Sneakers have formed an integral part of popular culture since their introduction in the basketball sport in the year 1921. Over time, there has been the development of cutting-edge footwear technology by major players in the industry such as Nike and Adidas. At the same time, the companies have created youth-influenced designs that fuel the demand for sneakers, more so among the younger consumers. Classical pricing methods are founded on the notion that buyers make decisions rationally. With such an approach, it becomes impossible to leverage margin potentials given by the predictable irrational economic demeanor that the people show. Behavioral pricing develops a distinct set of insights. For instance, the concept has experimentally proven that the perception of individuals having a prior “willingness to pay” is erroneous. Instead of having the willingness to pay for highly-priced sneakers, consumers develop price acceptance in the process of making their purchase decisions. In turn, this implies that corporate pricing strategies are supposed to not only react to a quantified and predefined willingness to pay, rather they should look into significantly increasing price acceptance.
Behavioral economics and pricing
Ideally, the human decision-making process is deemed to be calculated and purely rational in different aspects of life. Rational decision-making is founded on the principle of tradeoffs. For example, paying premium prices for sneakers implies that a person parts with a larger amount of money, a situation that may warrant more working hours to cover the extra cash spent. At the same time, rational individuals think at the margin. They tend to purposefully and systematically do the best that they can in a bid to accomplish their objectives. However, it is vital to understand that there are various factors that affect the items that people purchase and the prices that they are willing to pay. In this way, sellers price their commodities on the basis of their consumers’ behavioral patterns as far as purchases are concerned (Hursh & Roma, 2016).
In the typical economic setting, price acceptance is not driven by value; rather it is assumed to be based on value. It is an implication that individuals tend to pay for product features that they prefer in different commodities. For this reason, premium pricing exists, and sellers capitalize on their ability to customize products in such a manner that they fit the tastes and preferences of the consumers (Hursh & Roma, 2016). In terms of sneakers, pricing highly depends on the behavior of customers towards the sellers and their products. In this section of the paper, there is a detailed analysis of people’s economic demeanor that induces high prices of sneakers, culminating in “investment in sneakers.”
Leading sneaker producers such as Nike and Adidas have perfected the art of exploiting product endorsements through sports and celebrity figures. It is a strategy that has arisen as a result of people being highly oriented towards sports and other forms of entertainment (Zhang, 2018). For instance, top soccer and basketball teams attract millions of fans around the world. In this way, sneaker manufacturers tend to pursue people's tastes and preferences in sport and entertainment to promote their products. Soccer players in the leading competitions, such as the German Bundesliga, Italian Serie A, and others are influential people in a global context (Zhang, 2018). The fact that people want to be associated with successful footballers and soccer teams makes sneaker manufacturers capitalize on the sector. Consumers are willing to pay premium prices in a bid to be associated with their sporting icons. Sneaker manufacturers then have the liberty to impose exorbitant prices on their products in a bid to satisfy the consumers’ needs of the association with successful figures in entertainment and sports (Zhang, 2018).
The ability to influence the purchasing context in which consumers are making decisions regarding their product is an effective way of impacting the perceived value and price charged. Buyers tend to be willing to pay high prices for commodities that are deemed to be prestigious and categorized as high-end. Prestige comes in handy with high prices for any commodity (Zhang, 2018). In this way, sneaker producers create a target market of upper and middle-class individuals who are conscious of their social status. Otherwise, the working-class discourse of people is less concerned about its social status because it has different economic pressing issues (Zhang, 2018). Sneaker manufacturers are, therefore able to brand their products as high-end shoes that are affordable to small sections of society. Without even investing in high-quality, it becomes easy to sell the products at a high price based on the psychological needs of the buyers (Zhang, 2018). The more customers are willing to enjoy a high social class status, the higher the prices that sneaker manufacturers will impose on them.
There is a sense in which people tend to demand more of what is less readily available in the market. Scarcity is an effective motivator that potentially nudges prospective customers to take action and buy commodities at higher than usual prices (Serralvo et al., 2017). The quantity supplied of various commodities reflect the amount which sellers are willing to present to the market based on the pricing dynamics. In line with the doctrine of supply, the prices of commodities rise when their supply is in scarce.
Sneaker manufacturers are aware of this human behavior, and they capitalize on it in pursuing exorbitant prices for their commodities. For this reason, they produce different unique brands of shoes and distribute them selectively in the market. It is a psychological factor that the producers consider in the sense that once the products are in the market and in scarce supply, customers will be willing to purchase them at higher prices (Serralvo et al., 2017). Since it is difficult to find a substitute product for the sneakers, it becomes imperative for customers to invest in them at higher prices at the spaces in which they locate them. Conversely, flooding the market with a product implies that the demand declines as a result of the availability of the product. Sneaker producers often regulate market supplies in a bid to control their prices towards the upward trajectory.
