Question: Why set price of goods close to the market price?

Readers Question: I would like to know why it isn’t advisable to price your goods or product with the market price.

It depends on the market, product and state of economy.

In a competitive market, you may have to sell your good at the market price. If you sold at a higher price, you wouldn’t be able to sell anything. It is only firms who are able to offer a differentiated product (e.g. through strong advertising) who will be able to get away with charging higher prices.

If you were a new firm entering a market, there is a strong case for entering at a price below the market. This is to try and gain a loyal consumer base before increasing price later. This strategy is often used by new magazines. For the first few weeks they may sell at an eye catching low price. This tempts people to try the magazine. If they entered at the market price, they would struggle to break into the market.

However, if you were a clothing firm and you entered at a low price, you may set a signal that your clothes are of inferior quality (Matalan) standard. A good clothes company would be damaged by selling at ‘Matalan’ ‘Primark’ prices. So it all depends on the market.

If you wanted to compete with a very strongly branded good like Pepsi, coca cola, you would probably have to sell at a price below their price. For example, supermarket own brands of cola tend to retail at a price significantly below coca-cola. There is a feeling consumers would always see Tesco Cola as inferior to ‘the real thing (Coca Cola) therefore there is no point trying to compete with same price.

Item added to cart.
0 items - £0.00