 Pricing policy and profit margin (along with international benchmarking)

The main reason any company operates is to make profits. Our company is no different.
SADAFCO is a company, which control its profit margins. the company has generated profits
the past few years, as the company operates, there are many costs to be maintained, the company
main costs are the cost of employment, which take around 60% of the total revenue each year,
they have other costs that take a small part of their revenues like depreciation, shipping, and rent.
Total average cost account for 60% to 70% of the total revenue. Which gives the company an
average profit margin of around 30%. The company have seen a slight decline in profit margin in
the past years; the decline was due to an increasing cost of employment, which cause a slight
deterioration in total profits.

Profit Margin of SADAFCO

2,500,000 38%
37%
2,000,000 36%
35%
Million SAR

1,500,000
34%
33%
1,000,000
32%

500,000 31%
30%
- 29%
2017 2018 2019 2020

Profit Margin Revenue Profit Margin %

When comparing the profit margin of SADAFCO to another international organization,

the conclusion show that the profit margins of SADAFCO are higher than other companies, the
data presented below are of Nestle Co., which is one of the biggest dairy corporations on the
world. The data show a profit margin of around 14% for Nestle compared to 33% for SADAFCO
in the year of 2020.
https://www.nestle.com/sites/default/files/2021-04/nestle-holdings-inc-financial-statements-
2020.pdf

 Factors affecting its pricing and profitability

Pricing policies of dairy product get affected by many external factors, first, we
can look at the level of supply of dairy products, which depends on the number of
livestock available, and the milk yield for the producer and its competitors. In addition,
the imported dairy could also affect the pricing policy, as the increase in supply can push
the price down. The cost of feeding the livestock plays an important factor in the pricing
policy of dairy products. Finally, government regulation can influence pricing policies, as
many governments set price celling and price floors for dairy products. The main reason
for it is to keep the welfare of the citizens of country at an acceptable level, as dairy
products are an essential need for many around the world.
Profitability of an organization can be affected by many factors, starting with
connecting pricing policy to profitability; in general, pricing policy can determine the
level or the percentage of the profit margin, as you increase the price the profit margin
can be increased, nonetheless, pricing policy by itself cannot determine the profitability
margin. The cost of goods sold (COGS) can be an important factor which affect
profitability margin.

 Supply analysis (use actual or hypothetical data along supply curves)

 Demand analysis (use actual or hypothetical data along demand curves)

 Most dairy products are considered as a normal good in many countries, and
Saudi is one of them. By looking at the demand analysis of a normal good, this affect the
product when a company offers it for sale, in regards of SADAFCO, the product demand
is based on the consumer preferences, income, and price of a good which will determine
if the demand will increase or decrease, as normal goods demand changes due to the
previous factors. A research was conducted on the Saudi dairy market in 2020, the
findings whereas follow, “The Saudi Arabia dairy market was valued at USD5726.42
million in 2020 and is expected to rise at a CAGR of 5.66 percent during the forecast
period, reaching USD7940.77 million by the end of 2026. Rapid increases in the
combined salaries of family members have resulted in more disposable income for
consumers, greatly increasing their purchasing power. As a result, an increasing number
of consumers are reluctant to compromise on product quality regardless of price,
choosing dairy products that are excellent for their health and have a high nutritional
content. Saudi Arabia's dairy market is predicted to develop rapidly over the forecast
period, owing to a thriving dairy sector and rising milk and dairy product consumption.
Additionally, increased awareness of the advantages of milk and associated products, as
well as the expanding fitness trend, are expected to boost market expansion by 2026.
Regulations governing halal drinks, as well as the growing popularity of packaged dairy
products, are propelling Saudi Arabia's dairy business forward. As the country relies
significantly on imports for its dairy requirements, various multinational corporations are
entering the market”.
https://www.techsciresearch.com/report/saudi-arabia-dairy-market/1570.html

we found the following,; a consumer who have an increase in income will

increase the demand of the good.

 Consumer theory and preferences

“The theory explaining the choices made by individuals and households in terms of the
concept of utility. Consumers are assumed to be able to order their preferences in such a
way that they can choose a basket of goods that maximize their utility, subject to the
 constraint that their income is limited. The application of price theory and demand theory
to this problem forms the basis of microeconomics”.
https://www.oxfordreference.com/view/10.1093/oi/authority.20110803095634402
consumer theory in dairy market has many factors that could affect supply and demand.
The dairy market can be controlled by the government if needed, by price ceiling and
price floors. Saudi Arabia dairy market is a competitive market, which can demonstrate
that the demand is based on quality of the products, along with pricing.

 Efficiency analysis (for consumers, producers, and society)