Sky Render said:
To put it in the context of marketing a (at this point) theoretical product...
Suppose a home virtual reality set came out that retailed for $1000. Even though virtual reality is a popular idea that would draw in many dedicated users, a great deal of people would, upon seeing such a high price tag, refuse to get it. They'd see it as sinking a grand on something that they didn't need, during an economic time when money is tight. No chance, in other words.
Now suppose the price dropped to $900. A bunch more people who were on the fence about paying a thousand bucks for a VR set would jump on, but those people who saw $1000 as excessive for entertainment are unlikely to see $900 as any better.
Down to $800, and more people jump on. But again, those die-hard hold-outs don't want it. If anything, they're even less interested at $800, because they know that the price will keep dropping, and some day will be affordable to them if they still want it then.
Now let's say at this point a competitor comes out with a new virtual reality set which isn't as complex in its graphics and sound capabilities, but has a much better gameplay interface and is compatible with games from one of their existing systems. And let's say they retail it for $400, half the price of their competitor. The high-end users would scoff at the system for being so simple, but the superior interface would pique the interest of some of those who didn't want to look at the competitor's VR system.
Let's say the $800 model's makers, in a panic, drop their price to $500, just $100 more than this new system. Again, there's a wave of new users, but even fewer than the drop to $800. But why? It's only $100 more than the competition, and has much better graphics!
The reason is simple: the number of people interested in the higher-quality graphics that haven't already bought the system are very few, whereas the number of people who want the better interface on the newer VR set model is astronomically higher. Even some of the people who bought the more expensive set end up taking an interest in this simpler, but more immersive, device.
The moral of this little fictional tale is, the value of a product is not determined by its price, but by its appeal. And appeal accounts for far more than just the price tag.
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