Pricing Perspective: What Do We Pay For?

Physical Products

Try to take a look at something closely; the thing might be something that you wear. Have you ever ponder what actually represents the price of an item? (It will give you more thinking point if you buy the product by your own money) For example a retail price of a Nike shoe is $89.90 but does any part of your shoe justify the exorbitant amount you are paying? Is the total cost of all components of a shoe such as the laces, sole and material used justify the price or is the extra we are paying for is actually the price of the “swoosh” sign?

Nike fans will argue that that the technology or quality of the shoes represents the price. This is after they test it at the shop and they feel comfortable with the product they are about to buy. People with the same view will also mention about the lifespan of the product that is as compared to store-brand footwear, Nike shoes have high durability and can withstand any condition.

Others will say the brand itself represents the price and that they can find the same type of shoes under a different brand at the cheaper price. Since almost everybody in the world knows Nike (if you don’t know please stand in the middle of the tramline and wait for the tram to hit you, LOL), they are able to extract a higher price from the customer. Come to think about it; is it worth to pay for $89.90 for a simple tick logo and four letters of brand name? You might spend around $10 to $20 for each character.

Or maybe we can combine both factors, but can you really figure out which one that really represents the price tag of the product? Or which one is more dominant for the price? Things to ponder.

Services

But if we take a look at the service industry, the pricing of a service is even more a mystery. For example, the prices of Great Ocean Road (GOR) tour vary from $20, $125 and $160 per person for Deakin Graduate Business (DGB) Society, Go West Tours and AAT Kings Tours respectively. Assuming that DGB society is not operating for profit, the total cost per person is just $20. Then, how would you justify the price of Go West Tours and AAT Kings Tours that is 6 to 8 times more than DGB’s price?

Resources: http://aatkings.com/tours/melbourne/great-ocean-road/ http://www.gowest.com.au/our-tours/great-ocean-road-day-tour/

Legends: Question to yourself, talking points & try to pull a funny stuff, LOL

Written by: Abyan and Aizat

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26 thoughts on “Pricing Perspective: What Do We Pay For?

  1. Price is subjective to what people are willing to pay. Prior to competion, Telstra Foxtel were able to charge hundreds of dollars per month for cable, with advertisements. They didnt magically make a dollar figure and threw it out to the market, they research it and found the price people were willing to pay, cover their costs, and make the most profit. Competiton, improvements to internet speed, and people general distain for Telstra has seen their prices plummet. Nike has competiton but it also has loyality from its consumers, which Telstra doesn’t, so it can afford to charge what it does.

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    • Telstra is more on service industry. So let’s compare with Vodafone or Virgin. So what does matter about determine their price? Because we’re trying on perspective about price war between physical product vs physical product, service vs service. But you’re right on price is what are we people willing to pay.

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  2. Colourful post Abyan and Aizat. We pay for all of it! And we can get the same thing from another brand at a different price so what is it? Perception of quality? After all we’re all familiar with the adage, “you get what you pay for”. Is it colour, style, function or fit? Consumer perception & preference & we’re all different. My brand loyalty to sporting gear extends as far as what can I get on sale. Reebok, Adidas, Nike, etc, etc what is the difference?

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    • Firstly thanks for the compliment. Maybe if we’re in 30 or 40 years back we know what we pay for. Because the product itself made in the original country. For example, in 1970’s you will get authentic Nike product that originally “made in USA” at the retail price in worldwide retailers. But now if you pay the retail price you will get the authentic Nike product that “made in China” or other countries in worldwide retailers, unless you personally purchase the product in USA or via online. So do you really know what represents the price tag nowadays?

