Example: one bottle of water is like $2 but a whole pack of 24 is like $8. Isn’t the company losing money by charging less for more resources/labor & packaging?
In: 8
There’s a lesson to learn here
Yes, yes they do. But resources labour and packaging are not the whole picture. You have the logistics of delivery and storage
That turns out to be such a big slice of the overhead that bulk suddenly becomes reasonable. Why deliver you 100 bottles ten times? Take a thousand. Take ten thousand, how fast does it sell? How big is your warehouse?
The majority of the cost of your water bottle is neither water nor bottle, but it being on the shelf you got it from, bulk buy lowers the cost for all parties by reducing their travel
It also helps to think of 24 for 8 being closer to actual break even, and the single bottle for 2 being daylight robbery. Nobody regularly turns losses, they’ll be up on that bulk deal for sure
Edit:. Another answer points out multiple actors which I missed. Manufacturer and retailer own different segments of that cost and the profits
There’s two things going on here that result in lower costs when you buy something in bulk.
First, the cost of creating/selling those goods is actually lower (this is called [economies of scale](https://en.wikipedia.org/wiki/Economies_of_scale)). Just at a retail store alone it’s faster to stock a bulk good. One person can place that 24-pack is about the same time it takes to stock a single individual bottle, and there’s a lot less adjusting the stock to bring bottles to the front of the shelf. Additionally it’s faster for a cashier to ring up a single 24 pack than 24 individual single bottles (especially if they are spread out)
Second, guaranteed income. If you only buy a single bottle of water they only make $2 off of you and might never make any more money. But if you buy that 24-pack they at least made $8 of you.
These efficiencies and guarantees run all the way down the supply chain. It’s cheaper for retail stores to buy bulk packs for basically the same reasons. And it’s cheaper for the shipping company to ship them, etc. etc.
Most of that $2.00 price is going to the retailer who sells it. They buy cases then pay someone to split that case and stock the bottles in a refrigerated case that costs money to operate. Still, it’s way overpriced, IMO. Everything is cheaper in bulk packs.
There are efficiencies in selling bulk… it takes the same effort to convince a consumer (marketing expense) to choose one bottle or 24-pack; it’s more efficient to place a pallet of 24-packs on the floor of a store vs. constantly stocking individual bottles in a fridge. Some of the pricing differences are supply and demand, convenience, competition — if you’re thirsty or grabbing lunch and need a drink, you’ll think little of spending $2 on a cold bottle of water. When it’s a case of warm bottles for future use, you are more price sensitive.
Lets say it costs you 4 cents to make a bottle of water. How much would you personally have to charge for a bottle of water before it made sense to spend your time selling single water bottles?
Lets say it costs you 1 dollar to make a whole case of water, how much would you have to charge to make it worth your time selling cases of water?
For the same amount of water, it takes a lot more time and effort to sell them one bottle at a time than one case at a time.
Suppose you want to buy 4 donuts. The donut place sells them for $1 each. So that’s $4 you’ll have to pay for 4 donuts.
But when you walk into the store, you see that they have a special. You can get 6 donuts for $5. That’s cheaper! Now you have a choice to make. Do you buy the 4 you initially wanted, or get two extras for only a dollar more?
As long as the donut shop can make donuts for less than 50 cents a piece, this is a good deal for them. Yeah, they occasionally lose a dollar on people who were going to buy 6 donuts anyway. But maybe a lot more people go in there planning to buy 2, 3, or 4 donuts, and are persuaded to upgrade because they’re getting a good deal.
on the demand side
customer who’s thirsty will be more willing to pay for higher price at the chilled vending machine/quick checkout from convenience store
vs pack of water sitting shelves at room temperature in supermarket
also the utility of each bottle of water aren’t the same for 1st 2nd 3rd …
it diminishes as 1 bottle is best suited for drinking for the day and carrying around and stuff
on the supply side
manufacturers can save cost per bottle of water
by being able to produce at a more efficient rate
Labor costs and manufacturing capabilities have certain efficiency thresholds. I work in manufacturing and it will cost us, in labor, the same to make 500 of something as it would to make 2500 of something. So, the 2500 about will come out cheaper because the cost to produce is spread across more units. This happens up and down the supply chain.
At a consumer point bulk increases use. Likely if you are paying $2 for a bottle of water then you probably are only buying 1 bottle of water per month. If you buy 24 bottles of water for $8 you’re likely to drink more than 1 a month. Overall the company makes more money even though the profit margins might be smaller.
Let’s say the bottles cost 5 cents each. For $2 you make $1.95 in profit but the profit on 24 bottles in bulk is $6.80.
Immediate gratification. That’s how convenience stores make all of their money. Pop in the gas station for some chips and a drink that were marked up 600% and you willingly paid it so you could immediately satisfy that want.
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