Why do Firms Make some Goods Unattractive/difficult to buy?
It may seem strange but sometimes firms purposefully want to make a good unattractive. Why is this?
Tesco value products have an unattractive design. It shouts out “I’m cheap and low quality”. What happens is that customers with inelastic demand, – people who give importance to looks and packaging will avoid it. They will happily spend 3 times as much for a similar product with nice packaging. Therefore, the company can get the best of both worlds.
- Customers who are price sensitive (elastic demand) and don’t care about packaging will shop at Tesco to get all the value products. However, customers with inelastic demand will keep paying the higher prices and bigger profit margins for Tesco’s
- If the Tesco value products were attractively designed, the inelastic customers would buy the cheap food and have no reason to buy the expensive varieties with a big profit margin. Therefore, Tesco would lose consumer surplus from these price inelastic consumers.
Another reason for offering cheap goods is that it encourages people to shop there. They equate Tesco with cheapness because you can get a loaf of bread for 7p. However, when you go shopping you don’t only buy bread for 7p, you also spend £40 on other more expensive food.