How Branded Products are Marked up
When you make a purchase, what do you care about most?
Is it the amount of money on your bank statement? Or perhaps whether or not you get great value for money?
You probably want to know that the product is reliable and of good quality – that’s also something worth caring about. For these reasons, it can be argued that price is one of the least important factors in choosing which brand to go with when buying products.
A more accurate way to think about it would be this: Would I rather pay less than someone else for the same thing? This is why branded products are marked up so high compared to their unbranded counterparts. The people who buy them would simply never go for the unbranded option. So companies can charge more, safe in the knowledge that their brands are desired by consumers.
Let’s take Nike as an example of this. You might know them for their sports shoes or sports clothing – these products are obviously marketed towards athletes who rely on quality and reliability to do well in their chosen sport, but they also appeal to people who simply like the style or colour of something.
That brings us nicely onto how the price of branded items is determined. The top designers behind any given brand will sit down with marketing managers and design teams to work out exactly what it is about a product that will make customers go wild for it (a bit like dating, then). It could be anything from the material it is made from to its unique design or even just its brand name.
Once they have come up with a good idea for what will make their customers want their product and why, they can start working on how much to charge for it.
What do Nike’s customers go wild for? A combination of factors: style, comfort and reliability – so their designers would need to consider all three when pricing a new pair of running shoes, for example. Of course, they also wish to cover their costs (and turn a tidy profit), but when they look at rival brands like Adidas who may be selling something that appears less comfortable or stylish, but is equally reliable – they might raise their price point in order to convince customers to buy a pair of Nike shoes instead.
The more popular a brand is, the higher its prices can be. But there is more to it than just this. A company isn’t going to spend millions on advertising and marketing if they believe that people aren’t willing to pay for their product – as then they wouldn’t be able to charge as much as they could otherwise.
In summary, high prices from branded products are justifiable because the value added by the name on the packaging has been tested with consumers, who clearly want it; it’s not up to companies like Nike or Apple to lower their prices until their brands become less desirable (and therefore less profitable). Wanting or needing something doesn’t mean that you necessarily get a good deal, but it is the best way to get what you want.
When you make a purchase, what do you care about most? Is it the amount of money on your bank statement? Or perhaps whether or not you get great value for money? You probably want to know that the product is reliable and of good quality – that’s also something worth caring about.…