Your assumption is that price should be directly correlated to cost and vice versa. Actually, pricing involves asking many questions like:
- What prices are competitors charging?
How much do customers value the products, services, and other intangibles that the seller provides?
What are the pricing objectives?
Do we use profit maximization pricing?
What about competitor indexing?
Should there be a single price or multiple pricing?
Should prices change in various geographical areas, i.e. zone pricing?
Should there be quantity discounts?
Do we use a price skimming strategy or a penetration pricing strategy?
What image do we want the price to convey?
Shall we use psychological pricing?
How important is customer price sensitivity (e.g. "sticker shock") and elasticity issues?
Can real-time pricing be used?
Is price discrimination or yield management appropriate?
Are there legal restrictions on retail price maintenance, price collusion, or price discrimination?
Do price points already exist for the product category?
How flexible can we be in pricing? : The more competitive the industry, the less flexibility we have.
Are there transfer pricing considerations?
What is the chance of getting involved in a price war?
How visible should the price be? - Should the price be neutral? (ie.: not an important differentiating factor), should it be highly visible? (to help promote a low priced economy product, or to reinforce the prestige image of a quality product), or should it be hidden? (so as to allow marketers to generate interest in the product unhindered by price considerations).
What are the non-price costs of purchasing the product? (eg.: travel time to the store, wait time for shipping, disagreeable elements associated with the product purchase -e.g. buying the wrong tea, poor aging ability)
We have, in the case of certain labels like Fujin, Hailanghao, Best Tea House and the majority of aged sheng, seen price/quality relationship pricing, which acts on the perception by most consumers that a relatively high price is a sign of good quality. The belief in this relationship is most important with products that are hard to test (like tetsubins and gaiwans), and experiential products that cannot be tested until used (like puerh tea). The greater the uncertainty surrounding a product, the more consumers depend on the price/quality hypothesis and the greater premium they are prepared to pay.
Therefore cost only determines the price floor. The price ceiling is determined by demand factors. From the seller's point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay.
A good tea pricing strategy would accordingly be one which balances between the price floor (the price below which the tea producer ends up in losses) and the price ceiling (the price beyond which the tea producer experiences a no demand situation).
: do you think it's reasonable for vendors to charge the same margin (%) on the "finished product"(cakes) no matter if the maocha cost 200rmb or 1000rmb? (margin % between maocha cost and cake retail price; if my question wasn't clear)