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I’m a frugal person, which to me means I look for the best value, but sometimes I can be cheap, meaning I just buy the cheapest thing. There is a difference. At times, the cheap products that I’ve bought may breakdown or not work as I had hoped. And here is what most people say to me:
“You get what you pay for!”
“Buy it right or buy it twice”
Many people think that if they pay more for something then it will be better than something with a lower price tag. According to the Journal of Consumer Research, a high price indicates either bad value or good quality, whereas low price indicates either good value or poor quality. It goes on to say that consumers usually do not have all the available information on a product so they use informal and common sense explanations to make that determination, such as price.
I think generally speaking, the majority of people think that the price of an item does often imply quality. It costs more to make, so it is priced higher. In an article in the Wall Street Journal, Neil Blumenthal, an entrepreneur sets out some rules for pricing:
Price is ultimately what customers are willing to pay.
Price is the biggest indicator of quality.
Blumenthal and three other students at Wharton wanted to start a business selling eyeglasses online. They all felt that it was ridiculous to pay over $300 for glasses when it costs so much less to make. The reason for the inflated costs are because the industry is controlled by a few large companies that have kept prices artificially high. They wanted to sell them for $45! Their professor told them no customer would trust that your quality was even comparable, much less equal or better, and reminded them that price is the biggest indicator of quality. Another reason that the $45 price mark would not work is because they did not take into account marketing costs. Building a brand and maintaining it costs a lot. The business they started is called Warby Parker, and they sell prescription eyeglasses for $95.
A few years ago, in a study by researchers from CalTech and Stanford, they found that if a person is told that he or she is tasting two different wines—and that one costs $5 and the other $45 when they are, in fact, the same wine—the part of the brain that experiences pleasure will become more active when the drinker thinks he or she is enjoying the more expensive vintage. Thus, the person will believe the more expensive wine is better quality due to it being more expensive.
Marketing makes a big influence on whether consumers believe a product is too expensive or that it is a quality product. Look at Apple products, consumers will pay a premium for their products. They have long refused to lower their prices because lowering their prices would hurt their reputation (although they may now be forced to because of stiff competition from Samsung).
Now I am a frugal person, but I don’t necessarily advocate spending the least money all the time. I think we should seek the best value in terms of good quality and good price. But how do we do this? As with the Journal of Consumer Research study, it determined that one reason consumers use price to determine value and quality is because we lack information. While it will be impossible to obtain complete and unbiased information on each product we purchase, I think consumers need to do more research online before making a purchase, especially more expensive ones. Also, with products you pay a premium for, try out a less expensive version and see if it is something you might consider using. In the case of food, maybe try your own blind taste test. Does the name brand really taste better than the generic brand?
How do you make sure you get the best quality at the best value? Do you ever buy higher-priced items because you think they are higher quality makes them a good value?
There are certainly times when I will pay more for a higher quality item but it totally depends on what the item is and what I plan to do with it. I tend to buy nicer clothes, for instance, because cheap Kohls stuff has always fallen apart on me.
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I don’t really shop at Kohls but didn’t really think their stuff was of cheap quality. I am definitely willing to pay more if the item is truly better quality…and it was worth the extra cost.
I sometimes have the tendency to just be cheap. I am working on going for quality rather than price. There are definitely some items that I will pay more for. These are usually things that I will have for a long time or use a lot. I try to research before I buy though because I definitely want to get the most bang for my buck.
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Oh I often have the tendency to be cheap, but I’ve had some bad experiences which remind me that cheaper is not always better. And I always research and read plenty of reviews before buying to make sure the higher price is worth it, or if I should just get the cheap product.
The key to me is evaluating everything on a quality basis before buying. Sometimes it’s hard to tell (electronics for example), but other things are easier. Overall, though, it’s a matter of paying attention and doing research before just throwing crap in the shopping cart. Been really nice having internet reviews available in recent years to avoid wasting money.
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Internet reviews are definitely useful. Some reviews are better than others though…some people just never seem to be satisfied.
True, higher price doesn’t always mean better, but one area I’ve noticed that price actually makes a difference is with any type of tools. It only took me buying three cheap screwdrivers that got stripped on a little screw, until I realized, hey, this isn’t supposed to happen. Ha! On the flip side, I do think that with the race to bottom with prices, many brands have sadly had to lower their quality to stay competitive. And as expensive as Apple is, I hope they don’t go that route. While I love cheap prices, sometimes you truly get what you pay for.