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  3. The idea of why people choose one brand over another is fascinating to think about.
    In my household, Nike is a VERY popular brand. One of my sisters owns 7 pairs of Nikes varying in style and colour, and she doesn’t choose them on the basis that they are Nike, but rather, she chooses them on the basis of their style. I’ve often heard her refer to them as “pretty” (even the plain black and white ones). She doesn’t limit herself to Nike only though, she owns other pairs ranging from Adidas so ASOS, all chosen because of their style, regardless of price.
    My other sister owns 15 pairs of nike lunar glides. I know, 15! It’s entirely ridiculous, but for her, she found a pair that was comfortable and they just happened to be Nikes (she tried on a number of brands of varying prices). She’s a primary school teacher and she wears them to school, so she decided that since she found a pair that were right for her, she’s get them in multiple, multiple (15!) colours.
    My Dad now owns two pairs of Nike’s in the same style but in different colours. He bought the first pair about 3 years ago, and there’re the first pair of Nike’s he’s ever owned. He bought them because my sisters convinced him of how comfortable they are and he now says they’re the most comfortable pair of shoes he’s ever worn, so for him, there’s no going back!
    I personally own two pair of Nikes (one free run and one lunar glide), which I alternate using in my day-to-day life as well as being my footwear for my job. In a way, my decision to purchase them was influenced by the opinions of my families but also on the fact that they were of a style I liked. However, for me, when exercising I would never choose to wear a pair of Nike’s. Regardless of the fact that they are made for sport, I wouldn’t trust them to work properly, that’s what my Asics are for!
    I guess what I’m trying to say is that, in my family, the decision to purchase Nike’s over other brands was driven by style, comfort and recommendation from others, rather than their price or relative reputation in the market.

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    • So after all what do you pay for? Which one is represents the price tag more? As time changes we’re no more pay for the product. We pay more for the brand as manufacturing cost for products get cheaper due to outsourcing. It’s ridiculous but a funny point to think for. *wink2*

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  4. Generally speaking, if people value a product or service and believe it is a quality item, then they will be willing to pay for it, even if they think the cost is a bit high. You make a very good point in the example you give of the Great Ocean Road tours. If Deakin Uni can run a tour to the Great Ocean Road for $20 per person, then the mark up on the the other tours is either really high or those tours include lots of extras such as a more comfortable bus, meals and some guided tours. But if you don’t want all of that included, then you may be happy to pay the cheaper price and BYO. I guess it depends on what the customer values in the tour and what inclusions they are looking for that will help them decide how much they’re willling to pay.

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    • Market nowadays is more likely in the “price war” situation. Where brands are tugging customers to purchase their products or services. Unless like luxury products, which is already set their stage of brand outside the level of ordinary market.

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  5. I agree that price is about what people are willing to pay for. If competition level is heavy, you will expect to see two similar products or services are similarly priced. However, it is important to read the fine print of what you get in buying a product / service. Extended warranty, customer service, etc, which you get from the product / service (but often not used) may also play part in these pricing strategies.

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  6. True that! how so good the quality may be but I always know that half of the amount I m paying is for the logo it carries. Ain’t we a vain race?

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  7. Nike is charging premium not just for the material of the product but the brand provides the reliability and trust that it will perform upto expectations, nike may have also gone through some research and development in its product that is reflected in the premium. Suppose one buy a imitation of nike brand after some time it wears off then you purchase again so what does it really cost the time , the harrasment buying again another brand .

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    • That’s reality of the world trade nowadays compared to 20 or 30 years back. If we buy the same product from local retailers we exactly get the product that made from outsourced country, eg; Made in China, Made in Indonesia etc, which the real quality is in doubt. But if you want to buy the same product that made from original country, Made in USA, we will get the product at the same price but we need to bear the shipping cost. So, due to enhancement of technology, it’s your call for product selection.

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      • Outsourcing does not mean a reduction in quality it is a strategy for reducing cost. due to cheap resources available in such countries the companies are taking advantage and in return delivering a better product. Iphone is bilt in china as well it is on best industry standards in the world.

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      • That’s what we always assume. But based on my personal experience, it is. The company only set the standard for each product at the outsource country, let’s say 90% is the minimum requirement for that product to unleash at the market. Because company know that outsourced product is hardly to reach the standard from the origin country. The main thing is only to cut cost of manufacturing.

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  8. I read an interesting example of how one company, NEED Essentials, is selling quality wet suits, comparable to the leading brands, at a significantly lower price. How do they do it?
    – They keep fixed costs low by making their websites without branding, packaging, or swing tags.
    – There is no advertising campaigns, marketing, surfer sponsorship or athlete royalties and
    – They sell their websites almost exclusively online.

