Price Positioning – Why my expensive Fossil is better than your Fastrack

We live in an interesting time, you and me. We live in a time when you can spend over ₹ 150 on a cup of coffee, over ₹ 4000 on a simple pair of jeans, more than ₹ 10000 on a watch, and others.

Everyday commodities which would normally cost a few hundred or thousand rupees have experienced tremendous increases in price.

Why is this happening?

Simply put, we live in a period of effective branding, and more and more consumers are spending obscene amounts of money on excessively priced commodities as a result of this branding.

“If it is expensive, it is definitely good” is a common heuristic that we apply. Sometimes a fallacy that associates quality with price.

To understand the price quality-based positioning strategy, you just need to ponder a bit about the above examples.

Have you ever had to buy something and realized that the price differs across brands; sometimes significantly. It can be an electronic such as a fridge, a microwave, an iron box, or it can be a piece of clothing or even food. Instinctively, you tend to associate the difference in prices to a difference in quality between the commodities, and this is how price quality positioning works.

 

Definition of Price-Quality Based Positioning Strategy 

The price quality-based positioning strategy is basically charging more for a commodity, which is intended to create the illusion among consumers that the product is of higher quality than the competition.

It is actually an approach that works very well.

A few days ago, I happened to be back at home in Delhi. I went shopping for a microwave. The one I had was busted and I was in search of a new brand, a longer lasting brand.

When I got to the store, there were so many options to choose from and I was honestly overwhelmed.

Unsure of the best choice. I went through the various price tags and subconsciously ignored the lowest priced ones. Eventually, I settled on an above-priced model, not purely based on price but notice how I completely ignored the ‘cheaper’ ones.

This happens to everyone.

It may have happened to you sometimes in the recent past or at some point in time. When choosing between various options, your instinctively associate the lower priced options for poorer quality, and the higher priced options for higher quality.

When you think about it though, different pricing does not solely rely on the quality.

You may have on one side, a new company pricing its goods well below the competition as an entry strategy, to induce trial and purchase. On the other hand, you may have an established company with a product already accepted by the market and thus priced at a higher price.

The funny thing is that these products may be of the same quality.

On many occasions, the new entrant’s products could be of higher quality, because of the need to impress the market and to try and gain a piece of the market. After all, new companies in the growth stage do usually make short term losses as a result of price concessions, to gain market share.

However, more often than not, you will buy the more expensive model, because you believe that it is of higher quality. The price quality approach of positioning takes advantage of this weakness among customers.

In order to place the product higher in the mind of the consumer, a company optimally prices the product. After all, positioning is associated with a customer’s perception of your product.

On the same breadth, remember that both quality and price play a very vital role in forming your perception of any given product.

 

Does quality really matter in this positioning strategy?

Companies will go out of their way to create a superior product, and this usually means that a lot goes into consideration in ensuring that the quality of a product is the best.

Interestingly the quality of the product does not need to be high to make it look superior as per this particular positioning strategy.

While some commodities fetch higher prices due to their build quality, and their superiority in form and function, some commodities fetch higher prices because their brand has been positioned as a high priced- and therefore high-quality brand.

Let’s take a few examples. A company such as Walmart has positioned itself as a low pricing company. If and when Walmart opens in India and you happen to go there, you will be forgiven for doubting the quality of what you are purchasing.

However, Walmart is able to take advantage of consumers who are not willing to spend more money, and who are not too fussy about the quality of the product.

On the same breadth, a brand such as Apple has positioned itself as a high-quality brand, and its price is made to represent this difference in the brand.

Therefore, your Fastrack watch may work just as well, or and may have the exact same functions, as my Fossil watch, but due to the differences in price, you will tend to choose the Fossil. This is obviously taking into consideration that you are looking for the same style of watches in both the brands (because some may argue that both have different styles of watches for different segments)

Think of your mobile phone for instance. While there used to be glaring differences in the build quality of the various phones, increased competition has seen mobile phone manufacturers up their ante on build quality.

Majority of these phones have scratch resistant glass, full aluminum metal body, excellent processing power and RAM, and more. However, you will still find some phones priced significantly higher than the competition for the same specifications.

What immediately comes to your mind?

The higher priced product must be of the higher quality of course.

 

What about Brands?    

The best examples of the price quality-based positioning strategy are the major brands across all industries. For instance, premium vehicle brands such as Mercedes Benz maintain very high standards of quality in their products. Their prices therefore tend to be much higher to represent the superiority of the product in terms of quality.

Alternatively, some brands such as Walmart position themselves largely through pricing. to take advantage of price conscious consumers. Other companies use a mixture of both, working towards increasing their quality and pricing.

Lastly, ever wondered why brands such as Versace, Coco Chanel, Gucci, and the likes are so highly priced? This is another prime example of the price quality-based positioning strategy. The pricing of these products is so high, and these high prices tend to be associated with high quality. It is for this reason that a consumer will spend ₹ 15000 on a pair of shoes, when they can get over 10 good pairs of shoes for the same amount.

 

Conclusion

In summary, the price quality -based positioning strategy is an excellent market positioning tool, and also a very effective one.

 Its however important for you as a marketer to treat it with care, because changes in the market can negatively affect the pricing strategy, and in turn undermine a firm’s margin.

 For instance, in tough economic conditions where consumers have limited disposable income, it would be wise to drop the prices. It is for this reason that companies such as Samsung, Mercedes Benz, Volkswagen, Sony, and others offer lower priced models for the lower segment of the market.

This way, your customers are already sold on the quality of the product, and therefore do not mind the pricing of the product, even if it is slightly higher than other options.

 

 

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About the Author:

Darpan is a Marketing and Product development strategist at an edu-corporate in New Delhi. He has also worked at a multinational business process outsourcing company in their Marketing & Artificial Intelligence business. He is an engineer by qualification and an MBA from Indian Institute of Management (IIM), Udaipur.