ScottGee1 wrote:
> This goes to the essence of my original question.
>
Glad to be on target - for once. :-)
> I really want to have a better understanding of how products get
> priced. Thanks for the details and insight.
>
I only really briefly covered some highlights of costs, but not pricing.
> Contax/Kyocera learned some hard lessons that eventually drove them
> out of the camera business. The 'G' system was originally offered at
> Leica-like prices but very few folks ponied up the $$ so the prices
> continued to fall.
>
> Of course, Leica kept prices high and we know what happened there.
>
Good examples! In the vast majority of consumer markets, demand is
related to price in a curve that has sales increasing with decreasing
price. The basic purpose of branding is to affect this curve. The
enormous amounts of money that companies spend to maintain brand
differentiation are intended to increase revenues beyond the cost of the
promotions.
The Coca Cola company, for example, is based on convincing people to pay
more for their branded versions of flavored sugar water than for
non-branded versions. So although they are in competition with other
purveyors of similar products, the branded group as a whole is deeply
committed to keeping customers from buying cheap, non-branded stuff.
Every time a consumer tries to decide between Coke and Pepsi, they both
win part of their war. I'm not saying that any of this is good or bad,
just that it is.
Trouble comes when a brand starts to lose it's perceived greater worth
with consumers. A classic current example is Levi's. For decades, Levi's
had many people convinced that their jeans were worth more than those of
lesser brands and especially generic and store brands (It doesn't matter
at this point whether they were better or not, in any objective
sense.). Whether the buyer believes they will wear better or fit better,
or attract sexy and desirable members of the opposite sex, or whatever,
as long as those perceptions, whether real or not, persist, Levi's can
get a premium for their products. What has happened to them over the
last 15-20 years is that their perceived value fell relative to other
manufacturers. As the quality and value associated with US manufacture
no longer helped support the premium prices needed to cover those costs,
they moved production offshore. Along with many other, often painful,
adjustments and restructurings of their business, they now appear to be
close to stable, but in a whole different market position.
The luxury/prestige/cachet goods markets are even stranger. As your
examples point out, price/volume curves can even reverse. Success
depends on a delicate match of image and price. If Rolex discovered a
way to make an Oyster Perpetual for $10, they wouldn't change the
selling price at all. Their market position depends on being perceived
as a superior quality product, sure, but even more on being seen as a
sign of success and an emotional connection with whose who are actually
rich and famous. The whole psychological/emotional story is more complex
than that, but not really the subject here. Their products NEED to be
expensive.
Knock-offs are an interesting thing, too. As long as the copies are
crude enough, I'm sure Rolex is quite happy that their watches are
copied and not those of the competition. Pretty much everybody who buys
a copy is reinforcing their own and other's perception of how good it
would be to have the real thing - even if the quartz copy keeps better
time than the real, mechanical model does.
The point is that, once one has, through some combination of actual
product characteristics, marketing acumen and luck, established one's
product as one of those magical ones that are perceived by it's
buyers/consumers/wearers as somehow bestowing status on them, you NEVER,
NEVER, NEVER do ANYTHING to cheapen the image. And you do whatever you
can to bolster the image and combat those who would detract from it. In
the face of inadequate sales, you try just about anything but lowering
your prices. I'm sure there have been cases where noisy raising of
prices with some hoo hah about increased value of some sort in the
product have revived a struggling brand.
Leica understood this, Contax possibly did not, or possibly their
assault on the special niche was simply unsuccessful at creating the
necessary perceived value.I suspect they mostly misunderstood the
market. One of the characteristics of these markets is that they are, of
necessity, rather small, and each niche will only support a limited
number of brands. Breaking in isn't easy. Leica's understanding of their
market is clear from their successful marketing of special editions,
most of which are never even used to take pictures, often never taken
out of their original packaging. Collecting beyond any possible
functional purpose is a hallmark of a successful brand in this type of
market. I'll bet there are top Leica people who wake up with the fear of
overdoing or underpricing their rebranding of Japanese camera bodies and
undermining the brand identity that is the cornerstone of their
continued survival.
As long as a significant number of people buy the Panasonic, etc.
version only because they can't afford the Leica version, but wish it
had the red dot, Leica is ok.
Moose
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