What determines the priceof a product?

This is an easy one you may be thinking, cost + profit = price, well sort of yeah, but there are many other factors at play ...

- The Availability of Alternatives
- Scarcity
- Value of the Solution to the consumer
- The potential Volume of Sales
- Durability
- Frequency of Use
- Production Cost
- Storage Costs
[SVAPS DUVS]

AVALABILITY OF ALTERNATIVES
As competition increases, price decrease.

E.g. I will pay a lot less for bottled water if tap water is of good quality and free.


SCARCITY
The less available the greater the value.

E.g. VIP tickets to a restricted football game will be a lot more expensive when their availability is less restricted.

VALUE OF SOLUTION
A Consumer will pay a lot more for a 'need to have' over a 'nice to have'.

E.g. A cancer patient will be willing to pay a lot more for medication when the alternative is painfullukemia treatment.

VOLUME SALES
I can charge a lot less per unit if I can shift a lot more boxes.

I need to chare a lot more if I sell infrequently.

E.g. Hiring a car versus renting a tuxedo.

DURABILITY
The more uses I can extract from it the less sensitive I am to the price.

E.g. Disposable razors versus electrical razors.

FREQUENCY OF USE
Each time I use it the per unit cost diminishes so willing to pay more.

E.g. A Good quality Winter coat.

PRODUCTION COST
The more it cost to produce the higher the price need to recover the costs.

E.g. Freshly squeezed orange juice versus processed orange juice.

STORAGE COSTS
The greater the storage cost, the less profit made, the higher the cost.

E.g. Niche LPs that sit on shelf versus top selling items that fly off the shelf.