I was going through Seth’s blog post and found this very interesting post called “Understanding Substitutes”. This post is about how the price of goods are set. The first thing he says is that there are two types of substitutions, between markets and between competitors. The first thing that happens when the price of a good goes up is that you decide to buy the same product from a different brand, if the price of the good goes up for all brands and its a good you really need then you will buy it anyways, but there will be a point where the price high enough that you will look for substitutions in an other market. The example Seth gives is eggs, if the price of eggs goes up people will still buy them but if they become too expensive people will start to have cereal instead of eggs for breakfast. In other words they found a substitute in another market.
This price/demand relation is what challenges advertising and marketing. If you want consumers to keep on buying your product despite the changes in price and the existence of substitutes you have to make people believe that its actually worth their money. You have to sell them the “story” behind the product, in other word tell them whats unique about your product. What differentiates you from all the rest. Now this may sound obvious but in my opinion it is something really hard to do and even more because you are all competing in the same market and offering basically the same product. An example for this is the smart phone market, its obvious that all the phones are going to have at least the basics (points of parity) because brands want to be competitive. The major difference between the best smartphones in the market is design as all good smartphones can basically do the same stuff and all of them offer the costumer good quality. The decision of the costumer at the end is just based on brand preference, this is influenced by many factors. This is where marketing and advertising find the real challenge as it takes time to build a brands reputation and gain your costumers preference; its not something that can be done with only one advertising or marketing campaign, It takes years to gain your costumers preference.
Another important point that is mentioned by Seth is that “price itself tells a story”. This is very true, specially in luxurious goods. There are many things where consumers actually look for the most expensive option because it gives them security. An example he gives are surgeons, if you are having surgery you want the best possible surgeon because that itself tells you he is good. Price, gives you security, it assures you that you are obtaining a good quality service of product.
The different things Seth point out in this blog post may be obvious, but many times we forget about the different factors that influence our decisions as consumers and its good to be reminded once in a while.
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