When a manufacturer finds a market for by-products and accepts a price that exceeds the storage and delivery costs, the manufacturer can lower the main product's price to enhance its competitiveness.
Business · High School · Thu Feb 04 2021
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When a manufacturer discovers a market for by-products and realizes that the selling price of these by-products is higher than the costs associated with storing and delivering them, this creates an additional source of income for the manufacturer. Let’s understand the process step by step:
1. A manufacturer typically produces a main product, during which process there may be by-products created. By-products are secondary products that are generated incidentally during the production of the main product.
2. In many cases, these by-products might be considered waste and could cost the manufacturer to manage or dispose of. However, if the manufacturer finds that there is a demand for these by-products in the market, they can turn potential waste into profit.
3. Once the manufacturer finds buyers for the by-products, they can sell and distribute them. The income generated from the sale of by-products is extra revenue that the manufacturer was not initially counting on.
4. The key point is that the revenue from the sale of by-products must exceed the costs of storing and delivering them. If this is true, the manufacturer gains a surplus or profit from the by-products.
5. With this additional income, the manufacturer has room to adjust the pricing strategy for the main product. They may choose to lower the price of the main product, because they are already making money from the by-products. By doing so, the main product can be priced more competitively in the market without affecting the overall profitability of the manufacturer.
6. Lowering the price of the main product can help the manufacturer to gain a competitive edge, potentially increasing sales volume or market share, or penetrating new markets.
By effectively leveraging the market for by-products, a manufacturer can enhance the profitability and competitiveness of the main product, contributing to the overall success of the business.