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| Yes | 16% | 19 votes | Total: 121 votes | |
| No | 84% | 102 votes |
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Add to FavoritesIn a market economy, the value of a product is based upon two primary functions. One function is that of the consumers' perceptions of a product's utility. Defined in broad terms, utility is a commodity at one extreme end of the spectrum and a status symbol at the other end of the spectrum. Using this model, all products fall somewhere on the axis, defining each product's utility.
The second function defining the value of a product is whether the effort made by the consumers to acquire the necessary resources in exchange for a product is something consumers wish to do. For purposes of this debate, effort may include cash accumulated from payment for labor/services (income) or leveraging credit.
Together, utility and level of effort, the value of a product may be measured. It is only the manufacturer that gauges each function to determine the suggested retail price, the value of a product.
A manufacturer is typically producing a product for the sum total of targeted markets. No matter how markets are segmented, the suggested retail price is set at a standard price across all targeted markets and where the value of the product is maximized (based on the two primary functions that determine value). The suggested retail price set by the manufacturer reflects what the manufacturer believes to be the value of a product across all targeted markets. The markets will determine whether the manufacturer is correct in establishing this price point.
Some will debate that manufacturers determine price on a cost-plus basis to ensure adequate margins. Margin consideration is a factor in sustaining a financially healthy business. However, the suggested retail price reflects the value of a product, regardless the amount of margin that may be required or hoped to receive. Pricing should be based on market, i.e., product value, not cost-plus. If the manufacturer cannot meet margin or contribution objectives using product value analyses, then the manufacturer should seek opportunities to lower costs for meeting the margin objectives or stop manufacturing the product.
Many may argue that the suggested retail price is a means to inflate a product's price. Actually, an inflated price is more accurately defined through the deceptive practice of setting minimum pricing. Such pricing practices do not reflect a product's value, they are unlawful, and they are not of the spirit in competitive market economies.
Through the suggested retail price, resellers of a product have the ability to respond to market behaviors and set the price of a product below the suggested retail price or up to the suggested retail price. Such elasticity does not reflect an inflated price.
Furthermore, resellers may have different motivations when lowering the price of a product that may have nothing to do with its true value. Such practices are designed to be deceptive. Fortunately, there are laws that permit the manufacturer to cease supplying products to a reseller because of such pricing maneuvers relative to the manufacturer's suggested retail price. Thus, the suggested retail price is retained and representative of the value of a product.
In closing, the manufacturer who sets a standard suggested retail price is setting a price point that reflects a product's value in all markets where the product is targeted. The value of a product is that which is primarily based on utility and the market's willingness to pay at the highest price. If the suggested retail price is accurate, anything greater than the suggested retail price will cause diminishing demand and a product's value decreases because the amount of effort to acquire a product outweighs the product's utility. A price lower than the suggested retail price, of which the reseller has the ability to offer, reflects a product's value in a specific market segment. Yes, the suggested retail price (a standard price point for a product) represents the true value of a product.
Learn more about this author, J David Childs.
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No
No. Suggested retail price does not represent the true value of a product. Value is a relative term. It means different things to different buyers. If you are expecting a visitor and you need to spice your food very well so that your visitor will enjoy it, you will value a bottle of salt more than if you are eating the food alone. You may buy a bottle of whisky at a higher price if you are giving it to a friend as present than you will pay if you wanted to drink it alone.
When prices of products are being determined by marketers, they do not consider value representation alone, they also consider the law of demand and supply. There are some products which have higher profit margin than others. For example, in term of groceries, food items that are bought everyday do not have higher margin like goods that are occasionally patronised like Gillette shaving sticks, colour telivision, microwaves etc. The values that people place on products by buying them or not determine or suggest retail prices.
Products are also used by different people for different reasons. The use into which a product will be put may suggest its value to the diffrent buyers. For example, if I see a bowl that I will like to use as flower pot instead of my broken clay pot that is in use now, and another person sees the same bowl and think of buying it for the use of his or her dog as feeding bowl. Since I can still use my broken clay pot, I may not be ready to value the bowl as the other person. That is why marketers do not consider the value of a product alone in suggesting retail price. They consider the value as well as what buyers are ready to pay.
In some cases, products are sold less than the purchase price. Retailers therefore increase the price of moving goods to cover the loss margin of non-moving goods. Retail prices may also be determined by finding unit cost of products and adding administrative cost and profit margin usually between 15-25% depending on durability of products. If a product has been priced in this way and demand for the product is high, retailers will jerk the price up. This increase in price does not represent increase in value. If one argues that price determines value, then consumers should be allowed to pay a representative of what he or she considers a product is worth in terms of money.
Last week in the Hay Market in Edinburgh, Scotland, United Kingdom, a man bought an olden-day tea kettle for 5.00 sterling. The same pot was auctioned at George Street Auction shop for 4,500.00. The first seller did not know that the kettle is an "artefact" made of silverware. Collectors saw it and bought it from her. Does her retail price of 5.00 suggested a true value? Or do we say because an art collector bought it for 4,00.00, then 4,500.00 is the true value? No. Another rich art collector may see the same kettle and offer to buy it for 20,000,00. At times we buy products that we describe as "good-buy" and at times we buy some things that we regret paying a dime for them. Market is not a place where prices are dtermined by fairness or true representation of value. It is a place where sellers and buyers haggle to outsmart themselves. If you are able tp pretend that a product is of no value to you, you may be able to buy it at less than a price you could have paid have you shown the seller that you value it.
Retail prices are not true representation of the values of products. They are fixed to cover cost price, plus administrative costs and profit margin. If buyers see this price as reasonable and patronise the product, the retailer will increase the price. Whereas, if the buyers refuse to buy at a suggested retail price, the retailers will reduce the price until there is equilibrium in the market price. Prices are determined by forces of supply and demand and are not true representatives of products value.
Learn more about this author, Olufemi Oyedele.
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