What is the Fair Value of a Product?

When a product shows up on a store shelf, it does not just magically appear. It takes planning, manual labor, advertising and marketing to get the product to the customers. All of these cost money. The manufacturer can not expect to stay in business if they provide it to the stores for a lower cost than what they paid to get it produced. The suppliers in turn cannot expect to sell the product to the stores for a lower price that they paid to the manufacturer. The stores in turn must sell the product at a higher price that what they paid the suppliers. While the producer may manufacture the product for $2.00, the stores may have to sell the product for $20. The question is whether the customers believe if the product is of fair value or if it is too expensive.

To get the best fair value, it has to start at the beginning of the chain. The manufacturers need to produce the product at the lowest cost possible. They are paying a workforce to produce the products. Therefore they get paid a salary in addition to the other departments and managers in the plant. Therefore, they look to get high quality materials to produce the product. In addition they have training programs throughout the year, so the workers can build on their skills to prevent customer returns. When the amount of nonconformities are reduced, the cost to produce each piece is reduced

The stores in turn place the product on their shelves with a price for the customers. However, since the store wants to make a profit from a sale of each of these products, they will have to price the item at a higher price than what they were purchased from the distributors. However, at the consumer end, the customer may feel that the price is too high for their budget. Therefore, they will not purchase the product. In this case both the store and the customer lose. The store does not make a profit and the consumer does not buy a product.

In this case the store may have to bite a bullet. They may need to offer the product at a lower price than what they paid for it. However, the store can still make a profit if the customer purchases other products. The loss of profit on one product can be balanced out when they make a profit on other products the customer may purchase.