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From: mo@messy.bellcore.com (Michael O'Dell)
Newsgroups: comp.text
Subject: Re: Pricing and cost
Message-ID: <1990Dec4.130922.6961@bellcore.bellcore.com>
Date: 4 Dec 90 13:09:22 GMT
References: <1990Nov5.022533.29625@nixtdc.uucp> <16706@letni.UUCP> <983@ecicrl.UUCP> <657@silence.princeton.nj.us>
Sender: usenet@bellcore.bellcore.com (Poster of News)
Reply-To: mo@messy.UUCP (Michael O'Dell)
Organization: Center for Chaotic Repeatabilty
Lines: 32

Funny things happen in the mind of a company when considering
the interaction between cost and price.  It has happened
time and again: some company with a shiny new gizmo  has said
to themselves: "our wonderful new gizmo cost a lot to develop,
so it ought to be worth a lot. [fallacy #1] But we're afraid it might not
sell a lot of units [possibly betraying the depth of their faith in its
wonderfulness], so in order to "recover our development
costs" we'll charge a lot for it." [fallacy #2]
The problem is that this usually produces the exact opposite of what is
desired. The reasons are simple. The worth of a product, and hence a
supportable price, is established by CUSTOMERS (ie, what they will pay for it
is based on their expectations and past experiences) [hence fallacy #1],
and that intensely myopic bean-counters often insist on cost-recover over
the first 100 units ("recovering the NRE" - almost a contradiction in terms,
but such things never bother this-quarter-oriented bean-counters).
So, you make the price sort-of high - and it doesn't make you a lot of money,
so what do you do? Add a few more features but then RAISE the price in
order to "accelerate the per-unit recovery".  Of course, this drives
usually sales exactly the opposite way.

Business is funny this way.  

I'm (honestly) not suggesting this applies to anyone or any product
in particular, just that this object lesson gets taught time and time again.

	-Mike
	"When Troff is outlawed,  only outlaws will use -man."

PS - Oh yes, dear friends - having online man pages is FUNDAMENTAL to having
a UNIX system.  If the man pages aren't there, it ain't Unix, no matter
what some bozo claims about its creat() system call.
Unix is about access to information.  Don't ever forget that.


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