WHY would anyone rush to buy a product knowing full well that it would be cheaper — and probably better — in a matter of months?
Hundreds of thousands of iPad buyers did just that last month. Steven P. Jobs, Apple’s chief executive, crowed that in the first 28 days on the market, Apple sold one million iPads. He found it remarkable that buyers snatched up this new slate computer at twice the fervid pace of the first iPhone.
But what is truly remarkable about this surge in consumption is that early adopters — those who simply have to own a new gadget right away — cheerfully exhibited what might seem to be irrational behavior. These ardent consumers will stand in long lines, if that’s what it takes, to get an overpriced gadget ahead of everyone else they know.
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Applause, Please, for Early Adopters
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When a company first introduces a new product, they have already undergone an extensive price discrimination analysis. A company knows that they can sell the same product to different people and groups based on their willingness to pay. When a company first begins to sell a new product, the first purchasers are the consumers that really want the product. They can be charged a higher price. Consumers who may or may not want the product are known as indifferent. They might feel that they don't need the new product but will purchase it at a lower cost. Essentially, people who want a new product must pay a higher price for that product. An excellent example of this concept can be seen with video games. Software companies release the date when a new game will be available for purchase. For example, “Green Day:Rock Band” has not yet been released. If you go to a store like GameStop via this link http://www.gamestop.com you can pre-order a copy that will ship on 06/08/10. In this situation you are purchasing a product before you can physically receive it. The reason for this is that there is the distinct possibility the game might actually sell out and you will not be able to purchase a copy. On the opposite side of this argument is the fact that maybe a price discrimination strategy is being implemented at the earliest point in the product life cycle. I believe it is the latter. If a company sees significant pre-order demand they can adjust the price accordingly. Conversely, if they do not receive a significant amount of pre-orders, they may very well lower the price of the new product.
ReplyDeleteThere are many reasons why people buy a newly introduced gadget such as the iPad. For example people buy because they have the impulse to always buy new things or out of class because they know newly introduced gadgets are usually expensive. But how do comapnies justify the reason for new products being more expensive than later versions. Apple claims the 2nd version will be more expensive but have more features, but as years go by the price of iPad will definitely fall. In the real sense, which newer version of a product has been more expensive than the 1st one, its just a way of companies making so much profit off the people that buy the 1st version and then reduce the price just a little above the cost price for other consumers and still maintain a profit. So in otherwords, the profit from the first sale is used to cover the other sales.
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