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7.1.1 Framework of Pricing

The Price-Quality Matrix Overview

The price-quality matrix is a framework used to analyze market strategies based on the price and quality of products. In this matrix:

  • X-axis: Price (Low, Medium, High)
  • Y-axis: Quality (Low, Medium, High)

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Categories and Strategies

  1. High Price - High Quality: Premium Strategy
  2. Example: Apple products

  3. Focus: High price justified by exceptional quality and brand value.

  4. High Price - Medium Quality: Overcharging Strategy

  5. Focus: High price not commensurate with the quality offered.

  6. High Price - Low Quality: Rip-Off Strategy

  7. Focus: Products priced high but offering poor quality.

  8. Medium Price - High Quality: High-Value Strategy

  9. Common in FMCG, durable goods, and food produce.

  10. Example: Quality products at reasonable prices that emphasize value.

  11. Medium Price - Medium Quality: Medium-Value Strategy

  12. Focus: Balanced price and quality for mid-range consumers.

  13. Medium Price - Low Quality: False Economic Strategy

  14. Focus: Consumers may perceive value initially but eventually find poor quality disappointing.

  15. Low Price - High Quality: Super-Value Strategy

  16. Example: Exceptional quality at affordable prices, offering significant value.

  17. Low Price - Medium Quality: Good-Value Strategy

  18. Focus: Affordable products with acceptable quality for value-seeking consumers.

  19. Low Price - Low Quality: Economic Strategy

  20. Example: Products designed for budget-conscious consumers, prioritizing cost over quality.

Why There’s No Universal Agreement on Strategies

While price (high, medium, low) is objectively measurable, quality is subjective and depends on customer perception.

Quality and Customer Perspective

  • Quality is conformance to requirements: Customers define quality based on their specific expectations and needs.
  • Example: The quality of drinking water differs based on context (flight, train, or road trip).

Segmentation and Quality

  • A premium customer may perceive medium-quality as insufficient, while a low-end customer might view medium-quality as high.
  • Thus, customer segment drives the perception of quality.

Case Study: Tata Nano

The Tata Nano was launched as a low-cost car targeting two-wheeler users, with a strategy of low price and medium quality (Good-Value Strategy).

The Marketing Failure

  • Positioning Problem:
  • Marketed as a "cheap vehicle."
  • Associated with affordability, which led to perceptions of compromise in safety and quality.
  • Customers did not want to be seen as owning the "poor man’s car."
  • Mismatch with Target Audience:
  • Intended buyers (two-wheeler users) avoided the product due to the stigma.
  • Actual buyers were higher-income families who treated it as a second or third car.
  • Outcome:
  • Despite affordability, the car failed to appeal due to poor positioning and branding.

Key Takeaways

  • Customers prefer bargains (high quality at lower prices) over cheap products.
  • Positioning affects perception: The Nano’s "1 lakh car" label highlighted its low price instead of its value.
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