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Baraka_Guru · 06-08-2009, 06:39 AM

You always get what you pay for.

The problem is that you don't always know what you're getting.

Products have a number of costs associated with them:

Raw materials
Labour
Overhead
Distribution
Marketing
Profit
Etc.

As time goes on, even within a single product or brand, these costs shift. There are a number of factors that influence the cost: finding low labour cost is getting increasingly difficult; raw material cost fluctuates; distribution costs fluctuate, especially depending on where your labour and markets are; marketing costs rise with increased competition, profit expectations remain high, etc.

So for example, when Dockers goes through this, they need to make some decisions. They crank up marketing because of new entrants going after their market, their cheap (for their standard) labour pool begins to dry up (again because of new entrants), leather costs rise, retail support costs rise, so what do you do? You can't just jack up the price indefinitely, or you'll alienate your customer. So you go with cheaper materials and cheaper (and lower standard) labour.

Either Dockers would need to get more expensive ($160 a pair of shoes vs. $120) or they can suppress this $120 price by finding a viable reduction in overall quality (i.e. cost). Keep your brand recognition and value high, and people might just overlook having to buy new shoes over a shorter period of time. Because, hey, the alternatives might not be any better. And they're certainly more expensive if they are.

06-08-2009, 06:39 AM	#13 (permalink)
Baraka_Guru warrior bodhisattva Super Moderator Location: East-central Canada	You always get what you pay for. The problem is that you don't always know what you're getting. Products have a number of costs associated with them: Raw materials Labour Overhead Distribution Marketing Profit Etc. As time goes on, even within a single product or brand, these costs shift. There are a number of factors that influence the cost: finding low labour cost is getting increasingly difficult; raw material cost fluctuates; distribution costs fluctuate, especially depending on where your labour and markets are; marketing costs rise with increased competition, profit expectations remain high, etc. So for example, when Dockers goes through this, they need to make some decisions. They crank up marketing because of new entrants going after their market, their cheap (for their standard) labour pool begins to dry up (again because of new entrants), leather costs rise, retail support costs rise, so what do you do? You can't just jack up the price indefinitely, or you'll alienate your customer. So you go with cheaper materials and cheaper (and lower standard) labour. Either Dockers would need to get more expensive ($160 a pair of shoes vs. $120) or they can suppress this $120 price by finding a viable reduction in overall quality (i.e. cost). Keep your brand recognition and value high, and people might just overlook having to buy new shoes over a shorter period of time. Because, hey, the alternatives might not be any better. And they're certainly more expensive if they are. __________________ Knowing that death is certain and that the time of death is uncertain, what's the most important thing? —Bhikkhuni Pema Chödrön Humankind cannot bear very much reality. —From "Burnt Norton," Four Quartets (1936), T. S. Eliot Last edited by Baraka_Guru; 06-08-2009 at 06:43 AM..