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689 points taubek | 7 comments | | HN request time: 0.201s | source | bottom
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hx8 ◴[] No.43633780[source]
> But if we bump the cost of freight, insurance, and customs from $5 to, say, $28, then they wholesale the shoes to Footlocker for about $75. And if Footlocker purchases Nike shoes for $75, then they retail them for $150. Everyone needs to fixed percentages to avoid losses.

I don't understand this paragraph. If Footlocker was okay with $50 profit/shoe, why do they need to claim $75 profit/shoe in their costs per shoe go up? The costs of handling the shoes, retail space, advertising, and labor are all fixed.

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1. treis ◴[] No.43634187[source]
Because it's mostly wrong. Luxury goods like Nike's, iPhones, et.al. are priced to maximize revenue. If those started growing on trees for free it wouldn't appreciably change the price. They'd just bank the extra as profit.
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2. kstrauser ◴[] No.43634270[source]
An aside: the actual functional Nikes aren't luxury items, just really good shoes. My wife’s a foot surgeon and she won’t run in anything else because they fit her perfectly.

I've never found Nikes that work for me, but Brooks seem custom made for me personally, so that's what I get. They're about the same price as my wife’s Nikes.

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3. lupire ◴[] No.43634328[source]
Every product is priced to maximize profit (not revenue).

Apple sells lots of phones at different price points. So there is some price sensitivity via a vis value for money or competitive pressure.

4. hx8 ◴[] No.43634404[source]
I agree fully. Having comfortable shoes with reasonable lifespans isn't a luxury.

If you spend more money and get a proportional increase in quality, that's not luxury. A luxury good occurs when the marginal increase in quality cannot be justified by the increase in price. For example, you could buy a quartz Casio for $25 that's more accurate than a $10,000 mechanical Rolex. Both tell you the same time.

5. gorbachev ◴[] No.43634891[source]
The truly luxury Nikes, the ones that cost way more than $100 - $150 are not priced to maximize revenue, however. The evidence is their pricing on secondary markets, which often price them at multiples of the retail price.
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6. UncleEntity ◴[] No.43635218[source]
The difference between selling every shoe at $150 and selling less than every shoe at $300 (or whatever the secondary market is charging) probably gets tossed around in pricing meetings.

Plus, higher secondary market prices drive demand for the less desirable shoes as everyone can't afford to spend a week's wages on a pair of shoes but can stretch their budget for the still-kind-of-cool models. I'd go so far as to say the secondary market prices drive more demand for the lesser models as the cool kids want to be seen wearing what the rich cool kids are wearing.

I'm sure they spend a lot of time discussing what price they can charge without people openly revolting against their 'predatory pricing' strategies.

7. muzani ◴[] No.43643532[source]
There's cost based pricing and there's price based costing.

Food and clothing, anything with complex supply chains tend to be cost based pricing. As a rule of thumb, it's x3, maybe x4 for a well-branded item like Nike or Calvin Klein. Most innovations are on supply chain. E-commerce was such a big thing because it could cut out one middle man and lead to 30% price cuts or profit margins, and yet all these online shops ended up appearing in malls anyway.

Software is price based costing because there's no fancy supply chain. iPhones may be somewhere in the middle, hardware tends to have the worst of both worlds - high fixed costs and lots of middle men.

A McDonald's may have franchises and may own some restaurants internally, but they don't want to lose money, so they may base it on the lower profit margins - it makes no sense for a burger in one spot to be $4 and a burger in the franchise to be $5; both need to be $5.

Generally luxury brand do use more expensive parts, whether or not those parts add to the quality. And they do have higher profit margins. But the retailers, distributors, etc still take a 30% cut or so. And in the end, Louis Vuitton is still probably making lower margins than Plants vs Zombies.