Prices for commodities and standardized goods such as precious metals are set by the impersonal market forces of supply and demand. Because apparel products are differentiated, there are few standardized goods in apparel markets. Apparel prices are set and administered by the firms who manufacture the products. Administered prices are prices set or “administered" by the firms in the market rather than by impersonal market forces.
The prices on a manufacturer's products must first cover costs and then meet the profit and volume goals of the firm. Cost estimating provides the basis for pricing but many other factors such as discounts, allowances, and pricing strategy must be considered before establishing the list price and the wholesale price. Most wholesale price structures are based on list prices. The list price is the suggested retail price identified in a manufacturer's catalogs and price sheets. The list price is often an estimate of the value of the product to the ultimate consumer. The differences between list prices and wholesale prices are discounts and allowances. Discounts and allowances are reductions from the list price that are granted by a manufacturer to a firm that performs some marketing or distribution function.
Basic questions a manufacturer must answer to develop a pricing strategy include the following:
At what profit level will the list prices be set?
Will the prices be cost based or demand based?
Will the firm use price lining and/or odd pricing?
What terms will be negotiable as a part of sales agreements?
Will the firm's pricing strategy fall within legal restrictions on pricing?
Clearly, the process of establishing wholesale prices and negotiating sales contracts with retail buyers is not a simple one. Manufacturers must have a clear understanding of product costs and the influence of negotiated "terms' in sales contracts before developing their pricing strategy.
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