Cooperative pricing strategy involves the collaboration of two or more market suppliers that collectively decide a product's sale price. In a supply chain, a manufacturer, wholesaler and retailer may work together to determine pricing at each stage of distribution. The goal may be to maximize profits or leverage group buying power. For example, retail supply cooperatives band individual businesses together to secure volume discounts usually only available to large chains that tend to purchase more products.
The main factor that drives price is cost. Variable costs rise and fall with production, while fixed costs occur even when production is at zero. A manager must determine how much income the firm needs to sustain business and make a profit. A cooperative pricing strategy is more complicated since each company has a separate bottom line to achieve. However, this complication may be worth the effort, since some of the benefits of cooperative pricing include lower costs and increased sales.
Several main strategies exist within cooperative pricing. These include ensuring costs are reasonable for both small businesses and consumers. In the healthcare industry, for example, a cooperative might seek to control the costs of insurance premiums and prescription medications. Another common approach is to keep small businesses independent and in control. One of the industries where this often occurs is financial services. Members of local community cooperatives own credit unions in order to provide a competitive alternative to national banks.
Companies that participate in cooperative pricing strategies typically share similar goals. Different producers of the same product may want to maximize profits by getting higher market prices, such as producer cooperatives common in the agricultural industry. In these, small farms and independent food suppliers provide the cooperative with the product. The cooperative sells the product at a higher market price than the independents could charge by themselves. Producers receive profits in proportion to the amount of goods they sell to the cooperative.
In order to appeal to price-sensitive consumers, small business owners may elect to join a purchasing cooperative. A purchasing cooperative helps control inventory costs by creating collective purchasing clout. Since the costs of acquiring the product is lower, small business managers can then sell for less. While negotiating lower prices is one benefit, other perks could include shared advertising and delivery services. An independent retailer can duplicate the warehousing, delivery and promotional resources of larger chains.
