The pricing of luxury goods

 

I’ve been following the complaints by a large number of people about the pricing of Apple products in South Africa, and have even heard these complaints extend to other electronic products like digital cameras etc.

And here’s my 2 cents on why prices for high end luxury goods are so high.

The answer is simple, because there are enough people willing to pay the price.

Let me clarify that, and I’ll use car prices as an example here.  

The way a car is priced is definitely not by looking at what it is costing to manufacture, then prices would be fluctuating on a weekly basis, due to commodity prices and a few other variables in the industry.  No, car prices are determined by what the market is willing to pay.  Take a brand like Rolls-Royce, I cannot see that a Rolls costs more than, say a Merc S500 to manufacture, but because of the perceived build quality people are willing to pay more than double the price.  This in turn brings exclusivity to the brand, and people are then willing to pay even more to get that.  

Even the cheaper cars are priced by what the market is willing to pay, and that is why car dealer can afford to build the nice showrooms etc, because the profit they make per car is quite high.

The same goes for other products, in computers, Apple is an exclusive brand, and a lot of people are willing to pay for that.  In denim clothing, people are willing to pay more for the Levis brand, although the Mr Price one may be more comfortable and 20% of the price, it does not stroke your ego as much as the expensive brand.

So, if you don’t like the high prices of luxury items, there is no point in complaining.  You need to stop buying it, and convince as many as possible people to also stop buying.  Eventually, they will have to drop prices to keep up the revenues, and then people can start buying again.

 

2 Replies to “The pricing of luxury goods”

  1. I get what you say about people being prepared to pay that price, but while that is part of the problem, the problem is much more than just that. Using your car example again, you’re not happy to pay that price but where else can you go? Manufacturers and suppliers have colluded on prices that there’s no real competition and they have been able to do that because it’s impossible for Joe Public to import a car from overseas, where they are much cheaper than the local product. In fact it would be cheaper for a buyer to import a car that was originally produced in South Africa and exported to Europe!

  2. In some cases you aren’t able to go somewhere else, agreed. But would it hurt anyone to drive a car for 2 years longer than normal? Or to buy for function rather than brand?

    Not all products have collusion going on, and if you buy wisely for a year or two some of the brands will have to drop prices to survive.

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