question: Why does buying in bulk reduce the price per item?
comment: It's called 'economies of scale' which describes the ways the manufacturers, suppliers and sellers save money. For example, one big box has less surface area and is cheaper to make than 16 small boxes. The manufacturer doesn't need to cut up and sort one batch into lots of little batches. It's easier to handle, you could pack a lorry more efficiently, and save on transport costs. The store can throw it on a shelf faster than stacking 16 little things. Just a few examples.
passages: Bulk purchasing is when a consumer captures part of the benefits of economy of scale by doing with the retailer what the retailer does with the wholesaler: paying a lower price per unit in exchange for purchasing much larger quantities. This allows the consumer to satisfy more of his or her demands at a lower total cost by acquiring more use value per dollar spent.
  
  Consumer demand for savings by bulk purchase has led to the success of big-box stores. Although effected by marginal cost, the total cost does not increase.
  
  Section::::In popular culture.
   Retailing is buying goods in a wholesale market to sell them in small quantities at higher prices to consumers. Part of this profit is justified by logistics, the useful distribution function of the retailer, who delivers the goods to consumers and divides those large quantities of goods into many smaller units suitable for many transactions with many small parties of consumers. Retailers can also benefit from economy of scale to increase profit, just like a wholesaler does.
   Bulk purchasing
  
  Bulk purchasing 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 accept a slightly lower sales price for each unit, if the retailer will agree to purchase a much greater quantity of units, so the wholesaler can maximize profit. A wholesaler usually represents a factory where goods are produced. The factory owners can use economy of scale to increase profit as quantities sold soars.
   Dynamic packages are normally given a single, opaque price, meaning the wholesaler's cost of the individual components is hidden from the consumer. The wholesaler often obtains special package-only cost rates for travel components, such as negotiated fares for flights or special package rates for accommodation or car rental. These cost prices are typically significantly lower than the cost prices suppliers offer for the same products if they were to be sold as single components. Hence, the wholesaler will be able to offer the consumer a combined saving for the dynamic package, without reducing his own margins.
   BULLET::::- Price bundling
  
  Price bundling (also known as product bundling) occurs where two or more products or services are priced as a package with a single price. There are several types of bundles: "pure bundles" where the goods can only be purchased as package or "mixed bundles" where the goods can be purchased individually or as a package. The prices of the bundle is typically less than when the two items are purchased separately. Price bundling is extensively used in the personal care sector to prices cosmetics and skincare.
  
  BULLET::::- Price lining
   Section::::Pricing tactics.:Parity pricing.
  
  Parity pricing refers to the process of pricing a product at or near a rival's price in order to remain competitive.
  
  Section::::Pricing tactics.:Price bundling.
  
  Price bundling (also known as product bundling) occurs where two or more products or services are priced as a package with a single price. There are several types of bundles: "pure bundles" where the goods can only be purchased as package or "mixed bundles" where the goods can be purchased individually or as a package. The prices of the bundle is typically less than when the two items are purchased separately.
   If a sales team sells several products, it can often do so more efficiently than if it is selling only one product because the cost of travel would be distributed over a greater revenue base, thus improving cost efficiency. There can also be synergies between products such that offering a range of products gives the consumer a more desirable product offering than would a single product. Economies of scope can also operate through distribution efficiencies—i.e. it can be more efficient to ship to any given location a range of products than a single type of product.
   However, there are a number of factors that limit the parcel size :
  
  BULLET::::- The stock level;
  
  BULLET::::- Available depth;
  
  BULLET::::- Decreasing economies of scale in larger ships.
   Bundling is often thought of mainly as a value pricing strategy, in that product bundles often cost less than if each item were purchased separately. However, bundling can also have other strategic advantages. For example, when a grocery store is making up a gift basket, they can use the design of the basket item list as a way to promote new products or brands that a customer may not know or as a way to liquidate merchandise that is not selling well. As well, even though many bundles are less expensive than all of the items if purchased separately, in some cases the bundle costs more than if each item was purchased separately; this tactic is particularly effective in high-end retailing where conspicuous consumption and prestige pricing elements come into play. A well-off home theatre enthusiast with a very high budget may find a $10,000 home theatre package attractive, even if it costs a bit more than buying each item separately, because this is an impressive total cost.
   Section::::Theoretical basis.:Second degree.
  
  In second degree price discrimination, price varies according to quantity demanded. Larger quantities are available at a lower unit price. This is particularly widespread in sales to industrial customers, where bulk buyers enjoy higher discounts.
   Products are handled less frequently in merge-in-transit system due to the reduction of transportation and Inventory. Receiving and storing are not required as the products do not actually go into inventory. Also, goods are delivered directly to the customer rather than the principal then to the customer. Even the locations of merge points are placed near the customer. Consequently, the transportation and inventory costs could be exceedingly low.
  
  Heighten supply chain visibility
   Although statutes vary, the legal requirements for a bulk sale generally apply to a sale of all or most of the materials, supplies or inventory of a business in a way not normally done in the ordinary course of the seller's business. Bulk transfers in the United States (U.S.) were generally governed by Article 6 of the Uniform Commercial Code (UCC). However, Article 6 has now been repealed by most states, in favor of revisions to other provisions of the UCC that apply to sales and secured transactions.
   A limited product selection can make the purchasing decision easier. In a study done at a high end supermarket in California by psychologist Shenne Iyengar and Mark Lepper, there were two tables of jam samples, one with 24 flavors and the other with 6 flavors. More shoppers were attracted to the booth with the larger selection, 60%, as opposed to 40% being attracted to the smaller selection, but the sales that resulted from that were surprising. Only 3% bought from the larger selection and 30% from the smaller suggestion.
  
