Technology and price

Technology can influence the price a business charges. A product built with new technology that rivals do not yet have may be sold at a premium price — a price above the normal level — because many customers may pay more for the extra features, convenience or performance.

Why new technology can support a higher price

When a business launches something genuinely new, there may be little direct competition at first. Customers who want the latest version can compare it with older alternatives and see a clear difference. The business can set a higher price to cover the cost of research and development and to earn a larger profit on each sale. For example, a company launches a robot lawnmower with GPS mapping that cuts the grass in neat stripes without any boundary wire. Rivals' mowers still need wire buried in the lawn, so the new model can sell for £1,200 while older models sell for around £600.

Why older products may need a lower price

Technology moves on quickly. Once a newer version appears, the older product no longer looks special. Customers can see that the new model has better features, and rival businesses may also have brought out their own improved products. To keep selling the older item, the business often has to reduce its price so it still looks like good value. This can keep sales coming in and clear old stock, even though the profit made on each unit is smaller. If the robot lawnmower maker then releases a model that avoids toys and pets automatically, the earlier GPS model may be cut to £750 to stay competitive against both the new version and rivals' mowers.

A technological lead can let a business charge more for a time before prices fall back as rivals catch up.