The relationship between retailers and shoppers is an interesting one: the retailer sets prices but the shopper chooses whether or not they want to buy. Although the retailers do have a choice in what their starting price is, Mr. Vineburg and many others believe that the ultimate price it is sold at is exactly what customers want. Ultimately, they will not be willing to buy it at a price any higher than what they buy it at.
This can be shown on a demand curve. The marginal benefits for different customers seem to be in a very narrow range. If the price is too high, the demand will be very low. However, after it reaches a certain price, the demand curves slope will alter and the demand will increase.
This is a new belief. Before, companies used to have very high starting prices, making it down when nobody was buying it. Many companies are trying out a new plan, including J. C. Penney. Rather than starting at a high price, they start at a fair price, eliminating sales. This strategy has not been very successful so far, but Mr. Johnson, the CEO of JC Penney, believes that not enough time has passed to make a definite conclusion.
There is more to it though; other experts, believe it to be more than just simple supply and demand.
Customers love a good hunt for a bargain. We cannnot definitely say that the optimal price is x, because one of the factors which determine the ultimate price is the challenge itself. This is an example outside a classroom, and there are many things that will decide how likely a customer is to buy something other than just price.
Only time will tell if Mr. Johnson on the experts are right. He still firmly believes that customers will buy if it is a good price to begin with.
Source: New York Times: "knowing cost, the customer sets the price"
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