Tuesday, July 5, 2011

Photos for $9.95 a piece

One of the best ways to make money is to target a market that you could hold captive; a market that has no alternative. Pricing decisions then don't take into account competition, but instead, take into account alternatives. In fact, if you come across a product that is priced much higher than what you would expect, then it is likelihood a captive market. I recently came across several interesting examples of these:

1. Textbooks - how useful are most of the textbooks prescribed in courses? Not that much. Most of the knowledge can be gained through coursepacks, class discussions etc. Then why are they priced that high? Because they can, because the instructor decides the textbook often without consideration of the price, as the students have to bear the price.

2. Graduation pictures - I recently graduated from Kellogg, and an official photographer took 3 pictures of me - a close up, a ceremony potrait and a handshake with the dean. These are the only pictures that exist of this crucial moment of my life. So guess what the photographer can charge me for the pictures? A LOT. one 5 x 7 photo is for $9.95. Yes, the same picture that can be printed at CVS for 50 cents is for $9.95. Gross margin? Don't even ask. And this is the lowest priced product - most others are $100 plus.

3. Cinema popcorn and soda - what $4 for a soda that costs the movie theater 10 cents to make? Yes, captive market indeed.

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