Still capitalizing on scarcity, consumers who wish to purchase unique products that make them distinct from the rest of the people are often willing to pay premium prices for the commodities. Scarcity in the market implies that only a few individuals can afford the products in question, and sneaker producers have capitalized on this strategy to price the shoes exorbitantly (Serralvo et al., 2017). In this sense, market targeting becomes a critical factor in the trading of these sneakers. The business model assumed provides for a low volume of sales with a high margin of profitability. Even if the manufacturer covers a selected proportion of the wider market, there is a sense in which high profitability is achieved, similar to, or higher than, the high volume and low-margin business model (Serralvo et al., 2017). The manufacturers are not highly concerned about the quality of their commodities; rather, they are interested in serving the small portion of society that is emotionally attached to the sneakers.
In the context of behavioral economics, authority implies that people know more about different products in a way that is beyond the imagination of the producers. Sneaker manufacturers depend on product reviews to understand the extent to which their customers comprehend the shoes that they are purchasing (Zhang, Pitts & Kim, 2017). The pricing of sneakers will be guided by the extent to which customers feel that their needs are met by the product. It is evident from the principle of costing; the cost of something is what is given up by the buyers. Making decisions regarding the purchase of sneakers calls for the comparison of the costs and potential benefits that alternative choices will offer the clients. The higher the benefits are than the cost, the more the price that consumers will be willing to pay for the sneakers.
Pricing depends on the manner in which consumers perceive the products, either positively or negatively. Where are appreciative of the product and are aware of its market and utility dynamics, producers get the justification of increasing their prices. On the other hand, if the customers are less concerned about utility and other dynamics attached to the product, it is difficult for the producers to pursue an exorbitant price (Zhang, Pitts & Kim, 2017). Product awareness varies from one market to another, and it is upon the manufacturers to know the extent to which their customers appreciate the product. From such awareness, it is easy to impose prices on the sneakers from a selling point of view.
On top of authority, consumers value products differently depending on the extent to which they satisfy their needs. Sneakers in Western countries resonate well with the market as compared to other global regions like Africa and Asia. In the former, people appreciate sports and physical exercise activities as compared to the latter (Li et al., 2016). Westerners are highly aware of the utility of sneakers as products that improve their health and wellbeing whereas people from other global regions view them as unnecessary cost overheads. The more products come with a sentimental and utility meaning to customers, the higher the prices that producers impose in the market (Li et al., 2016). Buyers will be willing to pay premium prices on account of them realizing the value for their money. It is for this reason that a pair of Nike sneakers will retail at five times price in London than it will in different cities in Sub Saharan Africa.
In different markets around the world, people tend to create an association between price and the value of commodities. In the real sense, price is a product of market dynamics and the need of the producer to make profitable sales in the long run (Li et al., 2016). However, high-end buyers will associate low prices with counterfeit products and high prices with the authenticity of the sneakers. For this reason, producers tend to set market prices that are significantly higher than their production overheads and desired profit margins. The aim is to establish a price that reflects the value of the sneakers in terms of their authenticity (Li et al., 2016). Markets offer effective ways of organizing economic activities. There is the presence of the invisible hand that works via the price system. The interaction between seller product presentation and buyer perceived value establishes price. Every price is a reflection of the value that commodities offer to the buyers as well as the production cost. Investment in sneakers succeeds on this premise of value assumption on the basis of price. Sneaker manufacturers take advance on this consumer demeanor and impose high prices on their products. In this way, it becomes easy for the manufacturers to make significant profits in markets that are conscious of the association between price and value of the products.
The factor of seasonality influences customer behavior, which in turn affects their purchasing patterns and prices imposed on sneakers by the producers. Seasonality impacts price sensitivity in both the B2B and B2C products. Seasons could be based on political activities, economic fluctuations, social festivities, Olympics, and so forth (Pitts, 2017). For instance, Nike has capitalized on the world cup season in the past as a way of engaging in price inflation for its products. The recent INEOS 1:59 challenge was an event that promoted Nike’s sales at premium prices for the association between the product and the historic event. Since people want to be associated with such events, they are compelled to buy the product even at significantly higher prices as compared to the usual retail rates (Pitts, 2017). Different sneaker manufacturers have been keen to capitalize on this strategy as a way of increasing the prices of their products significantly and achieving substantial profits in the process.
Economic fluctuations are factors that impact customer behavior and in the process, determine the pricing of products such as sneakers. During economic recoveries and booms in different parts of the global economy, the affected consumers enjoy an added purchasing power (Pitts, 2017). Conversely, economic recessions and depressions come in handy with a suppressed purchasing power of the consumers. In this way, sneaker manufacturers, through their distribution channels change their prices depending on the economic conditions of a given market context (Pitts, 2017). Economically empowered people will be willing and able to spend significant amounts of money on the sneakers, while the impoverished ones will first cater to their basic needs. At the same time, financially empowered people pay keen attention to fashion preferences and so they are willing to pay premium prices for the sneakers (Pitts, 2017). Producers will increase their prices in markets that appear to be economically stable and decrease them in circumstances where potential consumers are impoverished.
