Beware of substitutes

If you can charge more for a product and still sell the same amount then you would want to, wouldn’t you?

Be careful, it may not be the best thing long term.

Take the oil market. Saudi Arabia’s official position is that they would like to see oil prices of $70-$80 per barrel. Why is this when they would make more money with a higher price?

It is because of the risk of substitutes. If oil stays at well over $100 a barrel then there is more incentive for people to invest in other energy sources. If this happens then, over a long period of time, demand for oil will drop.

Today’s takeaway: Don’t give your customers an incentive to invest in substitutes

Here is a Saudi prince explaining their position

 

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