Not true, at least IBM, Apple, and all computer companies all determine their selling prices by taking in the running cost and all other related cost. Especially the potential warranty replacement cost and their rental facility cost. There are tons of this information on newspaper, magazines, and text books. The easiest example: Restaurant (or Food places). The rental cost (of the store) is certainly higher if the location is at the downtown of a city than suburb areas. A hotdog could cost you $6 USD from a downtown store while it might only cost you $2 at local school cafe.
Commercially, all selling prices are determined by the total cost in the first place, secondly how much money you need returned to the business to make it a viable concern and thirdly what is the price you can get away with without losing out to your competitors. It is an equation of investment and return.
I used to run an affiliate of one of the world's biggest company in this part of the world. Prior to that I went through the ranks of marketing and marketing services, including a spell as a commodity trader moving commodities around the world, as well as having the finance and accounting portfolio. It is understandable to hear salesmen and wanabee sales managers say what you are saying. One thing is sure, they will never go any higher than a marketing manager with this philosophy of cost-pushed or cost-based selling prices. You can actually ask the boss of a small or medium size enterprise, preferably one that is profitable, about his selling prices and ask him this simple question of whether his selling prices are set by his costs or by the market. Sometimes in my spare time I do pose this question to some store or shop owners-not employees-and to my expectation almost all of them say their selling prices are determined by market forces. They sweat 24 hours a day thinking of endless ideas about controlling costs and generating additional revenue. If they do not comply with market prices they will find liquidators knocking on their door very soon.
You are not understanding what I am saying. I am saying the price of the product has some parts of the running cost of the business. If you don't make that up, the business is not going to live, not even for a month. You need to consider the total cost; no matter if they are material cost, labor cost, water cost, or even employee benefit cost. You can see the annual financial reports available at every company's webpage and find out more. (Many asian companies don't include "some" running costs into their total cost because they want to create an image of "profiting" to their customers. This is forbidded in the US, as all costs must be considered as put onto the annual financial report. Wallstreet people look at this very seriously. ) FYI, I have spoken to many owners of business, in addition to that, my family(s) are in business for more than two generations. Not to mention that I have been a store owner myself before.
A quick example: In order to make product X, we need: 1. Material(s) : $5 2. Labor cost (say, 5 minutes for one item): $5 3. Packaging: $2 SubTotal: $12 However, that's just what customer think it would cost. If you add up other costs: 4. Machines to put materials together 5. Electricity to run machines 6. Inspectors to look at any bad products. 7. Factory cost (the facility) 8. Manager, Boss, and everyone who works here. and just for example, if you add all 4-8 and say, it's $10000 per month. Now, if you are making only 500 products per month, and that's the only thing your company make. So, every item now has extra $20 burden. (or say, $20+$12=$32 is your bottom price) If you sell it below $32, your company will be in trouble right away. Now the problem is, if you sell it above $32 (obviously you have to do that in order to profit), say, $40. Will people buy it or not? If people buy it, great. If people don't but it, you will have to lower the price. However, $32 is still your bottomline, normally, you will have 3 options here: 1. lower the price below 40, but above 32. 2. lower your cost so that the price can be even lower 3. don't make that product anymore, try to make others instead. We see this all the time on the market. For example, MP3 players, Car engines, Computers,....etc. Also, there are a lot of inside information at business weekly magazines you can read about.
There is a fundamental difference between costs affecting your bottom line (profit/loss) and costs setting your selling price. Costs do not set your selling price. Only the market sets that. I have had enough of financial reports. I used to sign them, including disclaimers by auditors of any wrong doing. I wouldn't have signed them if I didn't know what I was signing, would I? Of course there are crooks everywhere. Enron is one of them. But this has nothing to do with the dynamics of who sets the selling price.
I think I have said enough. If you have your own business, sooner or later, you will realize that, costs are costs. No matter what it is for, you have to pay them in order to make your company survive. If you don't cover those costs, you can't keep the business running or the business will be in debts. Market has its influences, but not 100%.
What then is the market price? I will bet with you that it is none of the figures you quoted above. You should work out a model of current market prices with sensivities and then come out with plans and costs, with sensitivities, on how to produce, move and market your products to meet the demand. The customer is "king"; he is the market that sets the price you sell; you have no control over it. Your area of control are in costs. However, if you have no control in setting selling prices, you can at least increase volume sales as distinct from selling prices.
I don't disagree with what you say above. I did have my own small business for 9 years but sold it back to the manufacturer. But what has this got to do with who sets the market price? The only instance where selling prices are not set by free market forces are in controlled economies.
