Give two examples of brands where manufacturing costs are well below the selling price


The two are: Apple iPhone 6 and Coca Cola. Strictly speaking, iPhone manufacture cost is relatively small. A lot of the cost is research and development and marketing, however the manufacture itself is a small proportion of the total cost. The iPhone 6 cost $211 to manufacture, and was sold for $849 (Sinha, 2018).

It is largely the consensus that manufacture cost of 1 liter of coca cola is about $0.1 (How Much Does It Cost…, n.d.). You can buy 2L of coca cola for a comfortable $1.39 at Instacart – or you can pay as much as $3 or more for 0.5 liters at a restaurant.

iPhone has a lot to it other than manufacturing. There is a tremendous display of social status, and also an entire ecosystem of software that is associated with the hardware, not to mention all the marketing and R&D that goes into the product. I’d say it’s worth the price if you can afford it, and even if you cannot afford it, it is probably for the benefit of humanity that such a product exists. At least copycats can draw on the R&D already done by Apple to produce much cheaper products (including countless android variations).

Coca cola, on the other hand, may cost next to nothing to manufacture, but commands some arbitrary price. It isn’t uncommon to pay an amount, or give times the amount, for a portion of Coca Cola. You can buy a can of coke for $1, but you can also have to pay $8 for it. The manufacture cost is actually completely irrelevant to pricing. Everything else (promotion, placement, and other marketing) dictates how much a serving of coca cola costs. Since Coca Cola is one of the most recognized names on the planet, they have a place in consumer’s hearts.

Apple does extensive analysis of its consumers. The price depends a lot on how much “rich” people can afford to pay for it. The demand for new iPhones is relatively inelastic: to get the social status symbol, people pay what is asked. It doesn’t even make sense to reduce the price – people would find the product less valuable, and the product would start losing market share. (Principles of marketing, 2010). Apple understands its consumers, and uses that information in their pricing strategy.

Coca cola itself doesn’t necessarily price its products. The millions of sellers of the product decide on the pricing themselves. Consumer information goes into those decisions. For example, Walmart, which is a volume seller, decides to sell Coca Cola cheaply, because its customers are lower-class consumers who prefer low prices. On the other hand, an upscale restaurant knows that its customers are higher-class consumers who actually prefer to pay more, and prices Coca Cola accordingly.

In conclusion, understanding your customers helps you set prices that make sense.

= References =

Robin Sinha. (2018). Apple iPhone since 2011: Making cost vs. launch price. Retrieved from: https://www.gadgetsnow.com/slideshows/iphone-since-2011-making-cost-vs-launch-price/Apple-iPhone-since-2011-Making-cost-vs-launch-price/photolist/61591811.cms

No author (n.d.) How Much Does It Cost To Produce 1 Liter Of Coca Cola? Retrieved from: https://food-drink.blurtit.com/3753091/how-much-does-it-cost-to-produce-1-liter-of-coca-cola

The University of Minnisota. (2010). Principles of marketing. Licensed under Creative Commons Attribution-NonCommercial-ShareAlike 4.0. Retrieved from https://open.lib.umn.edu/principlesmarketing/front-matter/publisher-information/

Leave a Reply