Your ability to determine the price you can charge boils down to statistics. Assume you make the world's most staple product—bread. Assume that you are the only person in the world who can bake it. Can you name your own price?
Of course you can. Nevertheless, how many loaves you sell will depend on your policy. Price them high enough and only the richest of men may be able to afford them. What proportion of the world population will you sell to if you price it within the reach of all? Still not 100 percent, not just because some people will prefer rice, pasta, or manioc, but because others are allergic to grains. There is always some reason.
Even without competition, you will never achieve 100 percent penetration in an open market. Eighty-five percent is usually tops. Where there's competition, 20 percent is generally regarded as a dominant share. Your prices can affect the price of your competitors, but you are probably not strong enough to force others to raise or lower their prices in harmony with yours. You need at least a 30 percent share of the market to stand a chance of doing that. Even then you will need to be astute.
You can only be blithe about prices if your market share is an effective monopoly, in other words over 50 percent. Such monopolies can be created not only by being first and keeping the pole position, but also by setting standards that everyone else would like to follow. Notable examples include Microsoft's Windows, PKZip, and
Note Manufacturers may have their own dream definitions of monopoly. Sometimes these are worldwide, other times making them a big fish in a small pond. Ultimately ifs the customer's definition that counts, and ifs still a genuine achievement.
Was this article helpful?