A product's average price is the result of dividing the product's total sales revenue by the total units sold. When one product is sold in variants, such as bottle sizes, managers must define "comparable" units. Average prices can be calculated by weighting different unit selling prices by the percentage of unit sales (mix) for each product variant. If we use a standard, rather than an actual mix of sizes and product varieties, the result is price per statistical unit. Statistical units are also called equivalent units.
Average price per unit and prices per statistical unit are needed by marketers who sell the same product in different packages, sizes, forms, or configurations at a variety of different prices. As in analyses of different channels, these product and price variations must be reflected accurately in overall average prices. If they are not, marketers may lose sight of what is happening to prices and why. If the price of each product variant remained unchanged, for example, but there was a shift in the mix of volume sold, then the average price per unit would change, but the price per statistical unit would not. Both of these metrics have value in identifying market movements. In a survey of nearly 200 senior marketing managers, 51 percent responded that they found the "average price per unit" metric very useful in managing and monitoring their businesses, while only 16% found "price per statistical unit" very useful.
[Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). ''Marketing Metrics: The Definitive Guide to Measuring Marketing Performance.'' Upper Saddle River, New Jersey: Pearson Education, Inc. . The ]Marketing Accountability Standards Board (MASB)
The Marketing Accountability Standards Board (MASB), authorized by the Marketing Accountability Foundation,MASB''Marketing Accountability Foundation (MAF)''. ited 8 December 2010/ref> is an independent, private sector, self-governing group of acad ...
endorses the definitions, purposes, and constructs of classes of measures that appear in ''Marketing Metrics'' as part of its ongoin
Common Language in Marketing Project
In
retail
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and t ...
, unit price is the price for a single
unit of measure
A unit of measurement is a definite magnitude of a quantity, defined and adopted by convention or by law, that is used as a standard for measurement of the same kind of quantity. Any other quantity of that kind can be expressed as a multip ...
of a product sold in more or less than the single unit.
The "unit price" tells you the cost per pound, quart, or other unit of weight or volume of a food package. It is usually posted on the shelf below the food. The shelf tag shows the total price (item price) and price per unit (unit price) for the food item. Research suggests that
unit price information in supermarkets Unit price information printed on supermarket shelf labels ( price tickets) illustrates the quantity of product by a unit of measure (price per 100 g, price per 100 ml).
Unit pricing was originally designed as a device to enable customer ...
can lead shoppers to save around 17-18% when they are educated on how to use it, but that this figure drops off over time.
Unit price is also a valuation method for buyers who purchase in bulk. Buyer seeks to purchase 10000
widgets. Seller One offers 1000 widgets packaged together for $5000. Seller Two offers 5000 widgets packaged together for $25000. Seller Three offers 500 widgets packaged together for $2000. All three sellers can offer a total of 10000 widgets to Buyer. Seller One offers widgets at a unit price of $5. Seller Two offers widgets at a unit price of $5. Seller Three offers widgets at a unit price of $4. Buyer uses unit price to value the packages offered by each of the three sellers and finds that Seller Three offers widgets at the best value, the best
price
A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the c ...
.
Unit price is a common form of valuation in
sales
Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale.
The seller, or the provider of the goods or services, completes a sale in r ...
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
for goods sold in
bulk purchasing
Bulk purchasing or mass buying is the purchase of much larger quantities than the usual, for a unit price that is lower than the usual.
Wholesaling is selling goods in large quantities at a low unit price to retail merchants. The wholesaler will ...
.
The stock price of securities is a form of unit price because
securities
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
including
capital stock
A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived by the issue of shares in the corporation to a shareholder, usually for cash. "Share capi ...
s are often sold in bulks comprising many units.
Unit price also is often used in the
trade
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct excha ...
of
consumable
Consumables (also known as consumable goods, non-durable goods, or soft goods) are goods that are intended to be consumed. People have, for example, always consumed food and water. Consumables are in contrast to durable goods. Disposable products ...
energy resources.
Slate.com (oil measured by barrels)
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Purpose
Price per unit metrics allow marketers to "calculate meaningful average selling prices within a product line that includes items of different sizes."
Many brands or product lines include multiple models, versions, flavors, colors, sizes, or — more generally – stock-keeping units (SKUs). Brita water filters, for example, are sold in a number of SKUs. They are sold in single-filter packs, double-filter packs, and special banded packs that may be restricted to club stores. They are sold on a standalone basis and in combination with pitchers. These various packages and product forms may be known as SKUs, models, items, and so on.