I know many people who rave about Apple products and are big Apple supporters. I’m not sure whether their product is better in quality or people buy Apple because of it’s brand name.
I tend to be skeptical of higher prices by nature. As a marketer by trade, I understand the pricing game. Most companies will push the pricing limits to see what customers will pay and then work their way down until they find the perfect mix. It doesn’t imply anything about the product. I have purchased great products for cheap that have lasted for years and I have purchased expensive items that have broken quickly. It is hard to tell. The best way is to read reviews before purchasing.
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Yea that seems like what they do…price it as high as the consumer are willing to pay. JC Penney tried get rid of sales and offered everyday low prices (not sure if it really was low), but consumers didn’t like it. Pricing is pretty interesting.
I definitely think it’s a case-by-case basis. There are plenty of examples where cheaper products are just as good or better (generic meds, mutual funds), but there are plenty of other cases where it makes sense to pay more up front (we found this out with baby monitors). It’s definitely difficult as a consumer to know when is the right time for each, but I think trying to do as much research as possible from objective sources is the best you can do.
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With somethings it is hard to compare, but with generic meds, they are the same ingredients. Same with mutual funds for the most part, if two institutions offer an index fund that track the same benchmark, why am I going to pay more? With the baby monitor, I haven’t set mine up but my friend recommended the Foscam 8910 which isn’t necessarily a baby monitor but can be used as one. It’s not expensive. I’m hoping it’s not to difficult to set up as it has a wireless IP camera. Will let you know about it when I end up getting to it. I think baby products are often priced higher just cause it says “baby” and they know parents want the best for their kids.
This is some solid analysis into the psychology of making a purchase. I especially like the example of the wine: we have a bias towards more expensive products.
I echo the posters who indicate that it’s really a case-by-case approach when trying to make the best purchase, but as a general rule I lean towards the cheaper products because the consequences of being “wrong” with the cheap product aren’t that dire. The $2 tool puts me back exactly $2 and hopefully I don’t make the same mistake again. The consequences of me shelling out big dollars in hopes of hitting a home run in terms of quality (say, never having to buy that thing ever again) are more dire if I’m wrong.
Or, put another way, if I know I have biases and don’t ever have all the information, I aim to be risk averse.
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Thanks! Yea that was an interesting study where the price of something actually made people think it was better. You’re right that when I buy something that is cheap and the consequences are minimal I’ll take that risk. Now if I have to spend more, I’ll do my research.
For big ticket items (for me over around $50) I will definitely do my research beforehand. I research reviews a lot – typically I’ll go to amazon and see what others have to say first, and then do a search on the product. I do think that a lot of people buy into the assumption higher price = better quality, but I don’t follow that all the time.
I think brand loyalty can be a big factor as well. For example, my Honda hasn’t given me huge troubles and my mom used to be a big fan. So my next car will likely be a Honda (used and hopefully years from now). I guess that’s why so many people like Apple as well. Price doesn’t even have to be a factor – people will buy what brands they think are reliable regardless of cost sometimes.
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Me too, I will do my research when I buy something more expensive. I might even research if I buy something cheap if I have the time (but not as extensively). I also like amazon reviews but don’t rely on the stars as somepeople leave bad reviews which has nothing to do with the product or is something that is not significant. As for brand loyalty, I definitely see that. I am not that loyal to any brand. I buy whatever is the best quality at the best price. I think Apple products are a bit overpriced, but many people swear by them. Hondas and Toyotas have the best reputation for reliability but I bought a Hyundai because based on my research I felt that it was about as reliable…but it just didn’t have that reputation yet (which made it a bit cheaper).
One of the ways to know when you’re getting a good value is to educate yourself on what quality looks like. For instance, wool, cashmere, leather, silk and linen are high quality natural materials that will last a long time. Rayon, viscose and polyester and synthetics. I am fond of a mid to high end retailer that will sell wool/silk blend dresses for the same price as 100% viscose ones. If you know how to recognize quality materials, then you can steer clear of the obviously overpriced synthetic junk and keep and eye out for when the wool pieces go on sale. Most consumer goods are similar; if you can recognize good quality, you’ll save yourself a bundle.
