When business is slow raise the prices?

[manarak]

I love the sound of troll-buffalo chimera, TV brigades sharing their wisdom without actually knowing anything about the topics, 555

Regarding the topic at hand:

http://en.wikipedia....icity_of_demand


In short, all product sales do not react in the same way to a change of their price. Sometimes, a significant rise in price will not cause a drop in sales or only slightly so.

Together with the concept of an economic "elasticity" coefficient, Alfred Marshall is credited with defining PED ("elasticity of demand") in his book Principles of Economics, published in 1890.[20] He described it thus: "And we may say generally:— the elasticity (or responsiveness) of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price, and diminishes much or little for a given rise in price".[21] He reasons this since "the only universal law as to a person's desire for a commodity is that it diminishes... but this diminution may be slow or rapid. If it is slow... a small fall in price will cause a comparatively large increase in his purchases. But if it is rapid, a small fall in price will cause only a very small increase in his purchases. In the former case... the elasticity of his wants, we may say, is great. In the latter case... the elasticity of his demand is small."[22] Mathematically, the Marshallian PED was based on a point-price definition, using differential calculus to calculate elasticities.[23]

the article says "The above formula usually yields a negative value, due to the inverse nature of the relationship between price and quantity demanded"

of course in 99% of cases the relationship between price and demand is inverse, but there are some exceptions.

One exception I studied in the past was a company's luxury product which wasn't selling well. In short, the product wasn't expensive enough, and once the price was upped by about 120%, the product started selling.


Another exception are entreprise economics / cost accountancy.

Let's say you have fixed costs C and two business divisions A and B, and the fixed costs must be covered in any case, the result is that when A's business goes down, the price of services for B will proportionally go up.

I have witnessed the process in a Swiss bank - in a much more complex setting than ABC of course - where because activity was reduced in some businesses, other businesses had to pay costs per transaction that were 4 to 5 times higher than the industry standard, and as a consequence, these normally profitable businesses were made deficitary on paper, leading to their closure.

In the list of stupidest things I have seen in a corporate environment, this ranks highest so far.

There may be intelligence on other planets, but there is usually zero intelligence in groups of internally promoted middle managers working for more than 10 years at their job in large corporate environments.



The same logic can be applied for mass products for which demand is progressively and structurally decreasing.

I think for example about fuel types that have been phased out, such as the old "super" gasoline in Europe.

The fixed costs of refining and distribution had to be shared by an ever-decreasing quantity of liters, so the cost per liter went up with decreasing quantity.



Long story short, small thai vendor economics aren't completely stupid, the vendors will all apply higher prices to compensate for lower sales.

Of course this will work when the customers are more or less captive or don't care too much about the price.
The method does not work in a competitive situation, unless all vendors do the same.

If a place ups its prices by 20% and only loses 10% of turnover, this is a winning strategy.

[rgs2001uk]

Looking for accommodation in Nakhon Pathom some years ago while still fairly new to Thailand I was introduced to this practice. Looking at a place not really suitable, way too much unusable space and way, way too expensive, my Thai friends were told that the price was very high because they had to increase it as the place had been empty for a very long time, and therefore they had lost lots of money.

If someone has lived in Thailand a long time and claims they've never noticed this practice, you really have to question their sincerity. It's like saying you live in Pattaya and haven't seen sex workers.

How about telling us whereabouts in Thailand you live?

I have already answered, I visit Chan, Issan and live in a non farang enclave of Bkk, I have NEVER experienced what you talk of.

[Jingthing]

I'm bored with this topic, so Bye Bye. Thinking about this, I really don't care what these businesses do, smart or suicidal ones, just as long as enough businesses are open selling what I want at prices I agree with ... and so far, no worries.

[AnotherOneAmerican]

My local coffee bar put their prices up from 35bht to 45bht.

I just moved to another coffee bar that still charges 35bht.

How easy is that?

I used to drink Lipton tea (from bags), they put the price up from 150bht/100 to 185bht/100.

