recently i decided to buy a new cycle for me. i choose to buy it from decathlon. the cheapest one. they provide good quality cycles, at least that's what everyone said. so after deciding what i want to buy and from whom, i went to their store. rode it for a while in the store to check if everything is working fine before paying them. everything was fine, almost. there were parts missing. a lot of parts were missing from that cycle, no mudguard, there was option for water bottle holder but i can see no holder attached to it. no bell, not even cycle stand can be found on it! i thought they will assemble everything at checkout service. that these are just unfinished products. was i wrong? i was.
I: how much is the price again?
I: OK i'm making the payment, you tell them to assemble it. salesman: assemble? it's already assembled.
I: i'm talking about the parts like mudguard, ring, stand and others salesman: sir, they are accessories.
I: accessories? stand is a accessory? do you want me to just drop my cycle on the road while i go to some store? stand is not a accessory but a necessity!
salesman: if you want the accessories we can add them.
I: and how much will they cost me?
salesman: mudguard is for rs500, water bottle holder is for rs200, water bottle is for rs200, bell is for rs200, seat cover is for rs150, stand is for rs500...your total will be rs6200
I: a stand for rs500, in the market it costs only rs150 to buy it!
salesman: it is what it is.
I: if the complete product costs 6200 then why are you claiming it to be for 5000?
salesman: umm..ahhh...company decides it...
cycle industry is the case of monopolistic competition. decathlon is not the only company selling cycles. there are other competitors like hero, atlas, Firefox and many more. they do not sell completely identical products but at the end they are just cycles with different marketing groups. charging only rs500 more than the competitor can lead the costumer to choose the other brand. this is cut throat competition.
hence to fight competition companies have these three options:
first,is to charge lower price to attract costumers. but it has the downside that it will reduce the companies's profit even more and company may also has to incur loss because in competition companies already earn only average revenue. average revenue is just enough for the survival for the company. reducing average revenue by lowering the prices will be a sure recipe to enter into company closure.
second, do better marketing than the competition. make people see beautiful imaginary lands in the company logo like the devotes see god in murti (statue) which are made up of stones. something which the apple has successfully done. but only if it was that easy to build brand image like apple every company would have done it.
third, "the necessary result of this competition is a general deterioration of commodities, adulteration, fake production and universal poisoning."(karl marx) so if reducing the price will lead to loss and brand image building is easier said then done, then why not just use inferior raw materials to reduce cost and earn surplus profit. but making inferior quality products and selling them to costumers does not work in long run. as the saying goes: you can fool some of the people all the time, some of the people some of the time, but can't fool all the people all the time. costumers in long run can find which product is good for price and which is not. so this option does't work either.
the companies have found the most evil solution.
to understand this solution.
we must first review the problems from the perspective of the cycle companies:
1- if they increase price they will loose consumer.
2- if they decrease price they will loose profit.
so if the price is the only problem then why not just reduce the price and still earn profit.
by reducing the product.
how to reduce product?
remove the mudguard etc. and it will lower the price. consumer is fool. he will think that our cycle is cheaper than the other and fall in the trap of buying it.
and, company will reduce the price of this unfinished product so much that it will earn only minimal profit.
but then what's the point of selling unfinished product if the company earns only minimal profit?
the unfinished product (cycle) is just a trap. the company will earn surplus profit from it's accessories. company will overcharge on it's accessories. the cycle will be reduced to only an instrument by which the company will sell the overpriced accessories. once the costumer buys unfinished cycle the cycle company gets monopoly over it's accessories which enables the company to overcharge for it's accessories. and earn surplus profit by exploiting it's costumers without letting them know.
this technique of selling unfinished products at lower price than competition and then earning surplus profit from accessories is not limited to only cycle industry. we can see the same happening in car, motorbike industry too. everywhere the basic price to acquire a product is reasonable but when price of accessories are added to them, the products turns out to be overpriced. that's why car accessories are overpriced, because the company earns more profit from it's accessories than the real product.(car)
company likes to call them accessories but in reality they are necessities. and the company know this. it knows without these necessities their product is useless so the costumers will have to buy the overpriced accessories in order to use the product.