ByPovilas S
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Idea
Povilas S Nov 25, 2022
An app to tell you the approximate "raw" cost of various products
Image credit: https://blog.hubspot.com/hubfs/direct-costs-vs-indirect-costs.jpg
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An app to tell you the cost of a certain product without the profit part that benefits the seller.
Why?
- Know how much above the initial cost you have to pay to the seller - helps make decisions when shopping.
- Get a better understanding of economy and the dynamics of a certain market field by comparing direct costs of different products from different sellers.
- Useful if you want to start producing something.
How it works:
The background: There are a few synonymous terms describing the initial cost of the product used in economics like "prime cost", "direct cost" and others. The latter is because it's difficult to determine which exact expenses to include in the value of the direct cost since many of them are rather indirectly related. The cost of raw materials used for making the product as well as the cost of labor is always included, but other expenses such as the rent of the production facilities, machinery maintenance, etc. are in a grey area of the direct cost calculation.
However, I think it's fair to include all the expenses related to the production of a certain item that doesn't directly benefit the seller into the "raw" cost, meaning the rent, the maintenance, certain taxes they have to pay, etc.
The process: The user would scan a barcode of a certain product and the app would get the information about it using an online product database. If the user is checking a product online, they would post or link the page URL to the app. The app would then compare the prices of the same product from various sellers if possible find the price from the original producer and determine the lowest available price on the market. The lowest available price together with the seller data would be presented to the user.
Next, the app would calculate and present the raw cost of that product. I think the app could determine the approximate raw cost by acquiring data about a variety of similar products available on the market and the prices for various materials and services required to make them. It would determine what raw materials potentially go into the making of that product, the costs of acquiring those materials in different countries, the approximate cost of labor, and other factors. I know this sounds simple to say but hard to do, but I think an algorithm for this shouldn't be too difficult to make.
Could you suggest ways how the app could determine the raw cost easier?
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Creative contributions
Add transportation costs using distances between the production facility and the selling facility
A great idea to enlighten consumers and maintain transparency for the sellers/ producers, especially in light of the recession.
Transportation is another significant cost that decides the selling price of the product. Transportation costs could be easily determined since every product has the manufacturer's address. The distance between the facility and the store could be used and the cost could be calculated. The transport may include a visit to warehouses, so recording the route taken by the transporter could make things easier.
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Difficulties when trying to implement the "know-how" costs
What if, for example, two of us are selling identical apples? We have the same amount of sold apples, but my revenue is 3 times higher than yours because I developed a great marketing strategy that took me 6 years of thinking, trying and failing, to eventually succeed and gain track. The app predicts that our costs are the same and I start to lose money.
- Is there a way how you can put value on someone's time spent thinking and designing a product, their creativity and resourcefulness?
- Should it be accounted for as a raw cost, too? Because it's not about the money you invested in the last year. You could be in giant depth because you are investing for the last 10 years without a profit.
I think predicting raw costs could deliver a huge amount of misinformation and would be pretty unfair, especially if we take into account that people, if reporting by themselves (Shubhankar Kulkarni), can lie about the actual costs to raise or decrease the value of their product.
I think the idea of comparing costs of certain products is good enough for the customers to decide if the would buy it and from which company. Added features or marks such as "the lowest price in last month or 6 months", "the cheapest on the market" or "below the average" could work, but only for the exact product you are checking. Dealing with raw costs had just too many things that should be taken into account, which are currently not "measurable".
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Povilas S2 years ago
However, I agree with you about the self-reporting system proposed by Shubhankar Kulkarni. I do think that such a system would be good to have, but it would be too complicated, unless somehow automated. It would be difficult to prevent lying for the sake of higher profit. I don't think the problem is things being "not measurable" as you indicated. It's more about not knowing what exactly to include and how, and often, perhaps, not wanting to include (reveal) particular things.
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Shubhankar Kulkarni2 years ago
Povilas S J. Nikola Yes, I agree that people could fake it. It should, therefore, have a regulatory body moderating it similar to FDA that checks whether an item's contents and the calorie chart are true. FDA (or a similar governing body in your country) itself could monitor the raw cost information since they have a system in place to monitor other parameters of each product.
J. Nikola I think knowing the marketing cost and related dynamics is exactly what Povilas S was hinting at with this idea. Therefore, companies should mention their marketing or other strategic costs involved.
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Povilas S2 years ago
Well, concerning your particular example - simply state that you invested that much in marketing and that's why your final cost of the identical apples is higher. No shame in that, right? The thing here is that such sellers actually invest in fooling people that their apples are somehow better and more desirable than the apples of other sellers that are, in fact, identical. That's called marketing:)
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Make it compulsory for the producers to estimate and report the "raw" cost
Estimation of the raw cost based on other similar products in the market may include multiple levels of estimation, leading to the incorporation of quantitative error in the estimated cost. For example, there are multiple producers and packagers of milk. Each has different costs based on their location (distance) from the city, the number of animals they have, the method of post-milk extraction they use, its relationship with the store chains (they might sell milk to different stores at different costs), etc.
To avoid estimation at all levels, make it mandatory for the product owners to report the raw cost of their product to the database (that you mentioned in the session text). Moreover, the prices of certain raw materials may change based on market availability. For example, if there is some problem with the milk carton printing company and they have to get it printed from another source on short notice to meet the demand, the other company may charge them more. In that case, a certain batch of milk will have a higher raw cost. In such a case, the database may be updated accordingly for the consumer to get an exact idea of the cost of milk they are consuming.
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General comments
Shubhankar Kulkarni2 years ago
I like the idea! The mention of "raw cost" is a bit confusing. Although you explained what you mean by it, in simple terms, a product has two prices. One is a "cost price", which includes all the expenses incurred by the manufacturer in making the product available for the consumer on the shelf. The second is the "selling price", which is the price at which the product is sold to the consumer. I think, by "raw cost", you mean the "cost price".
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Povilas S2 years ago
Shubhankar Kulkarni Yes, that's right. I used the term "raw" cost, because it sounds intuitive to me and because there's no good formal term to refer to what I mean, there are synonymous terms, but they all mean slightly different things.
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