements:
(Starting Price) / (1 - Reseller’s margin) = End Price
That’s it!
Now apply it repeatedly, depending on the
number of channel partners you sell through,
to reach the End Consumer
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

7. The formula for each point in a distribution chain:
(Starting Price) / (1 - Reseller’s margin) = End Price
eg if a wholesaler you sell to at $1.05/unit requires a 30%
margin on your product, and the retailer they sell to requires
a 50% margin, then how much is the ‘End Price’ a shopper
sees it at, on the shelf?
So…?
at what price will a shopper see it?
If you already did Consumer Research on eg Purchase
Intent, let’s hope you calculated this first!
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

8. Your calculator!
To use it, you must either know, learn or estimate each player’s %
margin requirements:
(Starting Price) / (1 - Reseller’s margin) = End Price
So if a wholesaler requires a 30% margin on your product
$1.05/ (1.00 - 30%) = $1.05 / 0.70 = $1.50
ie the product you sell the Wholesaler at $1.05 is resold by them to a retailer at $1.50
The retailer want a 50% margin use the same formula:
(Starting Price) / (1 - Reseller’s margin) = End Price
$1.50/ (1.00 - 50%) = $1.50 / 0.50 = $3.00
ie your product, which the Wholesaler sells at $1.50, is resold by a retailer at $3.00
as there are 2 channel partner in sequence, we must use
the formula 2 times. This Retailer takes a 50% Margin, so…
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

9. Case Example:
Remember this?
If you messed up and did research at eg $2.49, then …..oops.
You still have Options
1. Redo the Research; find Consumer Purchase Intent at $3.00/unit
2. Seek a way to reduce COGS eg make a small sized 250ml version
instead – or ‘cost optimize’ the formula (reduce the ingredient cost, etc)
3. Change your channel or path to market → …
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
So… at what price will a shopper see it?
If you already did Consumer Research on eg
Purchase Intent, let’s hope you calculated this first!

10. Changing you Path To Market
Change your channel or path to market: Options have tradeoffs!
(i) sell direct to same Retailer not via Wholesaler→ many ethical & legal complications
from breaking your contract! Also: do you know all the Retailer’s needs? Logistics
standards? Are you set up to service them?
(ii) Sell direct to niche channels; eg if an energy drink: gyms, arenas, cafeterias → hard
to reach, lower volume, may just be reachable via their own Wholesalers!
(iii) Sell ‘warehouse clubs’ eg Costco, who typically take a much lower margin→ may
be harder to gain a listing, typically must pass Blind Store Panel test, requires repacking
in banded packs, bulk packs, palletized displays. Cannibalizes sales in other channels!!!!
(iii) Sell DTC eg online: too often seen as a panacea. Volume will be much lower, many
admin headaches, need to set up full-scale 24/7 customer service, JIT turnaround, etc
(iv) If freight/distribution cost is a high% of delivered cost, limit the geography to what
is profitable
(v) Sell it direct to Retailer, as a Private Label item
(vi) License the item to a Manufacturer/ Marketer who already services this retailer.
This improves freight efficiency & you benefit from their savvy about Retailer needs
and leverage with that retailer, but you trade off control & relationship-building with
that Retailer!
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.
Many options--- all with consequences, implications

11. Ready to try the formula?
Women’s ToastyUndiesR variable COGS is $1.25.
You are Linda’s Lingerie & you have a new
Thermal undies for Canadian winters
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

12. There are 4 Million women 34 to 59 in your
serviceable shipping geography. Your preliminary
research shows that, of these:
•90% might buy 1 pair at $2.99 or less
•80% might buy 1 pair at $4.99 or less
•30% might buy at $6.99 or less
•10% might buy at $9.99
•0% will pay more than $9.99
ToastyUndiesR
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

13. Eg for the $4.99 MSRP scenario…
80% find it appealing
or 4MM x 80% = 3.2 M possible buyers (’prospects’).
ToastyUndiesR
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

14. You find a wholesaler who charges 30% (ie takes a
30% Margin) and claims they can access Indie Shops
who reach 25% of your ‘end consumer’ market
The Wholesaler’s Reach is
4 Million x 80% interested x 25% reached by
Wholesaler’s customer = 800,000 ’prospects’
interested at $4.99
ToastyUndiesR
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

15. You decide you want to make $0.75 /pair.
Your manufacturer cost will be
COGS + Manufacturer Gross Margin =
$1.25 + $0.75 =
$2.00
ToastyUndiesR
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

16. Your manufacturer cost is $2.00.
Wholesaler charges 30% margin
You learn that the Retailer charges 70% margin
Will your product end up being offered to consumers
at $4.99 or less, with this path to market?
ToastyUndiesR
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

17. ToastyUndiesR
Here is the formula to use at EACH stage of the product's go-to-market process:
Starting Cost/ (1 - Reseller's Margin) = End Price
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

18. ToastyUndiesR
We apply the formula 1st to calculate how the
Manufacturer Price is converted to a Wholesaler Price…
$2.00 / (1-0.30) = $2/ 0.7 = $2.857
Then we apply it a second time to find how the
Wholesaler Price is converted to a Retailer Price…
$2.857 / (1- 0.7) = $2.857/ 0.3 = $9.52
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

19. ToastyUndiesR
$9.52?
Remember your Purchase Intent scores?
$9.52 sure isn’t $4.99.
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

20. ToastyUndiesR
Remember your Purchase Intent scores?
$9.52 sure isn’t $4.99!
4 Million x 80% interested x 25% reached by Wholesaler’s customer =
800,000 reachable ’prospects’ were interested at $4.99
---but now, instead of 800,000 prospects, you have:
4 Million x 10% interested x 25% reached by Wholesaler’s
customer = 100,000 reachable ’prospects’ are
interested at $9.99 …if you use this Path To Market
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

21. So remember---who needs to anticipate
the price at which an item will be sold to
the consumer?
You do! For
• Consumer research (purchase intent without a specific price? Good luck!)
• Competitive analysis
• Calculating Market Potential
• Profit analysis
• ‘What if’ scenarios
• Channel decisions
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.

22. SOURCES
• Steven Litt, StrategySteven.com accessed January 24,
2021 strategysteven.com
• Cover photo courtesy of Mandy S Photography
©2020 Steven Litt . All rights reserved. May not be scanned, copied, duplicated or posted publicly to a website in a whole or in part.