I changed to Dilmah Tea Bags at 125bht/100. (Dilmah actually tastes better)

I can play this game all day, there is always a choice, and in the end there are some products or services that I don't really need.

Change is good.

Edited September 1, 2014 by AnotherOneAmerican

[mrtoad]

Huh? Who said everything is bad? If a business raises their prices and I no longer see the value there and I have other choices, I just don't buy there. DUH!

Just becoz you can no longer afford the prices doesnt mean the business model is bad.

I drink in bars in Pattaya that charge about double the going rate for a beer.

Why do I drink in these places?

Answer, it keeps out the CC farang scum and Chavs, Digital Nomads and free WiFi huggers.

Some of us are able and more than happy to pay a bit more, as our American friends will tell us, its all about your eating out experience.

Agreed that paying a little bit more keeps the scratchers away. When I'm in Chanthaburi, it's not really much of an issue, Craze House is a lovely spot for a bite to eat, and none of those undesirables.its a little more expensive, but the food is of an excellent quality. On K Chang, a little different as it's a tourist island, but there are some nice spots away from the types that you mention. Amazing how places with better menus, and more selections keep the Chavs out. Pad Thai more than 40 baht is an amazing deterrent.

[Jingthing]

A classier venue does not always mean better food. In fact, often the OPPOSITE.

[mrtoad]

I agree with that as well JT, but a lot of the tin table places which serve great food generally don't have free wifi, so are not inundated with wifi huggers and the like, plus the really good places are generally frequented by locals and not tourists.

As always though there is choice, and good service and quality food is important. Some places that get complacent, just go on the not using again list . A number of places on Koh Chang give discount to "locals" and that includes ole Farang, like me.

Edited September 1, 2014 by mrtoad

[rgs2001uk]

A classier venue does not always mean better food. In fact, often the OPPOSITE.

It is nothing to do with the food, its about the ambiance, or the dining experience.

I am more than happy to pay a bit more to avoid the effin and blinding used by our wife beating Chang shirt brigade, the ee ha or ai heeya Issan brigade.

There is a farang bar in Suk Bkk, the farang manager chased all the customers away with his language.

Some of us are more than willing to pay a bit more and enjoy ourselves.

BTW, you still havent mentioned where do you live?

[thaimlord]

My local coffee bar put their prices up from 35bht to 45bht.

I just moved to another coffee bar that still charges 35bht.

How easy is that?

I used to drink Lipton tea (from bags), they put the price up from 150bht/100 to 185bht/100.

I changed to Dilmah Tea Bags at 125bht/100. (Dilmah actually tastes better)

I can play this game all day, there is always a choice, and in the end there are some products or services that I don't really need.

Change is good.

"How easy is that?"

Hi

Yes very easy, and it quite likely works for both you AND the coffee bar. I don't know their exact margins, but if a cup cost them 25 baht before, then they were making 10 baht per cup. At 45 baht they would be making 20 baht (twice as profitable) per cup. Then it's a matter of seeing how many fewer orders they get, but they could stand losing half of their customers before being worse off, all other things being equal. If they had a bit of a reduction in volumes as a result of the price increase, they might even be able to do away with a staff member, etc, increasing profitability even further. It's by no means certain that a business loses out by effecting a price increase, very often the opposite.

TL

TL

[Thakkar]

Mrs T took a fish to bed with her and when I got randy, she said, "not tonight dear, I've got a haddock."

*rimshot*

As my access to sex got reduced, I decided to drink four beers instead of three before making my move. Still didn't work, so I increased to six beers. That strategy eventually led to my falling asleep on the sofa and forgetting to go up to the bedroom to make any moves.

I called my wingman and said, "what the fudge, man, the strategy you suggested isn't working."

"You dumbass," he said, "you're supposed to ply *her* with the booze!"

T

[poweratradio]

Of course,because Thaï do not have the common sense.MNot only for business,look the way they work....

