Perfectly inelastic demand

I had been struggling without my Ipod’s USB docking station (which I lost on the plane) for a month. Finally, I got time to visit the Apple store in Leuven. Very interesting experience indeed.

The shuffle (Including the Ipod, earphones, docking station and warranty) costs 45 EUR. So I expected the docking station to cost no more 10 Euros. When I reached the store, my first observation was that it was a building which was nearly 800 feet square displaying products which needed no more than 50 square feet. The design was impecable. If you walked in, you dont need to see the logo to figure this is an “apple” shop. I must admit I LOVE their design. But I said to myself if apple can transfer all this price to the consumer, how much does the product actually cost. Anycase, I go to the counter and ask the lady if I can have the docking station. She says she wants to check if the product is available, comes back and says “Well, its not available right now, but if you order you can receive it in 3 days”, That was a dissapointment (These guys have idle floor space of 750 Square feet and they dont have no stock of a shuffle docking station). I asked her to go ahead and order the shuffle and while she loged the order, I asked her how much does it costs… guess how much it was!!! 29 Euros. Not 2.9, 29.0 Euros! My jaw dropped. My first thought was, switch to Sony.

I stood there watching her log the order thinking, how could it possibly be that expensive, what is the logic. Turns out, I was studying this the whole of past week. Elasticity of demand! Once a customer is stuck with IPOD, he will need to the docking station no matter what price because without the docking station, the whole of 45 Euros is a waste. Such demand is Perfectly price inelastic demand (between the price of 0 and 45 in this case) : ) So, as long as the docking station is less than 45 Euros, I’m gonna buy it no matter what price. Well, I saw no reason why Sony or Samsung should not do this. So I just ended up buying a whole new Ipod for 45 Euros. But then this is a really interesting strategy, sell a package of products which are so interelated that they simply cannot work if any part of the package is lost/broken. This lets the vendor price each product of the package almost the same as the package itself.. Not sure if its ethical, but sure is profitable.

On my way back, I was thinking about the shop size and all that expense transfered to the consumer. Yes, they do tranfer the whole cost, but that’s why I buy Ipod and not a 50 Eur MP3 player. Its the apple expereince. Brand is truly a strong asset!


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