Trading Up

Wharton MBA student Ryan has a nice post (scroll down to "trading up" if blogspot screws up) on a lecture he attended by Michael Silverstein of Boston Consulting Group. Here's part of the post:

In the end, his thesis was that the downward sloping demand curve doesn't always hold (in other words, sales don't necessarily go down when you raise the price). In order to defy these economic laws, he claims, the successful, premium-priced product needs to have three types of benefits: 1) Technical, 2) Functional, and 3) Emotional. But that's not all. In order to sustain growth, your product needs continuous innovation. You need to be plugged in to your heaviest customers.

Despite his comments about how his thesis "shatters" the idea of the downward-sloping demand curve, I think it completely agress with classic economic theory. You price a product high when demand for it is inelastic (i.e. where people are not price sensitive). When competitors come in, you sustain your competitive edge through innovation. Your demand curve still slopes down, but you want to find one that is steeper and further out.

Nice post. Maybe that is why Wharton is one of the best b-schools in the country.

10 Things You Didn't Know About The Mysterious Silk Road

Here is something similar I posted a few weeks ago.