Where are you disparaging remarking people from? What happened to live and let live ideas in the world? Your guests here not commercial critique diplomats!

[MAJIC]

This reminds me of the time I put in an offer on a delapidated house,which had been empty for 12 years,and needed an enormous amount of money spent on it,basically a shell with no roof.The Bank refused my offer,and raised the asking price!

[Doc50]

Ah yes it makes perfect sense in Thai logic.

Business is down OK raise the prices.

TIT

[Rooo]

Post containing personal attack removed.

[alanrchase]

Looking for accommodation in Nakhon Pathom some years ago while still fairly new to Thailand I was introduced to this practice. Looking at a place not really suitable, way too much unusable space and way, way too expensive, my Thai friends were told that the price was very high because they had to increase it as the place had been empty for a very long time, and therefore they had lost lots of money.

If someone has lived in Thailand a long time and claims they've never noticed this practice, you really have to question their sincerity. It's like saying you live in Pattaya and haven't seen sex workers.

Sorry mate but havent really noticed it myself. Neighbour tried to sell their old house a few years back, took over a year to do as they would not drop the price. I offered a lower price and got turned down, 6 months later they called me and agreed to lower price but by then I had lost interest.

If economy is down and Baht is weak all imports cost more in Baht. Mr Ferang also gets more Baht for his Buck. 5US$ beer at 25 to the dollar = 125B, 5US$ beer at 30 to the dollar = 150B, tourist is still paying 5$.

[AnotherOneAmerican]

Huh? Who said everything is bad? If a business raises their prices and I no longer see the value there and I have other choices, I just don't buy there. DUH!

Just becoz you can no longer afford the prices doesnt mean the business model is bad.

I drink in bars in Pattaya that charge about double the going rate for a beer.

Why do I drink in these places?

Answer, it keeps out the CC farang scum and Chavs, Digital Nomads and free WiFi huggers.

Some of us are able and more than happy to pay a bit more, as our American friends will tell us, its all about your eating out experience.

No need to pay more to avoid foreigners, easier way is just to not eat or drink where foreigners go.

The only foreigners I see, are the ones I bring with me.

[JimHuaHin]

Welcome to Thailand

A lot of small business owners don't realise concepts such as price elasticity of demand. Part of it is they start adjusting prices too late, after number of customers have decreased and don't know what else to do, so just do simple maths. Count the number of people coming in and multiply it what they need on prices. By the time they realise the ever decreasing spiral it's too late.

Another thing I've often seen is that customer levels have sometimes reached a point where those still coming aren't coming because of the prices, so to an extent when they up their prices, many of the remaining customers just take it.

BTW Not to say there aren't people who get it. Just I've seen this more in Thailand than where I came from too

Cheers

Fletch

From observation, I am not sure that Thais follow 'Western' economic theories and models ... supply and demand ... price elasticity of demand ... market segmentation ... etc. And this is especially the case in the housing markets, with a massive over supply of over priced vacant housing in places like Hua Hin, Cha Am, Pattaya, etc. and more being constructed.

Recent press articles suggest that Thailand is loosing ground on the foreign investment front and with the AEC starting next year, many Thais familiar with ASEAN regional economic issues are suggesting that Thailand is not well positioned for the transition.

If Thailand wishes to be a regional and global economic player in the 21C, then it needs to loose its pre 21C practices.

[AnotherOneAmerican]

Huh? Who said everything is bad? If a business raises their prices and I no longer see the value there and I have other choices, I just don't buy there. DUH!

Just becoz you can no longer afford the prices doesnt mean the business model is bad.

I drink in bars in Pattaya that charge about double the going rate for a beer.

Why do I drink in these places?

Answer, it keeps out the CC farang scum and Chavs, Digital Nomads and free WiFi huggers.

Some of us are able and more than happy to pay a bit more, as our American friends will tell us, its all about your eating out experience.

Wouldn't it just be easier to eat and drink where foreigners don't go.

