From: mccall@mksol.dseg.ti.com (fred j mccall 575-3539)
Subject: Re: Rude behavior on this group.
Organization: Texas Instruments Inc
Date: Fri, 18 Dec 1992 17:14:55 GMT

In <1992Dec17.214124.10789@nosc.mil> discar@nosc.mil (Joe Discar) writes:

>In article <1992Dec17.184850.29530@mksol.dseg.ti.com> mccall@mksol.dseg.ti.com (fred j mccall 575-3539) writes:
>>
>>No, in a pure competitive market, profit margins at the margin will go
>>to zero.  Adding features may move the demand curve to the right, but
>>unless you can be in a different MARKET with the added features, you
>>cannot add anything that adds cost.  Now, there are market share
>>considerations and such which I didn't touch on, but I didn't touch on
>>them because they are irrelevant.  You simply cannot, over the long
>>term, lose a little bit on every sale but make it up by having a huge
>>volume. 

>WRONG!  Here's a simple example:  Network cards from one distributor I use
>cost me $100 each in quantities of two or less.  If I buy three through
>five, they cost me $95.  If I buy over five, they cost me $90.  I do not
>"lose" money because I have a big volume: if it "costs" me two bucks
>per card sold to add a "feature"--but adding that feature allows me to
>sell six cards, I make more money than if I sold six cards one at a time.

WRONG!  You can't read (as usual), Joe!  Note the statement LOSE A
LITTLE BIT ON EACH SALE AND MAKE IT UP IN VOLUME.  You show me how you
can do THAT.

>I.e., I resell the cards for $110:
>     My profit = $110 * 6 - 6 * 100 = $60 (if I sold them one at a time)

>     ...or...

>     $110*6 - ($90+2)*6 = $72 (if I built up enough volume quickly enough, due
>				to a $2.00 addin-cost to purchase six cards
>				at one time).

Nice.  You can do arithmetic.  Now tell me again how you can sell each
of those cards at a loss, but if you sell a lot of them you will get a
profit. 

>	This type of discounting happens ALL THE TIME.  It happens
>	with automobiles ("we'll sell two dollars over factory invoice..."),
>	it happens with pharmaceuticals... and believe it or not,
>	regardless of what you think, a company can "absorb" the cost
>	of an $8.00 Windows+DOS package, if they can generate enough
>	volume to push the cost of the machine below a sales level.

WHAT DOES THAT HAVE TO DO WITH WHAT I SAID, JOE??  ARE YOU OUT THERE?

>>
>>>One company that I was involved with was in a very competitive market 
>>>- sporting goods accessories (sorry cannot be more specific .... 
>>>client confidentiality). They sold a product to a large retail chain 
>>>for approximately $15. Their profit per unit was 25 cents .... less 
>>>than 2%. They could not pass on their costs precisely *because* they 
>>>the retailer could buy the product elsewhere if they raised their 
>>>prices - i.e. it was a competitive market. They had to sell product 
>>>and they felt it was important that their product be in this 
>>>particular retail outlet. 
>>
>>>I believe that you have this backwards.
>>
>>No, I think we are looking at it from slightly different perspectives
>>is all.  You are adding the feature and assuming minimum profit; I am
>>starting from the competetive minimum profit and then trying to add a
>>feature that has cost.  If the cost is larger than your profit margin,
>>you will simply HAVE to pass it through.  If the 'agreement' with the
>>feature adder is that the feature must be on ALL sales (or that they
>>are going to charge you on the basis of all sales rather than just on
>>those which contain the feature), then they are going to pass through
>>that cost (you pay for the part of the allocated costs going to that
>>feature whether you want that feature or not).

>But business people do not sign such agreements without thinking
>that it would be profitable.  *I* would sign an agreement for a low-than-
>cost price for Windows if I thought that the added volume in sales
>would build up demand for sales...

OF COURSE they expect to make a profit, Joe.  But that has nothing to
do with whether people who DO NOT WANT WINDOWS AND DOS are paying
those costs anyway if the agreement says you HAVE to include it.

-- 
"Insisting on perfect safety is for people who don't have the balls to live
 in the real world."   -- Mary Shafer, NASA Ames Dryden
------------------------------------------------------------------------------
Fred.McCall@dseg.ti.com - I don't speak for others and they don't speak for me.
Newsgroups: comp.os.os2.advocacy