The Concept of Value, or Why Price Cuts Can Fail

[Picko]

Sky Render said:
To explain why a price drop won't increase demand past a certain point, one need only look at the old saying "you can't sell ice to an eskimo". Certain products are not appealing to certain demographics no matter their price, for various reasons. The most frequent one being no immediate want or need for the product. If one has no want or need for something, short of impulse shopping, one is very unlikely to get it. It's a simple explanation, but it does the job of explaining how price cuts work alright.

You can't sell ice to Eskimo's because ice isn't scarce to Eskimos. You'd have great difficulty selling a Wii to someone who owned 5,000 of them for example. Scarcity creates value - something has value as long as there are not too many of them.

Price cuts work well in general because very few people have enough resources to gain no value from purchasing a product. Price cuts work as long as there are people out there who becomes  potential purchaser as a result of the price drop. They are justified as long as the percentage increase in patronage is greater than the percentage decrease in price.