3 ms·

It isn't about just being profitable, it's about extracting maximum value from every customer. Ideally, the company would haggle with each and every customer,

It isn't about just being profitable, it's about extracting maximum value from every customer. Ideally, the company would haggle with each and every customer, and get each customer to pay the highest price he in particular accepts. Since haggling is not feasible in mass markets, customers get grouped in segments, where the price is set to the maximum the segment will accept. Clearly, if you misclassify a hacker into an expensive segment you get your hardware hacked :-)

chii 14y ago
Yep. in my view, if the product is already profitable at a lower segment, and they manage to sell it to the pros for a higher price, then the company is making undeserved money, rightly so, bears the anger of their customers when found out.
- Goronmon 14y ago
  Yep. in my view, if the product is already profitable at a lower segment, and they manage to sell it to the pros for a higher price, then the company is making undeserved money, rightly so, bears the anger of their customers when found out. I completely disagree. Even if it was as simple as just charging "pros" more money (it's not), the idea that this is somehow "undeserved money" is pretty ridiculous in it's own right.
- mrgoldenbrown 14y ago
  The product is not already profitable at the lower segment, unless the higher segment is there to help defray the capital costs of building the fab.
- sergiosgc 14y ago
  I can't break it to you any more easily than: You are flat wrong. Segmentation is micro-economics 101 and is an expected company behaviour. Perhaps I can explain briefly. The "deserved"(sic) price is a value where both buyer and seller are comfortable doing business. In most cases, this is not a single value, but a range of values. At the minimum threshold the seller turns comfortable, and then there's a range where the transaction is possible and at the maximum the buyer turns uncomfortable. Now, while for a given product and fixed seller, the minimum value of the agreement range is fixed, the maximum is dependent on the buyer. Yes, it is possible to sell all products at the minimum, but then you are giving all shared value to the buyer. Even if you are aiming for fairness, the transaction should occur at the middle of this agreement zone (the buyer buys at less than his maximum price, and the seller sells above his minimum price). You could tackle this difference between consumers on a case by case through individual negotiation. Obviously this is not practical, so the next best thing is segmentation. You may think this as unfair, but this is a result of seeing a half-empty glass. Segmentation allows for a company to subsidize "cheaper" products using "premium" products. If a cheaper product covers variable costs (but not fixed costs), and does not cannibalize the premium products, segmentation allows for prices below what would be possible if the burden of fixed costs had to be assigned to the cheaper segment. In industries where most of the cost is fixed (as in semiconductors), segmentation is key to achieving large volumes without compromising the ability to profit.

chii 14y ago

Yep. in my view, if the product is already profitable at a lower segment, and they manage to sell it to the pros for a higher price, then the company is making undeserved money, rightly so, bears the anger of their customers when found out.

Goronmon 14y ago
Yep. in my view, if the product is already profitable at a lower segment, and they manage to sell it to the pros for a higher price, then the company is making undeserved money, rightly so, bears the anger of their customers when found out. I completely disagree. Even if it was as simple as just charging "pros" more money (it's not), the idea that this is somehow "undeserved money" is pretty ridiculous in it's own right.
mrgoldenbrown 14y ago
The product is not already profitable at the lower segment, unless the higher segment is there to help defray the capital costs of building the fab.
sergiosgc 14y ago
I can't break it to you any more easily than: You are flat wrong. Segmentation is micro-economics 101 and is an expected company behaviour. Perhaps I can explain briefly. The "deserved"(sic) price is a value where both buyer and seller are comfortable doing business. In most cases, this is not a single value, but a range of values. At the minimum threshold the seller turns comfortable, and then there's a range where the transaction is possible and at the maximum the buyer turns uncomfortable. Now, while for a given product and fixed seller, the minimum value of the agreement range is fixed, the maximum is dependent on the buyer. Yes, it is possible to sell all products at the minimum, but then you are giving all shared value to the buyer. Even if you are aiming for fairness, the transaction should occur at the middle of this agreement zone (the buyer buys at less than his maximum price, and the seller sells above his minimum price). You could tackle this difference between consumers on a case by case through individual negotiation. Obviously this is not practical, so the next best thing is segmentation. You may think this as unfair, but this is a result of seeing a half-empty glass. Segmentation allows for a company to subsidize "cheaper" products using "premium" products. If a cheaper product covers variable costs (but not fixed costs), and does not cannibalize the premium products, segmentation allows for prices below what would be possible if the burden of fixed costs had to be assigned to the cheaper segment. In industries where most of the cost is fixed (as in semiconductors), segmentation is key to achieving large volumes without compromising the ability to profit.