Selectivity on price is more of a concern when we go to the mall as against a movie theater. Consider the case of shopping at a Gucci store in the mall. We know that the price paid for a comparable product in another store is probably far lower. Why is this so? Gucci charges its customers for the Brand, more expensive labor, raw materials blah blah. Effectively the total cost of production (includes all intangibles like brand) is higher for Gucci as compared to other more reasonable brands and hence the price charged is also higher. This is a simple example of cost plus pricing, where products are priced at some margin about the cost of production. Same can be attributable to so many other things. But still the market exists. Now the question is the counterfactual. Does this type of market every fail?
The answer seems to be YES! Consider going to the movie theater as an experience. The cost of the movie has no impact on the price paid. Be it a movie shot on a shoestring budget or be it a multi million dollar budget, the price paid is the same (there seems to be no evidence of cost plus pricing). I have been wondering about this for a while but I cant think of a reason. Any thoughts?
Saturday, March 08, 2008
Random Thoughts
Posted by Mad Max at 11:18 PM
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6 comments:
I think it has some relevance to the market/consumers that are being targeted (in the case of Gucci)... Ofcourse, same cannot be said about movies... There, we should probably look at the statistics of the cost of movie versus returns or rather, the success rates of such movies. I googled a bit and couldnt find any good pointers...
@ Mindframes: The problem there is that movie success is an ex-post affair. You dont know before pricing if the movie will be a hit. Even if you agree to that point, pricing can change after two weeks, where hit movies are priced at a higher level as compared to flop movies. But that never happens either. It is flat throughout.
I did a lot of googling myself. But it looks to me like this problem has not been studied. Maybe there is no problem here (it could be that I'm looking in the wrong direction).
My take...from a layman's perspective without talking about any statistics,costs etc..In simple terms..
When I walk into a Gucci store, I don't pay anything to look at a bag whereas I pay for the ticket when I walk in to watch a movie.
I would equate the revenue from buying the bag to the revenue that the movie generates ( if it is a good one) by the advertising that happens among peers after watching the movie .
I paid $16 dollars to watch Sivaji. And reason - potti velai romba adhigampaa!
Also, I can return "Gucci" if I dont like it after a day. Same thing cant be said for the movie!
@ Sdpal: ROFL...man that was funny
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