Dirks On Strategy

The Rise of Lower-Priced Premium Quality May 21, 2013

There is a very distinct trend in product and service development today that I feel has major implications for businesses of all sizes and industries. It’s the idea that cheaper or lower-priced products are being design and built with far better quality than just a few years or even a decade ago.

Take the Ford Fiesta for instance. This is an economy car (lower priced, low expectations) that’s been around for a while but like the Chevy Cavalier or the Ford Escort, suffered from the traditional “low-priced, low-quality” syndrome. The 2012 Ford Fiesta is now a highly rated car (edmunds.com) with a still-low sticker price. To get the Fiesta to this point, Ford had to make a commitment with itself to find ways of incorporating select design & engineering elements from their higher-priced, higher quality brands and drilling them into the designs of their economy car line. And they still had to provide this economy car at an economy price (starting at $13,000).

For another example, both Hyundai and Kia had to learn the same hard lesson across all of their product lines when they came to the U.S. market just a few decades ago. Back then, both were the laughing stock of the car industry when they tried to produce less expensive cars in all categories but fell short with major quality problems. What they learned is that while some American consumers want to spend as little as possible…they still want to be able to show value for whatever money they spend. Now both offer less-priced cars at higher than average quality. A market strategy win for both.

Remember the Yugo? The idea was great – a super cheap car for the masses. Sure, you could buy perhaps three or four Yugos for under $12k all in but there was one problem. The Yugo broke down almost immediately upon trying to leave the dealership. That was the end of Yugo.

Let’s take wines as another example. There was a time when there was very cheap wine (Boones Farm Strawberry wine ring a bell?) or very premium wines (at $20 or more a bottle). There was little in the way of a great Merlot or a Sirah at $8 a bottle. However, for more than a few years now, consumers have been treated to a very competitive industry that has figured out how to provide high quality wines in the $8 to $14 dollar range.

So what’s this mean for you and your business? Here some thoughts:

– Do you offer lower-priced, higher quality products or services to you customers? The key is figuring out 1) which features & associated benefits from your high quality offerings can be 2) engineered into your lower-priced offerings.
– Check your competitors. Who is offering a slightly upgraded product or service at a competitively lower price? If I’m your competitor and I know I have to have a line of basic, lesser priced products or services for those customers who want them, my best strategy for outflanking you is to offer a slightly improved version. One that has the kind of feature(s) and benefit(s) often only found in the premium lines.

Consumers today are far less tolerant of cheaply priced, lower quality products than ever. Rest assured that there is still quite some amount of junk being sold as a product or service – but therein lies your competitive opportunity. Seize it.