Rolls-Royce Group PLC's pricing strategy

Rolls-Royce is like any other large manufacturer of this sort of thing: they negotiate each contract individually. Rolls-Royce used to make three things: jet engines, heavy-duty diesel engines and automobiles. Today they only make jet engines; their diesel engine factory belongs to Perkins Engines, and Rolls-Royce Motor Cars belongs to BMW.

There are a lot of factors that go into a contract. First of course is quantity. It is far less expensive to make a batch of 1000 engines than to make 1000 engines over the course of five years. It costs less to sell 1000 engines to one customer than to sell 1000 engines to forty different people. It's less expensive to deliver 1000 engines to one customer than to deliver them to 40 different customers--if forty people each order 25 engines they'll be delivered on trucks, and you'll need three loads per customer. For a thousand engines I'm calling a railroad. Plus materials costs are lower--again, scale. If I need 100 pounds of titanium per engine I can buy 100,000 pounds of it at one whack cheaper than I can negotiate out the price for 40 different buys.

It would be nice to say "Rolls-Royce's pricing strategy is materials + value added + profit" but in the real world of industrial procurement it rarely works that way.