Discounts and free commitment
In a typical market setting, consumers prefer to enjoy discounts and free samples as a way of testing the utility of different products. Free samples have proven to be a powerful bait for attracting customers towards the products of various companies (Crespo-Almendros & Del Barrio-García, 2016). It is from the sampling that clients gain taste and preference for the commodity in question and become loyal to it in the long run. The principle of incentives highly informs this argument. People respond positively to incentives that induce them to purchase, they act as the prospect for reward as a result of buying commodities. Rational individuals respond to incentives by taking advantage of them by realize cost saving offered on the prices of the products in question. For sneakers, free samples are not highly applicable because they are not reusable products. However, producers have applied the concept of discounting which influences customer behavior in the marketing of sneakers (Crespo-Almendros & Del Barrio-García, 2016). In this case, it becomes easy for the sellers to impose significantly high prices for their products and then reduce them by a predetermined proportion, which serves as the discount. The consumers will be enthusiastic about purchasing the discounted sneakers while from the manufacturer’s angle, the price remains within the desired profit margin.
With reference to discounting, it attracts a broad pool of consumers, hence implementing the mass sales business model. Since manufacturers are aware of the fact that buyers are impressed by discounts, they create a psychological picture of exorbitant products that are sold at reduced prices (Luu Ngo & Cadeaux, 2018). After attracting many customers, sneaker producers then declare the discount period to have lapsed and impose the apparently considered high prices by the customers. By doing so, the producers have gained a broad pool of loyal customers who will provide the firm with repeat business in the future. Once customers purchase the sneakers at discounted prices and appreciate their quality and utility, they will be willing to pay the full price in the future (Luu Ngo & Cadeaux, 2018). Investment in sneakers succeeds through creating a psychological picture of high-quality that is commensurate to the high prices presented in the market. In this way, consumers continue purchasing the products on the basis of the value imposed by the manufacturers.
Customer lifetime value
Although market prices for the sneakers are fixed, they can be dynamic looking at the pricing function from a strategic dimension. Pricing strategies are complex, and the most important thing is to analyze the consumer lifetime value of the product and optimize it over time (Chamberlain et al., 2017). Customers are likely to unquestionably pay higher prices for products that they deem to be durable as compared to those which are temporary. For this reason, sneaker manufacturers such as Nike and Adidas engage buyers in assuring them of the period for which the shoes will serve them. The producers attempt to invest in durability so that customers pay premium prices for the sneakers (Chamberlain et al., 2017). Failure to do so will imply that they lose out on the potential market which they can exploit by satisfying the desired quality of longevity of their product usage. Price inflation on this basis is possible to markets that appreciate the features of the product in question.
Environmental conservation is a contemporary factor that is affecting business operations in almost all economic sectors around the world. Consumers are becoming more aware of the impacts that the products they buy have on the natural surroundings (Chamberlain et al., 2017). For this reason, they are trying to avoid the use of non-biodegradable commodities and those that cannot be recycled. Nike and other players in the sneakers industry have capitalized on this consumer behavior by innovating a recycling process through which old and worn-out shoes are rejuvenated and rebranded anew. In this way, customers will be comfortable to purchase the sneakers on account of being environmentally conservative (Chamberlain et al., 2017). At the same time, the producers are in a position to price their products highly on account of being reusable. Customers will resonate well with the fact that the sneakers will serve them for a relatively long time after the recycling process and so they will be willing to pay premium prices for the commodities.
In totality, comprehending the factors that drive people’s decision-making processes in the market is powerful for producers. By understanding the customers’ point of view, it becomes easy to use that data and knowledge as a way of determining the market prices of the sneakers. However, it is ill-advised for the sneaker producers to use the knowledge at their disposal against the customers as a way of making money. Rather, it is advisable to be ethical and ensure that the consumers get value for their money. Nike and other players in the industry ought to be customer-oriented and seek optimization for product value during the customer lifecycle. Exploiting behavioral economics data to the advantage of both the customers and the company is an ethical approach to commercial activities.
Different factors affect the manner in which prices of commodities in the market are set, and consumer behavior is one of them. Investment in sneakers is made possible by studying customer behavior and predicting possible economic reactions to price variation. Since people are socially influenced by celebrities and successful sportspersons, sneaker producers use such influencers to inflate the prices of their commodities and customers accept them in the market. Manufacturers exploit the principle of demand and supply to create a scarcity of commodities in the market and hence sell them at inflated prices to willing and able buyers. People attach different sensations of value to products and the more it is valuable to them, the higher the prices that they are ready to pay for them. Seasons are an instrumental factor that sneaker producers exploit as a way of increasing the prices of their products in the market. Discounts are used to create a psychological picture of expensive products to attract a broad pool of future customers. The more durable and environmentally conscious the sneakers are, the higher the demand and prices that they attract in the ideal market. In totality, the pricing of sneakers on the global market is based on consumers’ willingness to accept the prices imposed.