[AnotherOneAmerican]

My local coffee bar put their prices up from 35bht to 45bht.

I just moved to another coffee bar that still charges 35bht.

How easy is that?

I used to drink Lipton tea (from bags), they put the price up from 150bht/100 to 185bht/100.

I changed to Dilmah Tea Bags at 125bht/100. (Dilmah actually tastes better)

I can play this game all day, there is always a choice, and in the end there are some products or services that I don't really need.

Change is good.

"How easy is that?"

Hi

Yes very easy, and it quite likely works for both you AND the coffee bar. I don't know their exact margins, but if a cup cost them 25 baht before, then they were making 10 baht per cup. At 45 baht they would be making 20 baht (twice as profitable) per cup. Then it's a matter of seeing how many fewer orders they get, but they could stand losing half of their customers before being worse off, all other things being equal. If they had a bit of a reduction in volumes as a result of the price increase, they might even be able to do away with a staff member, etc, increasing profitability even further. It's by no means certain that a business loses out by effecting a price increase, very often the opposite.

Coffee costs around 5bht to make, that includes the throwaway container and straw.

I only ever drink where the owner is also the server, and maybe a family member, no staff to cut back.

I would rather not drink coffee, than go to a chain store or franchise.

[AnotherOneAmerican]

double post

Edited September 2, 2014 by AnotherOneAmerican

[AnotherOneAmerican]

triple post

Edited September 2, 2014 by AnotherOneAmerican

[Expat1]

This a common occurrence all throughout Asia. I first noticed this effect in Singapore and later in Hong Kong back in the 1970's. Things are tough, raise the price. It still has not changed there or here.

[edwinchester]

Friend of the wifes has been trying to sell some land for over three years now.

Every year the price has gone up.

Last month he donated to a local temple who told him that if he did he will definitely sell next month.

The price was increased again because he 'will definitely sell'.

I try to understand....I really do.

[samran]

Friend of the wifes has been trying to sell some land for over three years now.

Every year the price has gone up.

Last month he donated to a local temple who told him that if he did he will definitely sell next month.

The price was increased again because he 'will definitely sell'.

I try to understand....I really do.

Apart from the voodo temple stuff I'm not exactly sure which bit is irrational. The need to sell obviously doesn't outweigh the need to sell it for a certain price. Once that changes, so will the asking price.

[thaimlord]

Friend of the wifes has been trying to sell some land for over three years now.

Every year the price has gone up.

Last month he donated to a local temple who told him that if he did he will definitely sell next month.

The price was increased again because he 'will definitely sell'.

I try to understand....I really do.

Apart from the voodo temple stuff I'm not exactly sure which bit is irrational. The need to sell obviously doesn't outweigh the need to sell it for a certain price. Once that changes, so will the asking price.

Well said @samran

Hi @edwinchester. Perhaps he just doesn't NEED to sell, so each year he is building up his return, and eventually someone will take it off his hands and he will have made a good sale. If his situation were to change and he were to become desperate for the sale, he likely would meet the market prices then, but why on earth do it beforehand if you don't need to? This is quite simply good common financial sense, and I personally believe that many Thais have a LOT of it. We can learn a lot from these people just by observing.

Regards

TL

[meand]

I have had experience with this. There really is a science to it. I absolutely believe price points should be an evolving, amorphous animal. Maybe out of context, but I also don't believe in advertising price. It is ok to say something like "packages start at .....". If you are selling coffee or something this does not apply of course. You never want to rope yourself into a price though.

For my past business, when I would start getting booked with about the amount of business I wanted for a month or more, I would start raising my prices before that happens. This is why you can't advertise price. If I lost all my customers, a la the OP, yes I would be forced into discounts and promotions, which I hate because I like to cater to more high end clients in general. Give me one good client who does not think about money 24/7 over 10 cheap annoying clients any day. IT all depends on the business model though.

