look at what u have caused If it doesnt help u much, why are u so interested getting one of those expensive racket? If it's propaganda, well, it's working on u On the same thought, why do toyota sell some $45,000+ models when their 15,000$ model does the same job, getting u from A to B. Do u hear people complaining about toyota's expensive models? Do u hear people complaining about the expensive henkel knifes, of rolex watches?
only if that is the only item you make and sell. If you have a range of products you can sell some at a loss if the others bring in enough profit. OK, I know, more applicable to supermarkets, and we're supposed to be talking about badminton racquets .
You guys are talking about the 'Market' as if it is a static entity or a 'person'. Lets take the manufacturing of rackets as an example. If that is the only thing you do and you are making it for $1 a piece, you will be very silly to start the business if you know full well that you can only sell it for $0.90. $0.90 is the price people are prepared (or can afford) to pay and that is the 'perceive value' of the racket. As a business man you can do several things. You can lower the total cost to well below $1 and make the business viable. Or you can do something to increase the value of the item so that the cosumer is prepared to pay more than $1 for the item. That "value" can be in the form of quality, durability, performance, status ... and a few more we can think of. You can increase the perceived value through technology, marketing etc. Yonex probably attacked all those points. They sponsor competitions to improve their perceived status, they introduce new technology to improve quality and durability. They use famous players to publicise the performance of their products. As a result of all that, we the consumer has a higher perceived value for the product compared to other competitors products. Through market surveys Yonex knows that they can sell at a certain price without losing margin and without losing customers (market share). AND that is the price we are buying the rackets for. So in answer to some points of the discussion: 1. You need to know your total cost to set a minimum price in order for you to make your business viable. If not there will be no business to run. 2. All goods and services have perceived values (which relates to a price in currency) that can change for a variety of factors. 3. Through clever business strategies, you can get away with selling at much higher prices and make lots of money.
A case study is the current prices of Yonex's Nanospeed 8000. Would you believe that it's production cost is less than US$15, or it's incremental production cost even lower? This racquet is being hyped up to about US$220 now. But not all of the US$220 is going to Yonex. Most of it goes to Japanese exporters and opportunistic importers all over the world. It's current high price is driven by pent-up demand on very limited volumes. The market will set it's price as supply/demand brings order to the market. Now if I were to ask Yonex in Japan to make an identical Nanospeed 8000 racquet bearing only my name with no mention of Yonex at a cost of US$12+US$2.40 (incremental cost + margin basis) fob Japan, would you buy my Nano racquet for the same price? Same product, even better warranty, but will you buy it? Now comes the question, who sets the price? On the surface both Yonex and yours sincerely appear to set the price. But the market, driven by consumers, says the Yonex "apple" is sweeter than TEP's "apple", sees it differently and begins to set the actual market price. This is why you would not buy my Nano at the same price. It is well known that Yonex spends more money on promotions and even gives huge donations (contributions, some say) to some major badminton countries. But would you be surprised if Yonex is actually the lowest-cost badminton company? Incredible? Just chew over it.
A better example would be mobile phones and games consoles? mobile handsets costs are subsidised by network operators, who recuperate it back through your line rental and call charges. Consoles like the Xbox are sold at a loss, because (a) the real money is in the software (b) in this case, Microsoft wants to increase market share.
Surprised? no. Probably is the most efficient. Even factoring the cheap price of bulk order of raw materials, advanced fabrication methods and machines and highly skilled workers...I don't think they would be the cheapest
ok, now i see the bigger picture. so i dont think i'll try and argue any more . anyways, Wizbit, the best example would be inkjet printers i buy a Epson inkjet for $73, which includes ink. if i were to buy the inks separately, it would cost me something like $50 for the whole set. epson makes money off selling ink, not the printer
Yes SWC_Ant but with inkjet printers you can buy compatibles or refill yourself. With Xbox you can't play a Playstation game. Most mobiles are locked onto a particular network, because they subsidise your handset price and want you to pay them back! Of course most models can be unlocked at your own cost. We may see a law in future to protect these mobile companies
you could always buy bootlegged games for Xbox and PS2.. then it will be the same as getting compatible ink for your printer we're going off topic.. baddy economics!!! not consumer electronics note: i do NOT encourage the use of bootlegged software, neither do i take any responsibility of person(s) who read this post and then conducts such illegal activity
Market Forces determine the price It's been a very interesting discussion on the economics of pricing here and we learned quite a bit from the personal experiences of many posters here. I would like to say the following: 1. It is very tempting to say that the price is based on the producer's cost, but more often than not, it will ultimately be decided by market forces, the laws of supply and demand. How the consumer perceives of the product or service can fuel or suppress demand. Producers who are more competitive, innovative, productive and have other positive attributes can survive well and make a handsome profit, others will fail and be knocked out of competiton in due course. 2. There are exceptions of course but this refers to an 'imperfect' market whereby market forces are not allowed to act freely as in the case of monopolies whereby the supply comes from only one source and there is no competition such that the producer can control the price. I would'nt consider Yonex to be a monopoly as there are other manufacturers but Yonex is able to command a rather prestigious position and hence a relatively higher price for its products because of the reasons that some poster have given. 3. There may exist cartels, a group of similar product manufacters like the oil/gas companies which come together and agree to one price. 4. Then there may be government intervention particularly for needy goods or services like rice, oil or public transportation in the form of subsidies. Or there may be other kinds of subsidies, loss leaders or financial arrangements like sellling handphones very cheap or giving them out free so as to let phone companies earn more revenue, etc. A government can be forced out of office if it tries to increase the price of essential goods like petrol or oil. Riots have know to happen in such instances. But in a perfect marketplace, the laws of supply and demand will apply. Greater demand than supply tends to push the price higher and the reverse tends to hold true. A price equilibrium is set when supply equals demand. A producer may enter the market based on the assumption that he could make a profit as his production cost is lower than the price then prevailing in the market. But that price can move downwards due to competition, etc, sometimes very rapidly, and he may find himself out of business. So, in the end, price is not based on the producer's cost. The producer must think of ways to influence the price according to circumstances or to cut his cost to remain productive in his business.
