Pricing Strategy: Tom’s Shoes, Essay Example

There are a variety of factors used to determine how a particular product is priced before going to market.  Most businesses use some form of cost-plus system.  The retail price of an item must account for the all the input costs along with fixed and variable operational costs, plus profit.  Input costs include the price of raw materials, manufacturing expenses, labor, transportation, environmental costs and other value-add expenses associated with producing a product.

Operational costs include those fixed and variable expenses associated with storing, transporting, marketing, and selling the finished produce.  These expenses include warehouse costs, advertising, sales labor costs, accounting costs and other such expenses.

All of these expenses are combined and divided by the number of units produced.  Profit is added to each unit and the final price is determined.  There are other considerations that can influence final pricing as well.  A business might consider the demand curve for the product, the relative quality of the product compared to competitive products, the uniqueness of the product, and the value of brand equity.  Competitive pricing would suggest that the product be sold for about the same amount as competitive products of similar quality.

The pricing strategy for Tom’s shoes is a little different due to the philanthropic activities of the company.  The selling price for each pair of shoes needs to include the cost of manufacturing, transporting and delivering a second pair of shoes to a needy child.  Given this additional cost, pricing parody based on relative quality is ignored.  Comparable canvas shoes typically sell for about $20.  Tom’s shoes sell for up to $85.  These shoes are not exactly Veblen goods, since increasing the price would not necessarily precipitate more sales.  They are however similar to Veblen goods in that consumers willingly pay more than the product is worth in order to “make a statement.”  In this case, the statement is more about supporting a worthy cause than demonstrating social status.