The Coase Conjecture, Josiah Wedgwood & Pricing Strategies

How Pricing Strategy, Josiah Wedgwood, The Coase Conjecture, Monopoly Theory, Apple, Trickle Down Theory & Marketing Are All Linked Is Complex. This Is How They Impact Your Pricing Tactics.

The Apple Store Demonstrates The Coase Conjecture

Ronald Coase published Durability and Monopoly in 1972 and as a monopoly theory argument was hailed as new. But someone had beaten him to it by several centuries. That man was Josiah Wedgwood.

The Coase Conjecture talks about how monopolies may price products to enable them to sell exactly the same product to different markets at different prices. When Steve Jobs first did this he offered an iPhone initially for $600 and then dropped the price to $400 a couple of months later. It upset a lot of people that realised that if they had waited a short while they could have had the same iPhone for two thirds the price. And if you do this too often you soon “train” people to delay their purchase. It brings into action the concept of delayed or deferred gratification and it can damage sales.

Who Was Josiah Wedgwood?

Josiah Wedgwood 1730-1795 was arguably one of the world’s most able large scale marketers and entrepreneurs. People at the time knew him as a chemist that invented the glazes to go onto his mass produced pottery. But he’s far more complex a character.

What is Josiah Wedgwood Famous For?

Josiah Wedgwood invented a cream coloured glaze that made his pottery famous. He described his invention as a “rich and brilliant glaze” and it made his fortune. But there’s more to him than a pottery glaze.

Wedgwood realised very early on that to quickly recoup his fixed costs (i.e. development, tooling and other costs) he needed to sell his products at a very high price. This went against the whole idea of mass production but it’s the route he went. In reality Wedgwood was acting as a management accountant plus he was into advanced marketing. And he started with what is an early form of celebrity endorsement. In 1759 he persuaded the Queen of England, Queen Charlotte, to put her name to his Queen’s Ware. She might have seen it as flattery. His competitors might have seen it as blatant self interest.

Wedgwood’s Business Objectives

Wedgwood said his objective was “to make esteemed ornaments for palaces” but he had an eye on selling to more than royalty and nobility. But this is where Steve Jobs had problems and this is what the Coase Conjecture suggests is a problem for businesses. As soon as you drop the price you really upset the people that have recently paid a lot more. Of course if the time delay between the initial launch and subsequent price drop is long the issue is much reduced. And this applied to products like wide screen TVs. As technology and production methods improved the cost of production was reduced and they could be sold cheaper. Time soften the blow for the early adopters who were already looking at the next innovation and new tech. And in any case there were many producers of wide screen TVs so there was no monopoly.

But Wedgwood had a theory that he could overcome the issue long before Coase produced the Coase conjecture. He thought that once “the great people had long enough to be admired by the middling people” they would not worry about the price reducing. In fact once he released Queen’s Ware to the “middling classes” he recognised that it had become “coarse and common”. But he wasn’t worried, he held several aces up his sleeve.

How Wedgwood Defeated The Coase Conjecture

Wedgwood understood that to defeat what was later conjectured by Ronald Coase he had to create a new monopoly. He knew that his pottery had no real utility value but that it was a “must have”. He understood that people wished to emulate those above them in the social scale and that the Queen was the top of that scale. Therefore if she used his product then the nobility would emulate her. And if royalty and nobility used his pottery then the “middling classes” would emulate them.

The way to ensure no one was upset by the fact the price had dropped dramatically was to create another “must have” for the Queen, that the nobility would then wish to emulate (Apple learnt to do this by creating new phones on a regular basis).

So Wedgwood look around him and realised that the hottest new thing was the ancient pottery people that undertook the Grand tour were bringing back. So he set out to outdo this ancient Etruscan pottery. His answer was Jasper Ware. Some forms of Jasper Ware became what is now known known as Wedgwood Blue pottery, though it also came in other colours.

Wedgwood kept inventing new products for the Queen and nobility and so overcame The Coase Conjecture.

Anna Hu, Gwyneth Paltrow and Celebrity Endorsement

I wonder if celebrity endorsement would have taken off if Wedgwood hadn’t used it. Today its worth billions. Sometimes a $million an evening. Take the example when Anna Hu reportedly paid Gwyneth Paltrow a million to wear her jewelry to the Oscars. presumably this was to get the “middling people” and others to emulate! and this takes us onto The Trickle Down Theory in Fashion.

The Trickle Down Theory in Fashion

The Trickle Down Theory (or Trickle Down Effect) in Fashion argues against The Coase Conjecture and supports Wedgwood. It says that fashion is different and agrees that there is a society hierarchy where those lower down the scale wish to emulate those above them. And in fashion this is very very quick. For example a celebrity wears, say, a dress and overnight it is retro-designed, rapidly mass produced and in the shops within days.

The Question Is How Can You Beat The Coase Conjecture?

Clearly producing a constant stream of must have products is the first step. The second is to get them in the hands of those to be emulated and thirdly to get the news out to the masses.

The Apple Brand

We are often asked about the difference between a logo and a brand. There’s more information if you follow the link.

What is The Coase Conjecture?

The Coase Conjecture talks about how monopolies may price products to enable them to sell exactly the same product to different markets at different prices.
There’s a lot more information about Coase and examples of his conjecture in the above article

What is Celebrity Endorsement?

Celebrity Endorsement is when a celebrities name or image is used to promote a product ot service, fro example in an advert. It’s been used for hundreds of years and celebrities can be paid £millions for a few hours endorsement.
There’s more information and examples in the above article.

What Is The Trickle Down Theory in Fashion?

The Trickle Down Effect is when those lower down the social order wish to emulate those above them. And in fashion this is very very quick. For example a celebrity wears, say, a dress and overnight it is retro-designed, rapidly mass produced and in the shops within days for those with less money to buy..

What is Josiah Wedgwood Famous For?

Josiah Wedgwood invented a cream coloured glaze that made his pottery famous. He described his invention as a “rich and brilliant glaze” and it made his fortune. But there’s more to him than a pottery glaze.
There’s a lot more information on his life, business ideas and royal patronage in the above article.

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