[Emster23]

"the retired postal worker expats cum business strategy gurus will whinge on how Thai people have raised prices, and how stupid are they." You have a problem with retired postal workers or something?

Maybe poster has degree in economics but how about marketing? Products like beer from beer bars, chicken from street vendors are seen by most as homogenous products: Chang from one bar same as the next. When bar A = bar B = bar C in perception of potential customers, price does matter. Price can be jacked up IF customers see greater value than additional cost of having beer etc there. Basis of advertising in many cases.. "I'm Loving it!" I recall consumer behavior class back at uni where did blind test of 3 beers (Bud, Oly and Blitz 3 very different priced beers). Out of 27 possible correct, 1/3 right: could not tell difference based on taste. I was only one to get all right, and at the time I was into wine and smoking reefers. Go figure.

Getting together as a group to jack up price is known as "price fixing" (oddly enough) and is illegal in the West. And since there are so many bars, it would be difficult to get all to agree to this collusion anyway I would expect.

Econ 101 supply and demand. Unless you have some perceived advantage with your homogenous product (prettier hair dressers, clean shop AND that is seen as a +), higher prices means lower demand. If you can somehow prove otherwise, go collect your Nobel prize. I also have degree in business, did small business consulting, worked for GE corporation among other things in my life. And I don't collect SS, tho I am eligible. I have enough money already. Leave money in treasury so US can go bomb some other country with that cash. (joking)

[96tehtarp]

This method may actually work when used within the confines of a cartel or monopoly and in near total absence of competition. Does this sound familiar?

Um, are you talking about the Western corporate business model.

A cartel or a monopoly is the preferred business model for capitalists wanting to make more money. I might be wrong about this, however it does seem to me that it has only been democratic processes which have been able to break up monopolies and cartels. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)

Thaksin comes to mind. Did he not have a monopoly on the sales of mobile phone hand sets for quite some time? I recall needing to change the IMEI number inside my imported Nokia handsets before they would work in Thailand. Monopolies are a fantastic way to make money.

I agree that most Thai small business and SME's raise prices when business drops off as a desperate attempt to increase cash flow. Many small shops need today's sales receipts to open tomorrow and operate on a day to day hand to mouth existence.

[samran]

"the retired postal worker expats cum business strategy gurus will whinge on how Thai people have raised prices, and how stupid are they." You have a problem with retired postal workers or something?

Maybe poster has degree in economics but how about marketing? Products like beer from beer bars, chicken from street vendors are seen by most as homogenous products: Chang from one bar same as the next. When bar A = bar B = bar C in perception of potential customers, price does matter. Price can be jacked up IF customers see greater value than additional cost of having beer etc there. Basis of advertising in many cases.. "I'm Loving it!" I recall consumer behavior class back at uni where did blind test of 3 beers (Bud, Oly and Blitz 3 very different priced beers). Out of 27 possible correct, 1/3 right: could not tell difference based on taste. I was only one to get all right, and at the time I was into wine and smoking reefers. Go figure.

Getting together as a group to jack up price is known as "price fixing" (oddly enough) and is illegal in the West. And since there are so many bars, it would be difficult to get all to agree to this collusion anyway I would expect.

Econ 101 supply and demand. Unless you have some perceived advantage with your homogenous product (prettier hair dressers, clean shop AND that is seen as a +), higher prices means lower demand. If you can somehow prove otherwise, go collect your Nobel prize. I also have degree in business, did small business consulting, worked for GE corporation among other things in my life. And I don't collect SS, tho I am eligible. I have enough money already. Leave money in treasury so US can go bomb some other country with that cash. (joking)

I get homogenous products. I also get where you have perfect competition, to survive you set marginal revenue equal to marginal cost.

I wasn't taking about price fixing. I'm talking about people clearly not pricing for contingencies and other wastage. They are actually setting their marginal revenue below their marginal costs, so of course they are going to go bust.