    This means they can make the wetsuits at a faction of the price. This is then passed on to the customer who can purchase their wetsuits at a much lower price than the big brands.

    A good example of where “you get what you pay for” is not accurate.

    But would this pricing strategy work for other products? I do not think so. As outlined in your blog and the responses, people are clearly willing to pay more for a brand with perceived benefits and quality.

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    • Most consumers are already surrender to the market trend. Because they find it’s a waste of time to figure out what you should pay for. Me too, at certain circumstances. So, “take it or leave it”…hahaha…

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  9. Interesting question about what we are paying for. I think whenever one buys a product from a popular brand, they are basically paying for the brand name more than anything else. I know some people will argue that we pay for the high quality associated with brand names like Nike, but I’m of the opinion that brand name doesn’t always equal excellent quality. In some cases you find that less known brands produce better quality products than the popular brands.

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    • I can call that as brand establishment or associate. Most consumer have perspective of brand equals to quality, unless in buying basic needs. If we have a lot of time for product comparison of course we’ll definitely choose based on quality.

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  10. Brand vs price vs quality?

    When you are thinking to buy Nike products, you will know it straight away that you will get high quality products with high price too. Some customers who are already satisfy and have good experience with Nike products, they will not hesitant to buy the products again (i.e. brand loyalty). What do you think of Adidas, New Balance, Asics? Their products are as good as Nike’s with roughly the same price range. I think it depends on customer preferences and needs. I will buy products that I need but not because of the brand. Even though I know how much I love Nike shoes design, I will not buy them because Nike shoes do not have what I need. I will buy Asics shoes instead because it fits the purpose that I am looking for.

    Sometimes you get fooled by the brands, people are willing to pay extra just to get that popular brand. Do they care with the quality when they decide to buy the products? For example, Nike t-shirt is much more expensive because it has Nike logo on it compare to the other normal T-shirt that you can buy in other stores that do not have Nike logo with the same quality (e.g. Uniqlo). Do customers only pay extra because it has the logo or is it because of the quality?\

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    • I just give an example of brand. It’s something common that brands usually take place in consumers’ mind. So we as consumers need to be wiser in buying products or subscribe services. Don’t judge only on brands, but based on quality instead. But it’s market trend nowadays where brands come out first from consumers’ mind.

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  11. Consumers will buy a product for the “belonging” of a brand. They will ignore the price tag of a new pair of Nike trainers and make the purchase without thinking twice because the brand name means something.

    Nike is known for it’s quality, it’s a sound investment for consumers and they generally don’t mind paying a little more. Since everyone wants to be seen in the latest Nike Free trainers, they don’t mind forking out a little extra. This is another factor that enables Nike to keep prices higher than other trainers, knowing they’ll still be able to make the sale.

    Personally, I try not to get swept up into brands. The big companies are successful for a lot of reasons including their marketing campaign. I’ll look at reviews of big brands and alike brands that are selling the same item. A lot of the time the cheaper brand will prove to be better quality and therefore more financially viable.

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    • Agreeable comment from you. The way of marketing evolves from time to time. Belonging of the brand starts from the ability of the company to market through public figures that have many followers. Like example on how Nike market their product through Cristiano Ronaldo, Adidas through Lionel Messi and Puma through Sergio Aguero. So, mindset of customers will be like “if i wear this product i will be like them”. Sounds quite funny, but that’s the market reality nowaday. Ooopppsss, I touch a bit about consumer behaviour.

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  12. I always used to compare the price tag like you have told in the blog . But i have seen the price of these products is because of their Brand name . Not only Nike many brands manufacturers are different even they are middlemen in profit sharing of the brand when it was outsourced to developing countries like china,India . As we know all these companies motive is profit and market share . But service based company will have higher rate in profit and people feel higher the price better the quality ..

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    • I just give an example of brand. But I did amazed by some of prestigious brands like Louis Vuitton and Rolex. They don’t outsource for manufacturing their product as they made that in the original country, France and Switzerland respectively. Sometimes I may think that’s why they can priced their product very high. For service industry, it’s very easy to determine and adjust price because they didn’t require any material cost. They only sell ideas, that easily came from functional brain/s. Bottomline, brain is an expensive asset, do handle it with care. *LOL*

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