A lot of consumer products have deteriorated in quality in recent years, thanks to Chinese outsourcing and low quality materials. The mixer I got for my wedding gift is demonstrably poorer quality than the same mixer my mother bought 25 years ago. With that in mind, I also look to purchase used items in an effort to get high quality at low prices.
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Interesting, you seem to know alot of those fabrics so you probably can tell the quality without using the price as an indication. It’s true that a lot of consumer products today are not as well-made as the ones a generation ago. It’s as if the companies want them to break down so we can buy new ones.
In my case, I always used to go for big name brands in supermarkets before discovering that local brands are similar but a lot cheaper. There are moments when you do have to pay more just to be sure and usually, because I have had only bad experiences with these products, I try to stay away as much as possible from “Made in China” stuff, especially if we’re talking about appliances (in Romania we have a ton of them since they are extremely cheap).
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I used to go for big name brands too but it seems that alot of the cost in their product is in their marketing. The store brands are similar, but cheaper…probably because they don’t pay anything for marketing.
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It really does depend on the product. Usually for work clothes, I’ll buy something more expensive that will last me for a few months. But everyday wear, I’ll try and see what’s on clearance at the mall, seeing if there is anything good for $10 or less. For my laptop, it actually took me a few weeks, and a lot of time reading and playing around with different brands to find the right one for me. It really depends on what type of person you are and what your needs really are. It’s so much better to take your time and research before buying anything so you know you are getting the biggest bang for your buck. But of course, there is only so much time in the day…
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Yea I know, I sometimes spend to much time research a product before I buy and overthink it too much. One positive of that is that sometimes, I decide that I really don’t need it and end up not buying it. But for things that I would have bought anyway and isn’t too expensive, I’ll try to get the best value but it’s not the end of the world if that’s the result.
Depends on what I’m buying. If it’s clothing, you can get really good brands for cheap when they’re on sale. I’m not too big on electronics, so I don’t really have that need.
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I buy my clothes for pretty cheap too and they are good brands. Electronics is something I’d definitely research to find which product provides the best value as they are generally more expensive and I don’t want keep replacing it.
The one area that I apply higher prices and quality is building materials. The main one that comes to mind is plumbing. Because water damage is such a devastating thing, I want to feel very good that the materials I am using are reliable, so I will pay a bit more. That said, I feel like I can tell a difference in the higher priced items. I hope that if I couldn’t then I wouldn’t buy them (kind of like how I am with wine).
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Oh yes, I would think with building materials, you’d definitely want to get quality stuff. You don’t want to be penny wise pound foolish.
I firmly believe in spending more if it means a better product, and am slowly convincing Rick of this theory, but he still slips up once in a while. Case in point: the $4.50 steak knives he got at Northern Tool have a crappier blade and cut worse than our butter knives, for goodness sake! Obviously you have to watch out, but with a little patience and research, you can make sure you’re getting what you pay for, and know the diff between high price/rip off and high price/good quality, and vice versa.
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It is worth it to pay a little more for quality (if it truly is quality). Nowadays with the internet, it is so much easier to take your time and do some research before you buy.
I totally used to buy into the whole “high price means higher quality” mentality. Now I know that’s definitely not true. I’ve actually purchased glasses online (for free-I had a promo code and I only paid shipping) and I love them. They are as good, if not better quality than a pair I paid nearly $400 for. The kicker? I get more compliments on the cheap pair than the fancy designer ones.
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Really? I’ve been thinking about getting glasses online. Where did you buy it? I was gonna check out Warby Parker but I know there are others. The only problem I envision is having the glasses fit properly. Glasses are definitely overpriced.
I think it depends on the product. I am willing to spend more on clothing because it’ll last longer. But something like vitamins, I think it’s all the same whether its generic or name brand.
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Definitely agree with that…vitamins, medication, it’s the same ingredients so why pay more for the name brand’s marketing costs.
I guess now I know I am getting old because price doesnt matter. I buy what I like even if its 2$. Branding does make a difference though. I remember hyundai a few years ago no one wanted to buy one. But with proper branding and good reviews people started respecting them and they have started charging more for there cars. I have read several of those studies as well and the mind is a funny thing.
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Yep, I have a Hyundai. I think their brand was not as strong as Honda and Toyota, but they offered that 100,000 mile guarantee which opened a lot of people’s eyes. That and they got pretty good reviews.
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