Raw Materials: High quality or low quality?

[Timofmars]

I'm trying to determine if there are products that would increase your profits if you use cheaper, lower quality raw materials.

For example, take silica used in bottled milk. First 1 lb of silica must be made into 1 lb of glass, and quality of the silica counts 50% towards the quality of the glass. Then 1 lb of glass is used to make 8 bottles of milk, and the quality of the glass counts 5% for the quality of the bottled milk. Bottled milk is a low value item, perhaps $1.50 each, but you get 8 of them for a total value of $12.

So the quality of 1 pound of silica represents about 2.5% of the quality of about $12 of product. Next you can look at the consumer concern for quality vs price for the bottled milk to try to estimate how much more you have to lower your prices for having a lower quality product (so higher quality concern is bad, but higher price concern is good). Milk quality concern is about 35%, and price concern is about 42%. Finally, you can compare the resource cost difference of high quality silica vs low quality silica.

I haven't done the math, but I'm guessing low quality cheap silica gives a better profit here. On the other hand, a silver watch uses 1 pound of glass to make a product worth around $150, and the glass counts for 10% of the quality (so the silica quality counts for 5%). So surely a few cents more for much higher quality silica may result in a few dollars more of profit. And for silica made into silicon made into CPUs, the quality of the silica seems like it's result in 10's of dollars of extra value for much higher value silica (because 1 silicon makes 50 CPU units, which are each quite expensive).

Has anyone done calculations on how much value different raw materials add to different products?

[eleaza]

That's a good question, you should really do a complete analysis. I think there are a lot more factors involved than simple quality. Where the raw materials are from (own mine? AI mine? seaport?), or are the glasses produces by you, in separate factory or in other cities? even different city's different preference for the same product (some value price more, some quality more, etc)

Generally I feel for bottled milk, it's best just use glass from AI manufacturer or seaport if they do have import in early game when production isn't scaled up to takeover the whole market. But later on when more products require glass to manufacturing (other drinks, or like perfume, or goods rely more on glass quality), it would be wise to invest in glass factory, and then silicon mine.

(Or on the other hand, coming from silica route, like from electronics, then perhaps the excessive silica and glass could be byproduct, than it certainly won't hurt for a slightly better quality bottled milk to compete with, since it's unlikely most profit will come from bottled milk)

[Timofmars]

Yeah, there is a lot of additional factors and possibilities to think about once you have this initial information, which makes it quite interesting. But I wonder if anyone has some of the raw data available, such as what is the algorithm for the raw material land prices (how much does the price go up with increasing raw material quality?), and something like base prices for the products in the game.

[eleaza]

Yeah, there is a lot of additional factors and possibilities to think about once you have this initial information, which makes it quite interesting. But I wonder if anyone has some of the raw data available, such as what is the algorithm for the raw material land prices (how much does the price go up with increasing raw material quality?), and something like base prices for the products in the game.

The base price of all products can be found in Product_Type.DBF in MOD_kit folder in the installed capitalism lab folder. And its for a base of 50 quality I believe (or 60, I am not too sure, need to look into it), and the base price multiplied by Quality/50 times Real Wage Rate of the source city (and we still need to add freight cost after that). Sources from AIs or Human mines will be a lot different since that can be changed by will. And it involved the Real Wage Rate of the city, and a mock up price I believe 20% over the calculated cost of sales by default (but AI will rise price sharply when demand is over supply)

As to the price in the retail product, that will be very complicated, depends on the game setting of the local competitors (changing the default local overall rating), how aggressive AI competitors are, real wage rate, and finally the calculation of overall rating of each product and its concern in brand/price/quality in each city. The formula of overall rating can be found in the Capitalism II manual. And I believe the standard price is the base price we found in Product_Type.DBF (unconfirmed though)

[Timofmars]

Interesting. So going from a product quality of 50 to quality of 100 would let you double the price over the base price and maintain the overall quality? Before considering the concern factors, I mean.

And then considering the concern factors, if quality concern and price concern were both 50%, I suppose you could still double the price because the 100% quality only counts for 50%, but the customer only cares about your price increases half as much as they could (if price concern were at a theoretical 100%). Plus the markup factor you mention.

Though I'm not sure my theory makes sense when you try to apply it to lowering prices below the base price, such as when you have a poor quality product and high quality competition.

[eleaza]

Interesting. So going from a product quality of 50 to quality of 100 would let you double the price over the base price and maintain the overall quality? Before considering the concern factors, I mean.

And then considering the concern factors, if quality concern and price concern were both 50%, I suppose you could still double the price because the 100% quality only counts for 50%, but the customer only cares about your price increases half as much as they could (if price concern were at a theoretical 100%). Plus the markup factor you mention.

Though I'm not sure my theory makes sense when you try to apply it to lowering prices below the base price, such as when you have a poor quality product and high quality competition.

The calculation of overall rating for a product is this, from Capitalism II manual.

Overall Rating.JPG (45.95 KiB) Viewed 3316 times

I think the equation remains the same till today. For non-retail products (semi, raw), I believe the brand concern is 0, quality and price 50/50 concern. The StdPr (Standard price) should be the base price we see in the Product_type.DBF.

But maintaining the same overall rating doesn't directly translate to maintaining the same market share. There are descriptions in the manual saying "There's always a group of consumers who are more price-sensitive and will buy a lower-cost(price) product even if it has a lower overall rating". And from experiences, we do know it is possible to take a reasonable chuck of market share, even if a product's overall rating is like 20 or 30 points behind (100 vs 80 or 70), due to price is low enough compare to the quality/brand oriented competitors (even majority shares if price difference is several times lower). Sadly I don't know exactly the equation determine how price concern translate to price-sensitive buyer market share percentage (I don't even think there's a "static" formula, since we know the market share slowly shifting over time when price/quality/brand changed, and will reach some kind of equilibrium). And the larger market share don't guarantee higher "revenue" (which = selling quantity x price, a majority market share could have less revenue, such as if the market share is twice but price is 1/3). However a general guideline I heard is that competitors with similar product overall rating will have similar revenue of that product (but once pass certain overall rating when all local competitors are squeezed out, the total revenue of the whole market will start to shrink).