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| Math Central | Quandaries & Queries |
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Question from craig: I work for an industry that bases it price increases and decreases on commodity pricing - Customer get confused on how/why we calculated new prices due to movement in the market - For this example- They don't understand that if board went back up $30 which would be 6% increase, they wouldn't be back at $100 if they multiplied on the price decrease. What is the best way to explain to customer besides using this example? Any help or info is appreciated. Craig |
Craig,
I agree that your prices go up 2% (say) as you claim. The problem is that they don't decrease by 2% for every $10 the market falls, they decrease by 1.961%. Two percent of 100 is different that two percent of 98. You could say that the prices are lowered in such a way that an offsetting change in the market will bring the cost of the product exactly where it was before the decrease.
From the point of view of a consumer, the difference between they percent prices rise and the percent they fall could be annoying (and look like inflation) until an example is presented. You could show that doing it this way (up by 2%, down by 1.961%) is price neutral, but up by 2%, down by 2% isn't. (If the product cost $100 and there was an actual 2% decrease in price, then the new price would be $98. A $10 rise would then cause the price to go up to $99.96. And then you could show them the calculation with the different percents.)
I can't tell you the best way to convince someone. It might depend on their level of numeracy. Or it might be mostly about psychology and public relations.
Best of luck.
Victoria
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