The information gleaned from a price per statistical unit can be helpful in considering price movements within a market. Price per statistical unit, in combination with unit price averages, provides insight into the degree to which the average prices in a market are changing as a result of shifts in 'mix' – proportions of sales generated by differently priced SKUs – versus price changes for individual items. Alterations in mix – such as a relative increase in the sale of larger versus smaller ice cream tubs at retail grocers, for example – will affect average unit price, but not price per statistical unit. Pricing changes in the SKUs that make up a statistical unit, however, will be reflected by a change in the price of that statistical unit.
Construction
Average price per unit
As with other marketing averages, average price per unit can be calculated either from company totals or from the prices and shares of individual SKUs."
:''Average Price per Unit ($)'' = Revenue ($) / Units Sold
:or
:''Average Price per Unit ($)'' = rice of SKU 1 ($) * SKU 1 Percentage of Sales (%)+ rice of SKU 2 ($) * SKU 2 Percentage of Sales (%)+ . . .
The average price per unit depends on both unit prices and unit sales of individual SKUs. The average price per unit can be driven upward by a rise in unit prices, or by an increase in the unit shares of higher-priced SKUs, or by a combination of the two. An 'average' price metric that is not sensitive to changes in SKU shares is the price per statistical unit.
Price per statistical unit
:''Price per Statistical Unit ($)'' = Total Price of a Bundle of SKUs Comprising a Statistical Unit ($)
Procter & Gamble and other companies face a challenge in monitoring prices for a wide variety of product sizes, package types, and product formulations. There are as many as 25 to 30 different SKUs for some brands, and each SKU has its own
price. In these situations, how do marketers determine a brand's overall price level in order to compare it to competitive offerings or to track whether prices are rising or falling? One solution is the 'statistical unit,' also known as the 'statistical case' or – in volumetric or weight measures – the statistical liter or statistical ton. A statistical case of 288 ounces of liquid detergent, for example, might be defined as comprising:
:Four 4-oz bottles = 16 oz
:Twelve 12-oz bottles = 144 oz
:Two 32-oz bottles = 64 oz
:One 64-oz bottle = 64
Note that the contents of this statistical case were carefully chosen so that it contains the same number of ounces as a standard case of 24 12-ounce bottles. In this way, the statistical case is comparable in size to a standard case. The advantage of a statistical case is that its contents can approximate the mix of SKUs the company actually sells.
Whereas a statistical case of liquid detergent will be filled with whole bottles, in other instances a statistical unit might contain fractions of certain packaging sizes in order for its total contents to match a required volumetric or weight total.
Statistical units are composed of fixed proportions of different SKUs. These fixed proportions ensure that changes in the prices of the statistical unit reflect only changes in the ''prices'' of the SKUs that comprise it.
The price of a statistical unit can be expressed either as a total price for the bundle of SKUs comprising it, or in terms of that total price divided by the total volume of its contents. The former might be called the 'price per statistical unit'; the latter, the 'unit price per statistical unit.'
See also
*Ask price
Ask price, also called offer price, offer, asking price, or simply ask, is the price a seller states they will accept.
The seller may qualify the stated asking price as firm or negotiable. Firm means the seller is implying that the price is fixed ...
*Suggested retail price
The list price, also known as the manufacturer's suggested retail price (MSRP), or the recommended retail price (RRP), or the suggested retail price (SRP) of a product is the price at which its manufacturer notionally recommends that a retailer ...
*Bulk purchasing
Bulk purchasing or mass buying is the purchase of much larger quantities than the usual, for a unit price that is lower than the usual.
Wholesaling is selling goods in large quantities at a low unit price to retail merchants. The wholesaler will ...
*Lump sum
A lump sum is a single payment of money, as opposed to a series of payments made over time (such as an annuity).
The United States Department of Housing and Urban Development distinguishes between "price analysis" and "cost analysis" by whether th ...
*Unit price information in supermarkets Unit price information printed on supermarket shelf labels ( price tickets) illustrates the quantity of product by a unit of measure (price per 100 g, price per 100 ml).
Unit pricing was originally designed as a device to enable customer ...
References
* Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). ''Marketing Metrics: The Definitive Guide to Measuring Marketing
External links
SEC
Unit Price Calculator Website
Price Per Piece Calculator
Financial economics
Financial markets
Procurement