Consider this: You buy a pair of jeans, your first one. You enjoy the experience, so you buy another. The utility of each one reduces by about half. The more pairs you buy, less chance for each pair to be worn and hence less the utility.
This, is called diminishing marginal utility.
In some cases, it can proceed to negative values. For example, the first cup of tea in the morning is invigorating, it has 100% utility. The next cup less so. And if you keep drinking more cups, at some point, it starts having a bad impact on health.
Now, consider this: The quality of a Rs. 500/- shirt is usually better than that of a Rs. 200/- one, and that of a Rs. 2000/- is much better than a 600/- one. But, there comes a price point, beyond which there is not much determinable difference in the quality of the product.
This, is the law of diminishing returns.
Cheap wine is said to taste not very good, and there's an appreciable improvement in the taste in proportion to its price. But beyond a certain price range, it becomes more and more difficult to distinguish between the tastes of more costlier ones.
At such point, the price becomes less of an indicator of quality and more about the brand and its positioning in the market.
No comments:
Post a Comment