Posted by: yuenmun | June 27, 2007

Price Targeting

Once upon a time, IBM manufactured a high speed laser printer and it is charged high enough. However to cater those who do not have the money to buy the high speed printer, IBM make the SAME high speed printer just to run slower. Yes you heard it, it is the same printer but one just somehow made to run slower and carries a less painful price tag. Why did IBM do this? 2 reasons: To make sure they captured all the prospective customers and secondly, it is expensive to develop two different products, why not just manufacture one product but modify it?

Sound shocking? Here is another example. Most of us know Intel sells processor with different speeds. Enthusiasts opt for the highest speed while normal folks like us would choose something between. But the fact is, the 1.66 you bought can be ran as fast as 2.33Ghz, this is what we call overclocking.

Another one. Nvidia manufactures Quadro and Geforce graphic chips. Quadro for designers who do CAD or programming work while Geforce is aimed at hardcore gamers who enjoy computer games. The fact is, both card perform identically when softmodded with just a software but they carry a different price tags.

Lesson? Companies will always try to develop as few product as possible as R&D is cost consuming. The same product can be altered to serve different segments with different pricing strategy so that they could maximize revenue. It is not that airlines couldn’t provide more space for the passengers in economy class, they are trying to tell the business class and first class passengers that “you don’t have to go through all the trouble like those in economy class”. Imagine one airliner offer better service to the economy class passenger, lounge or personal entertainment(which aren’t hard to implement). Guess what will be the reaction of the first class and business class passengers, they would consider to take the economy class next flight! The bottom line, someone has to suffer!

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