20501005 - Entry 12

Low Prices Are Not Always Your Friend
Cutting prices might seem reasonable given the state of the economy, but doing so could backfire over the long run, argues our columnist

Summary
1. Price as an Indicator of Value
2. For Long-Term Success, Higher Prices
3. Face It, You're Not Wal-Mart
The author's idea
That thought reminded me of another shopping experience, this time revolving around jewelry. I recently inherited a ring from my grandmother that was somewhat dated, but featured a beautiful aquamarine, my wife's birthstone. I knew she would love the stone, so I set out to find a jeweler who could redesign the ring into a pendant in time for her birthday.
I visited three or four different jewelry stores, trying to find one that would offer design talent, a personal touch, and a willingness to work within my budget. And as I evaluated my own decision process, I observed something interesting and somewhat surprising—I gravitated toward the most expensive option.

My Opinion
Last semester I happened to research about Starbuck's story, and I realized that one of its successful strategies was 'High Pricing Stratagy'. Especially in Korea, it works really well!!
There are many women who want to become like Hollywood stars tend to like Starbuck's coffee. Most of them go to Starbuck only for a cup of coffee but for a take-out cup which can be a fashion item. Moreover there is a word for this situation. Have you heard of 'Veblen Good'?
I'd like to tell you about this term. According to the economic dictionary, Veblen goods are a theoretical group of commodities for which peoples' preference for buying them increases as a direct function of their price, instead of decreasing according to the theory of supply and demand. It is claimed that some types of high-status goods, such as diamonds or luxury cars, are Veblen goods, in that decreasing their prices decreases people's preference for buying them because they are no longer perceived as exclusive or high status products. Similarly, a price increase may increase that high status and perception of exclusivity, thereby making the good even more preferable. The Veblen effect is named after the economist Thorstein Veblen, who first pointed out the concepts of conspicuous consumption and status-seeking.
It is very interesting for me and I think I have experienced this effect before. When I worked as a waiter in an Italian restaurant, there were lots of expensive dishes. However, I saw there were always lots of customers who had willingness to pay. I could not understand at that time because It was too expensive, But now I understand that hige price can be good in some fields of business. Because people might think high price has higher value.

Reference: Businessweek Sales&Marketing by Steve McKee April 14 , 2008
Wikipedia.org