  Section::::Methodology.:Techniques.:Bundling.
   In commercial law, the term "bulk sale" has a different meaning. It refers to a sale "not in the ordinary course of business" of much ("a major part") of a merchant's goods (such as more than half) in stock. Usually, the buyer must record notice of the transaction in order not to be liable to creditors of the seller whose claims might be defeated by the transfer of the seller's goods. The purpose of the law is to prevent fraudulent transfers. This field is generally governed by the Uniform Commercial Code.
   BULLET::::7. Shared-cost Effect – the smaller the portion of the purchase price buyers must pay for themselves, the less price sensitive they will be.
  
  BULLET::::8. Fairness Effect – buyers are more sensitive to the price of a product when the price is outside the range they perceive as "fair" or "reasonable" given the purchase context.
  
  BULLET::::9. The Framing Effect – buyers are more price sensitive when they perceive the price as a loss rather than a forgone gain, and they have greater price sensitivity when the price is paid separately rather than as part of a bundle.
   In many parts of the United States, Canada, and Europe, families and individuals combine their purchasing power to buy items, typically bulk-type food, in a volume that generates a discounted price from the seller. The seller saves by having only one purchase order to manage and, possibly, less packaging and delivery to deal with. The buyers benefit from a lower per-unit cost and, incidentally, from an increased sense of community and sharing. Bulk-food sellers often provide tools so their customers can set up community buyers' clubs, for example: .
   Most businesses make more than one of a particular item. Thus, costs are incurred for multiple items rather than a particular item sold. Determining how much of each of these components to allocate to particular goods requires either tracking the particular costs or making some allocations of costs. Parts and raw materials are often tracked to particular sets ("e.g.", batches or production runs) of goods, then allocated to each item.
   Fixed prices can require more time, in advance, for sellers to determine the price of each item. However, the fixed-price items can each be purchased faster, but bargaining could set the price for an entire set of items being purchased, reducing the time for such bulk purchases treated as a whole batch. Also, fixed-price items can help in pre-determining the value of the entire inventory, such as for insurance estimates.
   Bulk foods
  
  Bulk foods are food items offered in large quantities, which can be purchased in large, bulk lots or transferred from a bulk container into a smaller container for purchase. Bulk foods may be priced less compared to packaged foods because they're typically packaged in large generic bulk containers and packaging for grocery outlets, which utilizes lesser natural resources. Additionally, less packaging is congruent with the environmental conservation of natural resources and sustainability. One study found a 96% reduction in packaging used for bulk foods compared to packaged foods.
  
  Section::::National Bulk Foods Week.
   For example, in the ordinary course of business, a car dealer would sell a number of cars in one day. In extraordinary circumstances, it might sell its entire inventory to different buyers within a short period of time. However, if it attempted to sell all its cars to a single buyer, this would be considered a bulk sale, as it is not something an auto dealer would generally do in the normal course of business.
   The literature assumed that due to the competitive nature of reverse auctions, and in order to compensate for lower prices and lower margins, suppliers seek higher volumes to maintain or increase the total revenue. Buyers, in turn, benefit from the lower transaction costs and economies of scale that result from larger volumes. In part as a result, numerous studies have indicated that the procurement volume must be sufficiently high to provide sufficient profits to attract enough suppliers, and provide buyers with enough savings to cover their additional costs.
   Large assortments offer consumers many benefits, notably increased choice and the possibility that the consumer will be able to locate the ideal product. However, for the retailer, larger assortments incur costs in terms of record-keeping, managing inventory, pricing and risks associated with wastage due to spoiled, shopworn or unsold stock. Carrying more stock also exposes the retailer to higher risks in terms of slow-moving stock and lower sales per square foot of store space. On the other hand, reducing the number of product lines can generate cost savings through increased stock turnover by eliminating slow-moving lines, fewer stockouts, increased bargaining power with suppliers, reduced costs associated with wastage and carrying inventory, and higher sales per square foot which means more efficient space utilisation.
   Consumers have heterogeneous demands and such demands for different parts of the bundle product are inversely correlated. For example, assume consumer A values a word processor software at $100 and spreadsheet processor at $60, while consumer B values a word processor at $60 and spreadsheet at $100. Seller can generate maximum revenue of only $240 by setting $60 price for each product—both consumers will buy both products. Revenue cannot be increased without bundling because as seller increases the price above $60 for one of the goods, one of the consumers will refuse to buy it. With bundling, seller can generate revenue of $320 by bundling the products together and selling the bundle at $160.
   →In the modern era, many retail businesses operate on consignment or short credit terms, so compliance with bulk sales registration in the purchase of such a business, or its assets, is generally mandatory. For example, in a typical convenience store, generally the terms of sale are on consignment (return for full credit, pay for what you keep) or 30 days net (pay 30 days after delivery), with very little cash up front. As such, little of the inventory in a convenience store has actually been paid for by the merchant, and suppliers expect to be paid out of the ongoing cash flow of the business.
   From Customer’s point of view, assuming he is making rational choice; he would like to place those orders with us for which we are providing more value for less money. So based on present pricing method, he will have more tendency to place A type orders with us. Also in cases of multiple part no. in same RFQ, he can choose to give us those parts for which we are adding more value for less money.
  
  Doubt 2: Why do we need to change margins depending upon complexity/easiness of order and big/small size of order?
  