Wrong! It depends entirely what you are selling, with whom you are competing and how you compete.
One business I work with makes a virtue of being the most expensive supplier in a highly competitive market. Safety is an important part of this client’s business and, of course, safety comes at a cost. So, this particular business has managed to turn the expense of safety into a profit centre by emphasizing that her clients’ safety is paramount to the success of her business. The obvious way that she can deliver the message of ‘safety’ first is through a higher staff to client ratio, which will clearly increase her prices compared to competitors. The table below shows the four broad pricing and quality strategies.
|Low Price||High Price|
|Low Quality||This can be a successful strategy if the core product fulfils its basic functions (e.g. safe and timely air travel)||A strategy sometimes practised by monopolies. In a competitive environment this strategy is unsustainable.|
|High Quality||Poor communication to consumers who may not perceive that the product is of sufficient quality.||Signals to consumers that the product is high quality and is more valuable than lower priced competing products.|
A low-priced product can be acceptable (see above) but many businesses miss a trick and could generate higher income by improving the quality of their product and charging a higher price. Bus fares in Lanzarote are the lowest in the Canary Islands but the services are poorly used (especially in the capital, Arrecife). These monopoly suppliers seem unable to comprehend that price is not the be all and end all of the purchase decision.