Price vs quality

by Admin
Updated: May 17, 2019

When it comes to price vs quality it is usually price that wins... plus it can lead to better quality

Providing a low-cost product or service benefits from the fact that most people will give a lower priced offering a chance no matter how happy they are with their previous purchases. It introduces constraints that spark creative processes. It lowers the barrier to entry for customers and product development alike.

It is standard and reasonable advice that new businesses will have great difficulty trying to compete with large established companies on price because they can’t achieve the same economies of scale.

It follows that a good strategy is to develop business models based on better quality - more specifically, matching features & benefits more accurately to the needs of clearly defined market segments - and charge appropriately higher prices. In short:

  • Focus on quality
  • Find a niche
  • Charge a premium

This is often a successful approach especially when a higher price is part of the appeal and I’ve run businesses myself in accordance with these principles. However, I’ve also seen businesses win by doing the opposite:

  • Focus on price
  • Match popular demand
  • Be the cheapest

Sales

When given options, most people will try a lower priced option on the basis that if it meets their needs they can save money and if it doesn’t they can take consolation from the fact that they took a calculated risk.

If a product is cheaper than the competition, little to no effort is required to justify the price.

News of a cheaper alternative tends to travel fast so less effort & expense is needed to promote it.

It may be worth noting too that customers tend to be more forgiving of lower quality when they know they chose a cheap option.

Marketing

A little thought and observation usually reveals opportunities, especially when it comes to changes that simplify design.

Example: I wanted a travel cup that I could secure onto my pack or belt. My local store had some nice insulated cups but they all had hook-style handles as opposed to closed-loop, i.e. easily lost. All I could find that met my specific need was a modern version of the classic tin cup. I was prepared to pay more for insulated but once I had the cheaper cup I realized I didn’t even need that feature. Plus, the retro look is kinda cool.

Product development

The constraint of limiting cost puts greater demand on creative thinking to reach a solution.

Plus, when developing a low-cost product, you can afford to experiment earlier in the design process and more frequently.

Both of these factors can lead to discoveries that result in a product with a higher quality/cost ratio than would have been achieved with a larger budget, and sometimes even a higher absolute quality.

A low-cost product lends more scope for replacing or refunding which can involve customer dialogue providing valuable feedback.

More info

“Price quality matrix - Relationship between price and quality” at marketing91.com

“Price versus Quality” (in context of Software Project Management) at brodzinski.com

The power of cheap pricing - “How The Super Rich Earned Their Money” at earlytorise.com

Internal links

Tradeoff triangle Choose your customers Compromise Marketing Go to Articles
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