Rackets are expensive because we are willing to pay for brand name things. It how companies make money. Such as Air Jordans compared to PayLess shoes. They are proability made in the same place but its the fact that we are willing to pay more because others reconize Jordans then Payless shoes. Same goes for racket. Knowing that you paid $100+ for a racket is a better feeling then a $50 racket. Just knowing that you spent that much makes you think is it really worth it to be noticed?
taneepak wins this round market affects price greater than cost. this is especially true to retailers rather than manufacturers, reason being retailers are selling homogeneus (ie similar) products (eg. mp100, ti 10) which are supplied to the end user by other retailers as well. manufacturers however are providing heterogeneus (ie non similar) products which allow them to differentiate their product and price from other brands. here's the MP77 case study. (assumption) production cost of MP77 assumed similar to the cost of producing an TI10. standard retail price Malaysia (set by yonex) MP77 = RM629 TI10 = RM540 observation = already seen little corelation between cost of production and retail price. conclusion? due to study based on 'assumption', not enough solid proof to say market controls price. to continue study.... continuation sometime around 2001-2002 Yonex slashed prices of MP77 from RM629 to RM299. this new price is significantly bellow retailers cost of their 'old' stock. retailers were left in a dillema to either a) hold on to their old price to avoid making loss b) drop their old prices to the new one set by yonex to avoid loss of sales. observation of market - retailers who maintained price almost never cleared their stock until they dropped their price. - retailers who drop their prices early, made up for more than their losses from the profit and quantity of the 'new' racquets they were selling. conclusion market controls price to a greater extent than cost (is the case of retailers) cheers: education not wasted 8man
i'll have to disagree. it is true that market does affect the price of products, as taneepak and BJ both stated, but so do costs. Yonex, monopolizing the badminton racket business, has the power to set prices more so than other smaller companies. However, we dont see the prices of rackets changing due to supply and demand. Even if the supply and demand of a product changes prices in other markets (like fruits and vegetables), it is not the same with badminton rackets. if the market really changed the price of rackets, then we should see the below situation: number of people playing badminton grows consistantly. therefore, numbers of rackets bought will also grow consistantly, as people replace their old rackets with new ones, and new badminton players buy new rackets. then, demand will become higher every year. then, logically supply will increase, and price will increase. That is untrue, because we see that most new rackets start out at roughly the same price, and the price certainly doesn't increase every year. in the case study of the MP 77, the cost of producing the MP 77 is definitely less than RM299, otherwise Yonex wouldn't announce such a drop in price. If there is no profit to be made from selling something, then why sell it? I doubt the MP77 drop in price is because of the market. Yonex made such decisions for other reasons
Bros/Sis: We should all pay tribute to oab729 for creating a topic on "Racquet Economics" or "Sports Equipment Economics". Anyway, good mental exercise. But don't do it when you are enjoying badminton on the court
if taneepak is right why am i wrong????? ok dear..... i never said yonex would sell products bellow it's production cost. also did not say that the cost to produce an MP77 is higher than RM299. im very sure its much lower than RM200 well near RM100 per piece. so yes price will always be above production cost (with exception) even when they slash price from RM629 to RM299. but besides standard retail > production cost relationship..... their is no other corelation between racquet production cost and standard retail price..... ....this is simply because for a production cost of RM100 per racquet.... yonex can price it ranging from anything up to RM999.00 (current AT800 standard retail price). no correlation what so ever except up to yonex's fancy... and to how the public is 'hooked to the hype' made by yonex's publicity. and thats from a manufacturers point of view. to sumarize: 1) production cost only provides standard bottom limit to price setting 1.1) if it fits yonex's marketing and market control strategies.... yonex may very well sell 1 or 2 models below operation cost to choke its competition to the dust..... then resume operation as normal for its entire range. 1.2) why make a loss???? but yonex really isnt making a loss when selling 1 AT800 will cover a small loss from 10's of low end model 2) market forces determines how low or high to set the standard retail price... based on how yonex percieves each separate market (eg. TH market compare to SP market) cheers 8man
this is a perfect example of price controlled by the market. brand new..... the tip top latest technology racket.... besides MP100.... the MP77 was one of the hotest racquet around. this allowed Yonex to sell the MP77 at sky high prices (at that time). when new models came in..... and the hype of MP fizzled with time...... the diminishing demand for it only made it good marketing and economics to slash prices. price drop,..... ----> demand increases ----> sales of MP77 picked up like hot cakes again. the price mechanism working to perfection 8man
Yonex charge a premium because they are the undisputed market leader. It's as simple as that, kids I think that you get some benefit for paying the premium. I prefer Yonex rackets to the other brands I've tried. It's only a small difference, but it's tangible (to me, anyway). Are you prepared to pay the extra money? That's up to you.
good business is about how you get to be the market leader in the first place, and how to stay there.
Not quite. More accurately: Good business is about getting to be the market leader in the first place, and staying there.
Exactly my point here. In order to say "greater than", you are taking in "cost" as a factor in prices. No matter how small or big that is. (You are at my side. ) I am not saying market doesn't have its influences, but market doesn't have 100% of influfences to the price. Now, define cost. What is cost? It's something you need t pay in order to produce. Material cost is cost, Electricity fee is cost, Labor salary is cost, Company car is cost and this list grows like crazy. If a company cannot pay off those fees, then company cannot continue. End of story.
What I am saying is the lower bound of the price, I am only refering to the bottomprice of an item. Market force has nothing to do with that. No company in the world will sell products below its bottomprice or the company will be broken. Market determines the upper prices, but not the bottom prices, as every company has different costs on their items. If it cost you $10 to produce an item, you will never sell it below $10 to people, won't you? If the market says it's too expensive and no one is buying it. You will not lower your price (and you cannot) because it cost you $10 to produce whatsoever. So, the only way out is not to sell that item anymore because you cannot lower your cost. This is one of examples of market price and cost relations to the prices (bottom price).
