Many Prices for One Product

The Christmas tree included a great book that got me thinking about the economics of pricing. No, my family did not bless me with an economics text. However, my son Peter gave me a delightful book, The Man Who Loved Books Too Much: The True Story of a Thief, a Detective and a World of Literary Obsession. The title pretty much says what the book is all about, but as I learned about avid book collectors, I started wondering about rare editions of my favorite books.

My first searched turned up a first edition of Adam Smith's the Wealth of Nations, priced at $150,000. That's a bit out of my budget for a single book, even one printed in two volumes.

A wider search for the Wealth of Nations turned up a much more affordable fifth edition, printed in 1789 (rather than 1776 of the first edition) and priced at only $6,500. That may sound like much, but it's actually affordable to many people, if only they made it a priority. The Survey of Consumer Expenditures shows that the middle quintile of households spends an average of $2,106 on entertainment goods and services. That fifth edition Wealth of Nations would require a few years of savings for an average family, but it is within reach if the desire is strong enough. There's also pure entertainment in some of the other categories of consumer spending. My car has heated leather seats, which aren't really a necessity. Similarly, our spending on housing and food includes plenty of luxury purchases mixed in with some necessities. So a middle income family could afford that book if they scrimped and saved across their budget.

I looked at my trusty copy of Wealth of Nations, which I purchased used many years ago for $4.95. It's a nice hardback Modern Library edition. I don't know when it was printed, but the introduction is copyright 1937. Similar volumes are selling on Amazon for about $10, so I've double my money--but over 30 years or so, I would guess. Not a great ROI.

When I want to grab a quote from Smith, though, I don't turn to my bookshelf. Instead I go to the Libary of Economics and Liberty online, which has a searchable copy--for FREE!  I can search, then copy and paste a quotation into my word processor. That's far better functionality than a physical book provides.

The Christmas tree also had under it a Kindle. I was able to get a free Kindle version of the Wealth of Nations, so I could take it with me on travels without lugging a heavy volume around.

So, what does The Wealth of Nations cost? Correct answers range from free up to $150,000. That may sound a little "soft" to you mathematical types, but it reflects an important point with significant business implications: different consumers have different desires and motivations associated with the purchase of a seemingly identical good or service. Those different desires and purchases can translate into different price points.

For example, a round a golf is, for some people, primarily a social experience. For others, it is the challenge of a difficult physical activity. For yet others, it is something to occupy oneself on an otherwise boring vacation. One activity, three different purposes. Possibly three different price points. Don't get caught up in the idea that your product has only one value. It's worth differing amounts to different people. Take that into account when devising pricing strategies.

Comments

[Stan]

I agree. A gallon of gas is worth $3 in town, $4.50 at the "last chance filling station" located at the desert's edge, and $50 if you've run out along the side of the freeway.

[Todd]

I did an interesting experiment a few years back with this very idea.

I had a garage sale that lasted two weekends. I split half of my garage sale items up randomly and attempted to sell half of the items on different saturdays.

The first saturday I told the customer what I wanted for the item when they asked (too lazy to write price tags). The second saturday I let the customers chose the price (as long as it was above my price floor I accepted).

I made close to twice as much on the second saturday. I figured it would be a way to almost exactly price discriminate. The customers often valued the item more than I would have sold it for. Obviously I did not have a very high value or I wouldnt be selling it at a garage sale.

Interesting backyard economic experiment!