November 30, 2011

If You Raise the Price, They'll Still Come

If You Raise the Price, They'll Still Come

Published November 26, 2011
| Associated Press

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Apparently there are plenty of examples of how companies can get away with charging more for their product because of a certain amount of loyalty customers feel towards the brand. This is a perfect real world example of how customers have learned in the market place.

Counter to Neoclassical mindsets, consumers may be opting into spending more money on products they have had good experience with in the past, rather than purchasing products with a less pronounced reputation that is selling their product at a cheaper price than their competitor. It was fairly common in a number of economics classes I took, for a reduction in prices to lead to a higher number of units sold. It is interesting to see a real world example of how consumers are acting counter to this common approach to economics. The difference is, I can see why it is happening because of some principles picked up from Austrian Economics. 

It is likely that the customers buying Starbucks, Nike, and McDonalds have a degree of loyalty to these brands that has been built by a number of positive experiences with not only the products but also the customer service offered by the companies that run the brands.

I had never thought of this phenomenon with the view of Austrian Economics before, and it is truly fascinating that there is a price associated with confidence in a product’s quality. If someone knows that the product they buy will be a good one there is a limit to what they will pay, but it may be higher than anyone may have considered.

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