Wednesday, February 07, 2007

A Better Class of Customers?

I run a blog on technical stuff at It isn't much fun to read. Mostly, I just post technical information that I want to remember. The blog then provides me a place to point to in other writing that puts the information into better context. I can also point students to specific entries that pertain to courses I have taught.

On the metro ride to work, this morning, I was thinking about correlations between BMW motorcycles and Apple and Microsoft. Correlations in aspect of pricing. In BMW related magazines, readers frequently write in and point out the premium price we pay for BMW motorcycles. The price of using Microsoft products has not declined despite "open source" competition that increasingly provides comparable products for free. Apple, also, has been charging a premium for its products, surviving against the lower-priced PC industry's entry point.

How does this make sense, from a business standpoint? Well, I think of Warren Buffet, who Bill Gates cites as a mentor, and the price of Berkshire Hathaway stock. Mr. Buffet has declined to split his stock. The price of a single share, as I recall the last time I looked, was somewhere north of twenty-thousand dollars.

Splitting a stock doubles the number of shares each investor owns while cutting the price in half. It has the effect of making a stock more affordable, which stimulates trading.

Mr. Buffet has been quoted as saying that by not splitting his stock he assures himself of a higher quality of investor.

Perhaps BMW motorcycles thinks similarly about its buyers. People who can afford to pay more may be easier to support. They may also be less litigous when things do not go as hoped for.

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