Does introducing a lower priced product harm your premium product?

Business class
Ever seen food like this in economy class?  (Photo credit: jaymiek)

On an economy flight from Johannesburg to Cape Town I sat next to a couple visiting South Africa from Israel. When it came time for “lunch the man’s wife asked the flight attendant for a fresh tomato cocktail. But she was refused.

With a condescending voice and manner, the flight attendant repeated to the woman three times that she could not have a fresh tomato cocktail because she was in economy class. Only business class passengers could order fresh tomato cocktail. For economy class passengers the only tomato cocktail available was in a can.

Embarrassed, the woman passenger politely and softly thanked the flight attendant and settled for a small bottle of still water. She was unable to eat the “lunch” because there were no kosher meals. “Lunch”, by the way, was a soggy little brown roll.

There were two things happening here. One was the disgusting and appalling “service” that only an officious flight attendant can give … and to an international visitor. The more important issue is the difficulty of separating a low-priced product or brand from a premium-priced one. Here it was done with a “curtain” between economy and business class and a rude-mouthed, hostile airline employee.

In this economy, consumers have traded down to lower priced products and services because of the need to conserve their cash. Take the premium priced iPhone, for example. Many may have bought this product but most people have opted for cheaper alternatives.

Apple is tightlipped and about future products but media such as “Fortune” and the “Wall Street Journal” have reported that a low-cost iPhone for developing markets could be introduced. It could be a major growth opportunity but could also hurt margins.

The difficulty of separating out a lower priced product from a premium one under the same brand stable is the confusion it creates in the mind of the customer. A really dumb example is the features selected by that airline I mentioned. Fresh tomato cocktail. Come on.

Yet some brands have managed to pull it off. The A-Class Mercedes has the same perceived quality as other models. Its price is lower because it is smaller. But it’s no poor person’s choice.

If you were making similar choices for your business, you’d need to be careful to select features that consumers value and care about. This applies to creating a premium product as it does to introducing a stripped-down product.

Yes, the margins of a low-priced product will be reduced but volumes could make up for that. For most small businesses, however, the challenge because of small volumes is to find ways to penetrate the premium priced niche.

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