Anyway, price fixing is only illegal in the west if there is substantial damage to the market. Try arguing in a court that there has been substantial damage to the beer bar market in Thailand cause the four blokes along the same street have all agreed that they will set prices to cover their costs. You'd get laughed out of court. Yes, I've read plenty of competition law too.

But when there is lots of competition, you see people pushing their prices down so far they aren't buffered. I'm arguing pushing up your prices isn't illogical if you need to cover your unit costs of your stock. Who in their right mind with no cash reserves is going to buy a beer wholesale and then sell it at a loss? No one.

As for marketing, what about it? I don't think these guys are going to be doing very much. But yes, I get marketing. I run my own business. I do a lot of it.

I'm sure there is plenty of life experience that can be learned from those who have devoted their lives to be pencil pushers at the DMV. But giving giving business advice on cash flow management isn't one of them.

[96tehtarp]

"the retired postal worker expats cum business strategy gurus will whinge on how Thai people have raised prices, and how stupid are they." You have a problem with retired postal workers or something?

Maybe poster has degree in economics but how about marketing? Products like beer from beer bars, chicken from street vendors are seen by most as homogenous products: Chang from one bar same as the next. When bar A = bar B = bar C in perception of potential customers, price does matter. Price can be jacked up IF customers see greater value than additional cost of having beer etc there. Basis of advertising in many cases.. "I'm Loving it!" I recall consumer behavior class back at uni where did blind test of 3 beers (Bud, Oly and Blitz 3 very different priced beers). Out of 27 possible correct, 1/3 right: could not tell difference based on taste. I was only one to get all right, and at the time I was into wine and smoking reefers. Go figure.

Getting together as a group to jack up price is known as "price fixing" (oddly enough) and is illegal in the West. And since there are so many bars, it would be difficult to get all to agree to this collusion anyway I would expect.

Econ 101 supply and demand. Unless you have some perceived advantage with your homogenous product (prettier hair dressers, clean shop AND that is seen as a +), higher prices means lower demand. If you can somehow prove otherwise, go collect your Nobel prize. I also have degree in business, did small business consulting, worked for GE corporation among other things in my life. And I don't collect SS, tho I am eligible. I have enough money already. Leave money in treasury so US can go bomb some other country with that cash. (joking)

I get homogenous products. I also get where you have perfect competition, to survive you set marginal revenue equal to marginal cost.

I wasn't taking about price fixing. I'm talking about people clearly not pricing for contingencies and other wastage. They are actually setting their marginal revenue below their marginal costs, so of course they are going to go bust.

Anyway, price fixing is only illegal in the west if there is substantial damage to the market. Try arguing in a court that there has been substantial damage to the beer bar market in Thailand cause the four blokes along the same street have all agreed that they will set prices to cover their costs. You'd get laughed out of court. Yes, I've read plenty of competition law too.

But when there is lots of competition, you see people pushing their prices down so far they aren't buffered. I'm arguing pushing up your prices isn't illogical if you need to cover your unit costs of your stock. Who in their right mind with no cash reserves is going to buy a beer wholesale and then sell it at a loss? No one.

As for marketing, what about it? I don't think these guys are going to be doing very much. But yes, I get marketing. I run my own business. I do a lot of it.

I'm sure there is plenty of life experience that can be learned from those who have devoted their lives to be pencil pushers at the DMV. But giving giving business advice on cash flow management isn't one of them.

This thread has been quite positive in that I feel it has shed some light on the paradoxical "Thainess" of raising prices when business volume drops. Thanks everyone.

"I'm arguing pushing up your prices isn't illogical if you need to cover your unit costs of your stock. Who in their right mind with no cash reserves is going to buy a beer wholesale and then sell it at a loss? No one."

I think we've managed to hit the nail on the head with this one. I believe the practice in question is used out of the necessity to maintain cash flow, without which doing business is impossible. If one still can't meet cash flow requirements at higher price levels then it is better to close the shop. Often the higher prices are accepted by the marketplace allowing the business to survive until the market improves.